Global Market Review and Outlook –Week Ended November 6, 2015

It was a broadly good week for global equities within our coverage as most market performance across the globe closed stronger compared to the previous week. Markets within the BRICS classification closed in a mix with the China Shanghai Comp leading gains with 6.1% W-o-W following investor bets on the corporate releases of some blue-chips. This was equally on the back of increased investor confidence following the intervention of monetary authorities to shore up equities. Brazil Ibovespa equally rose 3.4% W-o-W.

On the flip side, the India BSE led declines with 1.5% loss against poor earnings numbers. Despite recovery in the prices of two South African companies -- MTN (+6.5%) and STANBIC IBTC (+20.7%) --sanctioned by Nigerian regulators last week, the Johannesburg FTSE index failed to recover from previous week's loss, closing the week 1.4% lower.

US markets in the developed region added as the US S&P and NASDAQ improved 1.0% and 1.5%respectively following growth in the October US payrolls data. The UK FTSE declined marginally with 2bps W-o-W. In the Euro-Asian classification, all markets closed northward. The Japan Nikkei, Hong Kong Hang Seng and Germany DAX appreciated 1.0% W-o-W a piece while the France CAC 40 rose the most with 1.5%.

Performance within the African markets was a contrast from others as most indices in this region closed in a mix. The Egypt EGX led weekly gains with +0.5% W-o-W followed by the Kenya NSE 20 which also added 0.1% W-o-W. Conversely, the Nigerian All Share and Ghana GSE fell 0.1% and 1.5% accordingly. We however note that all markets in this region have negative YTD returns.

The recent release of the October US  payroll data which showed an improvement in the data may likely push the Fed closer to increasing its policy rate during its next meeting in December. Thus, we expect continued speculations about the likelihood of the Fed-Fund rate hike to remain a concern for investors in the global equities market.

Nigeria's Equities Market
After 5 days of consecutive losses, the Nigeria All Share Index (ASI) eventually closed the week in the green region following the 0.5% gains recorded during trade today to close at 29,175.35pts. Similarly, market capitalization improved N49.6bn to N10.0tn. The improvement in market performance was on the back of buying interests on OANDO (+4.9%) and UBA (+2.9%). Activity level remained strong as volume and value surged 2.5% and 1.1% to 997.8m units and N6.1bn respectively. However, the huge rise recorded in market activities today was against special trades of 770.7m units worth N3.5bn in ACCESS bank today.

Sector indicators closed broadly positive today. The Banking index led gains with 1.0% on account of appreciations in DIAMOND (+4.8%) and UBA (+2.9%). Also on the back of the 9.4% increase in CONTINSURE, the Insurance index added 0.9%. Similarly against sustained rise in OANDO (+4.9%), the Oil & Gas index added 0.6%. This was followed by the Consumer Goods index which added 0.5%. On the flip side, the Industrial Goods sector waned 0.4% on account of depreciations in CUTIX (-4.6%) and WAPCO (-1.1%).

Market breadth further improved today, turning positive at 1.6x after 24 stocks advanced against 11 declining stocks. Topping the gainers today were TRANSCORP (+9.6%), CONTINSURE (+9.4%) and BETAGLAS (+5.0%) while E-TRANZACT (-4.9%), CAVERTON (-4.8%) and ETERNA (-4.7%) led the losers.

Following the end of the 9 month earnings season, we expect increased activity in the market as investors position for end of the year rush given the current level of market valuation.

Weekly Equities Market Performance
The Nigerian equities market performance remained rather depressed this week following the sustained unimpressive Q3:2015 releases that further pervaded the market across sectors. Consequently, the All Share Index (ASI) closed lower on 4 out of 5 trading days this week, closing 0.1% lower W-o-W while worsening YTD return to 15.8%. After going below the N10.0tn mark on some trading days, market capitalization lost N92.1bn this week to berth at N10.0tn. Aggregate activity level improved this week; volume and value rose 43.8% and 5.9% to 1.9bn units and N15.3bn respectively. ACCESS emerged the highest traded stock by volume and value, gulping 44.1% and 25.1% accordingly.

Sector performance was no different from general market performance after all sectors except the Oil & Gas index declined. The Oil & Gas sector emerged the lone gainer this week, appreciating 0.6% on account of sustained increase in OANDO (+28.5%) after being punished by investors for its FY:2014 loss. Conversely, the Consumer Goods index maintained its weekly loss falling 1.4% W-o-W on account of continued declines in UNILEVER (-18.7%) and DANGFLOUR (-9.4%).The Banking basket followed with a decline of 1.0% W-o-W amid sell-offs STERLNBANK (-4.9%) and ACCESS (-3.0%). The Insurance and Industrial Goods sectors also declined 0.8% and 0.5% on depreciations in NEM (-5.7%) and CUTIX (-13.7%) respectively. 

Investor sentiments measured by market breadth -- ratio of advancers to decliners -- improved slightly to 0.5x from 0.2x. The 11 gainers were topped by OANDO (+28.5%), STANBIC (+10.5%) and TRANSCORP (+6.6%) while the 23 losers were led by FIDSON (-17.9%), IKEJA HOTEL (-14.8%) and CUTIX (-13.7%).  As the Q3:2015 earnings season winds off with average performance across sector indicating the adverse effects of macroeconomic strain on corporate profitability in the economy, thus  hurting market performance in the past trading sessions. We expect some level of correction in coming sessions.

Money Market
The activities in the money market this week were broadly in line with the trend that has been noticed for the past month as the market has remained awash with liquidity. The current robust levels of liquidity in the system have resulted in money market rates reaching year low levels. On Monday, with system liquidity in excess of N900bn, money market rates - Open Buy Back (OBB) rate and the Overnight rate (O/N) - settled at 0.6% and 1.0% respectively, touching yet another year low. Contrary to the expectation of contraction in available liquidity on Tuesday ahead of provision for the CBN FX intervention scheduled to take place on Thursday, liquidity levels remained in excess of N900bn while money market rates appreciated marginally to 0.8%(OBB) and 1.1%(O/N).

System liquidity however contracted to about N500bn on Wednesday, this was attributed to the T-bills auction worth about N123.0bn carried out on the same day. Nonetheless, money markets rates remained relatively unchanged at 0.7%(OBB) and 1.1%(O/N). On Thursday liquidity level remained around the N500.0bn mark as rates inched higher 8bps apiece to 0.7% for the OBB rate and 1.2% for the O/N rate. At the close of the week liquidity level rose to N514.1bn consequent on T-bills worth N123.0bn that matured into the system the previous day. Resultantly, the OBB and the O/N rate closed for the week at 0.6% and 1.0% respectively, which signifies a 3.4% and 3.5% fall in average rates w-o-w.

On the back of robust system liquidity, the T-bills market enjoyed a bullish week. At the start of the week, investors buying interest was centered on short to medium tenured instruments however, through the week, interest shifted towards the medium to long tenured instruments. Consequently, average T-bills rate fell 284bps w-o-w to 5.3% W-o-W. In the coming week, liquidity level are expected to remain robust, even as an OMO maturity worth N70.0bn is expected to hit the system on Thursday (12th November, 2015).

Foreign Exchange Market
In line with the recent trend that has been noticed in the Forex market, the Naira appreciated 2kobo on Monday to N199.08/ US$1.00 at the interbank market and this was maintained till Thursday when the Naira depreciated 2kobo to N199.10/US$1.00. Similarly, the Apex Bank's intervention rate also followed the same trend as it appreciated 2kobo to N196.98/US$1.00 on Monday and depreciated by the same amount to N197.00/US$1.00 on Thursday. We believe this is just an administrative measure that has been implemented by the CBN ahead of the Official FX intervention which took place on Thursday.

At the parallel market there was increased activity as the Naira depreciated N3.00 from N227.00/US$1.00 on Monday to about N230.00/US$1.00 on Thursday. This was broadly driven by the fact that CBN mandated all BDC operators and Commercial banks to provide customers Bank Verification Number (BVN) in order to execute any Forex transactions. However, the reluctance of customers to provide their BVN for Forex transactions due to fears of their accounts being used for mischievous activities, led to the increased demand at the Parallel market which resulted in a further depreciation of the naira.

In response to the above, the Apex bank released a press statement to clarify that there are no attendant risks in revealing the BVN as it will help in confirmation of the identity of the customer, it will also bolster fraud prevention and ultimately lead to protection of the customers transactions. On a broader scale, the implementation of the BVN as a condition for Forex is expected to reduce speculative attacks on the Naira/$SD FX rate, curb illicit transfer of funds and ultimately stabilize the value of the currency by ensuring that genuine demand are met.
 
Bond Market
Consequent on the large volumes of liquidity that have flooded the system, investors have remained bullish on the fixed income market as seen in interest trading bond instruments. The large volumes seen at the start of the week was further enhanced by the FX refund and the FAAC allocation which hit the system late last week. The bond market opened for the week bullish as yields decreased by an average of 17bps at the close of trade with investor's interest centered on the JUN 2019, FEB 2020 and MAR 2024 mid-tenored instruments. On Tuesday, this bullish run was sustained as average yield across all instruments further fell 11bps even as the DMO bond auction calendar showed a reduction of about N30.0bn from the previous bond auction. 

On Wednesday, there was increased activity in the market as the bullish run extended due to investors increasing participation in the market following the news flow of a contraction in the amount to be offered at the next auction, consequently average yield across all tenors declined 39bps. Average yields further declined 12bps on Thursday, majorly due to increased buying interest in the some short to mid-term tenors (FEB 2020, JAN 2022, MAR 2024) which were down 29bps, 27bps and 16bps respectively and the 20-Year benchmark JUL 2034 instrument which declined 27bps. This bullish run was stretched into the last trading day of the week as average yields across all tenors further declined 207bps. Following this bullish performance average yield across all trading instruments fell 286bps W-o-W as average yields settled at 11.1%.

Given the current liquidity levels in the system, the Bond market is expected to remain bullish as investors continue to search for viable opportunities in the fixed income space given the unappealing state of the equities market at the moment.

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