Review and Outlook of Global, Nigeria Markets –Week Ended May 06, 2016

Global Market Review and Outlook
The month of May started on a bearish note as market indices around the world closed lower for the week with the exception of the Nigerian market. Growing concerns about slowing growth took precedence as investors await the payrolls data report from the US with the expectation that this may signal the prospect of an improvement in the US economy for the year. In addition, increasing expectation of a rate hike by the US Fed at the next meeting continues to shape investor sentiments across emerging markets.

In the developed markets, the UK FTSE extended its bearish run to the 3rd consecutive week, declining 2.3% W-o-W. Similarly, the US markets also stretched a bearish streak as the NASDAQ and the S&P 500 fell 1.2% and 0.7% W-o-W amid slowing growth concerns in the world’s largest economy even as investors await the payrolls data report. The bearish sentiments also filtered into the European markets as the France CAC and the German DAX lost 3.6% and 2.3% W-o-W on worries relating to the efficacy of the ECB’s stimulus plan and observed recovery in the previous month. In the Asian Markets, the Hong Kong Hang Seng suffered its longest losing streak this year (persistent decline since 28th April, 2016) down 4.5% W-o-W as growing concerns over economic growth in China persist. The Japanese market was closed for a 3-day holiday between Tuesday and Thursday but negative investor sentiments remained as the Nikkei fell 3.4% W-o-W.

Across markets in the BRICS classification, all the Indices trended southwards W-o-W as increasing speculations that the US Fed may raise rates in the June FED meeting. This is predicated on the notion that this could trigger an exodus of funds from emerging markets. The Brazil Ibovespa depreciated the most, down 4.2% W-o-W as rising political risks have taken a toll on investor sentiments. The South African FTSE and the Russian RTS trailed losing 3.0% and 2.5% W-o-W. The Indian BSE Sens also followed suit reversing gains from the previous week, losing 1.5% W-o-W while the China Shanghai Composite lost 0.9% W-o-W triggered by sell-offs in commodity companies which dragged the performance of the index.

In the African markets, the global bearish sentiments were observed as all indices declined, save for the Nigerian All Share Index (+2.6% W-o-W) - buoyed by MSCI’s decision to retain the country in its frontier market index. The Egypt EGX slumped 4.3% W-o-W, followed by the Ghana GSE (-1.2% W-o-W) and the Kenya NSE closing out the poor performance at 0.8% W-o-W.

Weekly Equities Market Review and Outlook
The market started the week on a bullish note as MSCI’s decision not to delist Nigerian stocks from its Frontier market index triggered a kneejerk reaction from investors as the All Share Index surged 3.2% on Tuesday (highest daily gain in 16 weeks). As calm returned to the market on Wednesday, investors took to profit taking as the Benchmark index declined 0.6%, following sell- offs in bellwethers that drove the previous day’s performance. On Thursday, this trend continued as the gains recorded on Tuesday continued to be shaved off by profit taking. However, on Friday there was a reversal as bargain hunting drove the index 0.5% higher.

Despite the losses recorded during the week, the bullish start to the week was enough to sustain a W-o-W appreciation as the All Share Index grew 2.6% W-o-W to settle at 25,701.60 points, while YTD loss trimmed to 10.3%. Consequently, market capitalisation improved N219.9bn to N8.8tn. Activity level for the week was mixed as average volume traded fell 6.0% W-o-W to 227.4m units while value traded advanced 12.6% W-o-W to N1.6bn.

The Industrial Goods and Consumer Goods indices chaired sector gainers, up 3.3% apiece following gains in WAPCO (+5.2%) and NESTLE (+12.1%). The Banking sector index trailed as price appreciation in GUARANTY (+4.2%) and ZENITH (+3.5%) drove the index 2.5% higher while the Oil & Gas index rose 1.7%. On the other hand, the Insurance index was the lone sector loser (-0.8%) as losses in MANSARD (-4.9%) drove the index lower.

Investor sentiments this week remained positive as market breadth stood at 1.4x from 38 stocks that advanced while 28 retreated. The best performing stocks for the week were TIGERBRANDS (+42.0%), ETERNA (+26.8%) and NEIMETH (+18.2%) and PORTPAINT (-12.9%), TRANSEXPRESS (-8.9%) and CCNN (-6.2%) were the worst performing stocks. With the completion of earnings season and the “one-off” surge on Tuesday driven by the MSCI announcement, the only trigger that may drive market performance may be linked to the budget implementation going forward. However, we expect market performance to remain soft in the coming week as dynamics of profit taking and bargain hunting drive activity.

Money Market Review and Outlook
The financial system liquidity opened the week at about N300.1bn on Tuesday (being the first trading day of the week due to Monday’s public holiday). Open Buy Back (OBB) remained at last week’s closing levels of 3.1% while Over Night rates declined 0.2% to 3.5% by the end of Tuesday’s trading session. However, OBB and ON rates rose 0.2% and 0.3% to 3.3% and 3.8% on Wednesday consequent on Deposit Money Bank’s FX provisioning, rising to 3.6% and 4.2% at the end of Thursday’s trading session. As expected, there was a T-bills maturity of about N150.6bn on Thursday but the impact of this on liquidity was offset by a rollover of the same net amount. OBB and ON settled at 3.6% and 4.1% on Friday, up 0.5% and 0.4% W-o-W.

In the T-bills market, average rate started the week 0.1% higher than last week’s average closing rate of 8.2%. There was a T-bills auction on Wednesday where N45.2bn, N23.4bn and N82.0bn worth of the 91-days, 182-days and 364-days T-bills were issued at stop rates of 8.0%, 9.0% and 11.1%. Consequently, average T-bills rate rose to 8.4% by the end of Wednesday’s trading session. However, average T-bills rate declined 0.1% to 8.3% by Thursday, eventually settling at 8.1%, down 0.1% W-o-W.

In the week ahead, barring any unexpected mop-ups, we expect money market rates to move in tandem with market liquidity dynamics as dictated by the FX provisioning by DMBs and refunds by the CBN, as well as OMO maturities and auction  (about N32.0bn expected to hit the system next week Thursday).
Foreign Exchange Review and Outlook
Similar to last week, the exchange rates at all the segments of the foreign exchange market remained stable with no sharp rate movement observed. The official CBN rate remained at N197.00/US$1.00. The naira appreciated to N320.00/US$1.00 on Thursday at the Bureau-de-Change after trading at N321.00/US$1.00 on Tuesday and Wednesday. The exchange rate at the parallel market was also fairly stable throughout the week as the Naira exchanged at N323.00/US$1.00 on all trading days save for Wednesday when it appreciated to N322.00/US$1.00.

Whilst the foreign exchange market has remained stable for a number of weeks now, the demands for dollars stays largely unmet by the Apex bank. However, gross external reserves continue to trend southwards, down 4.6% M-o-M to US$26.52bn on Wednesday, 4th May 2016 from $27.79bn on 4th April 2016.

We maintain our position that the CBN has to come out with a clearly stated framework that outlines the medium to long term direction for FX management to resolve the prolonged currency market challenges in order to boost investors’ confidence, close the huge spread between official/interbank and BDC/parallel market rates and check creeping inflation in the country.

Bond Market Review and Outlook
Activity in the bonds market was largely bearish this week as average yield across benchmark bonds rose on all trading days of the week amidst sell-offs by investors. Average yields across benchmark bonds rose 0.2% on Tuesday to close the first trading day of the week at 12.9% (12.7% last Friday). Average yields across benchmark bonds rose to 13.1% by mid-week with increased activities observed on the FGN JAN2026 and FGN MAR2036 bonds. The bearish sentiment was sustained on Thursday as average yields across benchmark bonds increased 4bps, eventually settling at 13.3% on Friday, Up 0.6% W-o-W.

In the primary market, the DMO will be auctioning N15.0bn, N40.0bn and N50.0bn of the FEB 2020, JAN 2026 and MAR 2036 bonds on Wednesday 11th of May 2016. We expect the bonds for auction to clear at marginal rates of 12.8%, 13.2% and 13.6% for the FEB 2020, JAN 2026 and MAR 2036 bonds respectively. The upcoming auction in our view, coupled with a possible hike in MPR at the next MPC meeting (going by forward guidance of the CBN Governor), will likely define the dynamics of yields in the bonds market in the coming week.