Weekly Global Market Review and Outlook

Global equities market continued its bullish momentum in the second week of the fourth quarter, after enduring a turbulent third quarter due to emerging market growth concerns and bearish commodity prices. Equities markets have remained upbeat despite the 20bps slash in 2015 and 2016 global annual growth forecasts by the IMF to 3.1% and 3.6%. The minutes of the US Fed's October 2015 meeting was released where US monetary policy authority reassured the markets that it would keep interest rate at present level until it can be ascertained that economic outlook had not deteriorated.

Across the Emerging Markets in the BRICS classification, all benchmark equities indices rose in defiance of growth forecast slash. The Russian RTS and Brazil IBOVESPA both gained 9.1% and 4.4% respectively while the China Shanghai Comp and South Africa FTSE/JSE indices rallied 4.3% and 4.7% respectively.

In the developed markets, the France CAC 40 and Germany XETRA DAX closed 5.5%and 5.7% higher W-o-W. Similarly, the US S&P 500 and FTSE All Share indices rose 3.4% and 4.1% respectively. The rally in the developed market was driven by the stronger sentiment for energy and commodity stocks, as commodity prices soared in expectation of sustained loose monetary policy in the developed economies. However, equities were bearish in the Sub-Saharan Africa markets with the Nigerian All Share Index, Ghana Composite Index and Kenya NSE 20 shedding 1.4%, 0.8% and 1.2% W-o-W respectively. Our outlook for the global markets however remains subdued on elevated concerns on financial system stability and tepid global economic growth.

Daily Equities Market Review and Outlook
The Nigerian Bourse ended the week in green after 5 days of consecutive losses as the All Share Index (ASI) inched 14bps higher to close at 30,165.22 points. Similarly, market capitalization expanded N14.4bn to close at N10.4tn. Today's positive close was on the back of appreciations in Banking bellwethers - GUARANTY (+1.4%) ZENITH (+1.6%) and FBNH (+1.6%). However, market activities decreased -- volume and value were down 14.4% and 30.3% to 188.0m and N1.3bn respectively.

Sector indices within our coverage indicated a mix performance. The Banking index led sector gainers with 0.9%, majorly attributable to improved buying interest in GUARANTY (+1.4%) and ZENITH (+1.6%).  Equally, the Insurance index swung positive to 0.7% after declining on the previous 4 trading days; consequent on gains in MANSARD (+1.7%) and AIICO (+4.7%). The Oil & Gas index also closed 0.5% higher. Conversely, the Consumer Goods index shed 0.3% against decreases recorded in NIGERIAN BREWERIES (-0.7%) and GUINNESS (-0.6%) during trade today. The Industrial Goods index followed with a marginal decline of 4bps.                                                                                                                                                                   

Market breadth -- ratio of advancers to decliners -- turned positive at 1.6x as 22 stocks advanced against 14 declining stocks. On the gainers chart, UNITY BANK (+8.0%) AIICO (+4.7%) and NEM (+4.5%) led gains while FCMB (-7.1%), CCNN (-4.9%) and EVANSMED (-4.8%) led losses. We believe today's positive close was consequent on activities of bargain hunters who took advantage of cheap valuations that arose from the previous days of losses. Nonetheless, we expect market performance in the near term to be driven by 3rd quarter earnings releases.

Weekly Equities Market Review and Outlook
The Nigerian equities market was largely in low spirits on most trading days after the Independence Day celebration and the submission of the much anticipated list of cabinet members as the index lost on 4 of the 5 trading days this week. Thus, market closed 1.4% and 13.0% lower W-o-W and YTD respectively. Equally, market capitalization fell N145.4bn after berthing at N10.4tn this week. In the same trend, activity level measured by the average volume and value of shares traded also declined W-o-W as investors bought an average 278.1m units of shares (-33.2%) valued at an average N2.4bn (-30.7%). Similarly, after an exchange of 252.9m units of shares this week, ACCESS BANK emerged the most traded stock by volume (22.5%) while GUARANTY was the most traded stock by value with N2.7bn (22.3%).

All sector indices closed in the red this week. The Oil & Gas index emerged highest sector loser with 3.2% on the back of decreases in SEPLAT (-8.4%) and ETERNA    (-6.7%). Also, after declining on 4 trading days in the week, the Insurance index followed, weakening 2.5% W-o-W against depreciations in MANSARD (-10.0%). The Banking, Industrial Goods and Consumer Goods sectors also fell 2.0%, 1.4% and 0.2% W-o-W -  FCMB (-11.1%), CCNN (-9.4%) and UACN (-8.3%) accordingly.

Market breadth, measured by the ratio of advancers to decliners also closed in red at 0.5x as 23 stocks advanced against 47 declining stocks. UNITY BANK (+24.6%), CUTIX (+8.4%) and CHAMPION (+5.5%) were the top gainers while FCMB (-11.1%), EVANSMED (-10.5%) and MANSARD (-10.0%) declined the most. In the coming week activities on the Nigerian bourse in the near term would be driven by 3rd quarter earnings releases.

Money Market Review and Outlook
The money market remained awash with liquidity this week reaching record highs for the year. Liquidity opening balance on the first trading day of the week was N314.5bn Naira which resulted in 1.2% and 1.3% decline in Open Buy Back(OBB) and Overnight(O/N) rates from the previous close to settle at 3.0% and 3.6% respectively on Monday. On Tuesday, liquidity level further improved to about N482.5bn due to the CBN's intervention refund which hit the system after the close of trade on Monday. Thus, money market rates further eased bringing OBB and O/N to 2.4% and 2.9% accordingly.

System liquidity however fell to N274.6bn on Wednesday as Deposit money banks move to provide funds for the CBN's special intervention slated for Friday (9th October, 2015). Notwithstanding, money market rates fell even lower to 1.4% and 2.2% for the OBB and O/N rates respectively due to a CRR credit of about N700bn that hit the system on the same day. On Thursday, T-bills maturity of about N137.1bn hit the system to expand market liquidity to its highest level for the year (over N922.9bn) thus crashing money market rates to 0.7% (OBB) and 1.1% (O/N). Average Money market rates declined 3.1% for the OBB and 3.2% for the O/N to1.9% and 2.4% WTD respectively.

Performance of the T-bill market this week was very bullish as a lot of buying interest was noticed across all tenor all through the week. The bullish performance is attributable to the robust liquidity levels in the market during the week. As a result, average yield across all instruments declined 2.5% to 12.5% W-o-W. In the coming week, we expect the Apex bank to carry out a substantial mop up exercise given the level of liquidity in the system more so that an OMO maturity worth N137.1bn is expected to hit the system on Thursday, 15th October, 2015.

Foreign Exchange Market Review and Outlook
During the week, the Apex Bank continued to defend its stance on FX stating that it is all in a bid to reduce pressures on the Foreign Reserves which has been gravely affected by declining oil price. However, the Governor stated that if demand for foreign currency drops further, then some form of easing of the FX restrictions may be implemented. This view was also further buttressed by the Vice president at a meeting of the Manufacturing Association of Nigeria, where he noted the fact that the restrictions have massively hindered manufacturing activities in the country and has resulted in huge losses, but pointed out that the Federal Government will consider easing some of the restrictions in order to reduce the pressures suffered by manufacturers.

Last week Tuesday (29th September, 2015) the CBN Intervention rate slightly moderated to N196.95/ US $ 1.00, but returned to N197.00/US $1.00 on Monday (5th October, 2015) .Similarly in the Interbank market this week, the naira opened at N199.08/US $1.00 but returned to N199.10/US $1.00  on Tuesday and was sustained all through the week. Pressure however continued to mount at the parallel market, as the naira depreciated from N224.00/ US $1.00 to N225.00/US $1.00 during the week. The depreciation in the value of the naira has continually been attributed to insufficient supply of the foreign currency in the market. Barring any major pronouncement from the CBN in the week ahead, we expect rate to trade within the current band.

Bond Market Review and Outlook
Following the JP Morgan GBI-EM index rebalancing which took place at the end of the month of September arising from the decision to phase out the Nigerian bonds from the index, the bond market was very bullish during the week. Domestic investors have continued to increase their stake in the local bond market and the robust liquidity levels in the market has given domestic investors the leeway to further participate in the market following the exit of some foreign investors.

On Monday, a very bullish performance was recorded as average yields across all instruments dropped 36bps as buying interest from investors persisted especially in the benchmark instruments with the APR 2017 FGN bond recording the highest decline in Yield (-66bps). This bullish trend was sustained on Tuesday with bond yields decreasing by about 40bps across board on significant price movement recorded in some short to mid-term instruments (FEB 2020, JAN 2022, MAR 2024) which were up 25bps, 22bps and 26bps respectively even as similar performance was recorded on Wednesday. Also, on Thursday, increased buying activity was noticed, as average yields across tenors dipped 39bps from the previous day's 14.5%. Consequent on the bullish performance all through the week, average yield across all instruments in the bond market was down 69bps to 14.3% WTD.

In the coming week, domestic investors are expected to remain very active in the market given the sustained bearish state of the equities market for which the fixed income market is considered a safe haven.  The Debt Management Office (DMO) is set to auction a total of N80.0bn in FEB 2020 and MAR 2024 instruments next week Wednesday. We expect this auction to remain largely successful at the prevailing market yields given the increased appetite of local fund managers for bonds amidst capital market volatility.

Source: Afrinvest Research