Photo L-R: Oscar Onyema, CEO, Nigerian Stock Exchange (NSE); Yakubu Dogara, Speaker, Federal House of Representative (FHR); Aigboje Aig-Imoukhuede, NSE President; and Gaza Gbefwi, Deputy Chairman, Media & Publicity, FHR at Closing Gong Ceremony at the Exchange On Friday.
Global Market Review and Outlook
Performance across indices under our coverage were broadly bearish this week. In comparison to the previous week, sentiment waned this week as investors took profit following impressive gains in the previous week.
In the developed markets, the UK FTSE dipped 1bp W-o-W as BREXIT worries linger. However, the US markets had a positive outing as the NASDAQ rose 1.3% W-o-W while the S&P 500 closed 0.8% higher amidst impressive job numbers for June 2016.
Markets under our Eurasian classification all trended southwards W-o-W. The France CAC and the German DAX dipped 2.6% and 2.2% W-o-W respectively. The Japanese Nikkei also slumped 3.7% W-o-W followed by the Hong Kong Hang Seng which closed 1.1% lower W-o-W.
In the markets under the BRICS classification, performance was mixed as the South African FTSE fell 2.1% W-o-W. Similarly, the Brazilian IBOVESPA slipped 0.4% W-o-W despite a late rally that was driven by renewed interest in Petrobas; while the Indian BSE eased 0.1% W-o-W. Contrarily, the Chinese Shanghai Composite improved 1.9% W-o-W on expectations of more economy support measures from authorities. The Russian RTS rose 0.9% W-o-W.
Sentiments in the African markets broadly improved from the bearish outing last week. The Nigerian All Share Index was the lone decliner, down 1.5% W-o-W. The Egypt EGX appreciated the most, up 4.8% W-o-W, followed by the Ghana GSE (+0.6%) and the Kenya NSE (+0.3%).
Weekly Equities Market Review and Outlook
The downtrend in the Nigerian equities market was sustained this week as the index declined on the only 2 trading days in the week – down 1.2% and 0.5% on Monday and Friday respectively. Consequently, the ASI dipped 0.5% W-o-W to settle at 28,854.98 points. Thus, YTD return pared to +0.7%.
Expectedly, market activity level also slowed relative to previous week as average volume and value traded fell 35.1% and 46.6% to 188.9m units and N1.8bn respectively.
All sector indices closed lower with the Industrial Goods index declining the most, down 4.9% following losses in WAPCO (-9.1%) and DANGCEM (-0.3%). The Banking index trailed closely, down 2.6% on sell-offs in ACCESS (-4.3%). Similarly, the Insurance and Consumer Goods indices slid 1.9% and 1.3% respectively against the backdrop of losses in MANSARD (-9.2%) and GUINNESS (-4.7%). The Oil & Gas index ended the week 1.1% down.
The top gaining stocks for the week were OANDO (+20.3%), UNITYBNK (+8.1%) and STANBIC (+5.4%) while SKYEBANK (-17.1%), DIAMONDBNK (-12.6%) and HONYFLOUR (-11.8%) were the worst performing stocks.
We expect an uptick in market performance in the coming week as domestic investors hunt for bargain.
Money Market Review and Outlook
This week, the fixed income market traded only on Monday and Friday as a result of the national holiday declared by the federal government. Financial system liquidity opened the week at N330.0bn with Open Buy Back rate (OBB) rising 0.1% to close at 4.6% whilst Overnight Rate (O/N) closed flat at 5.0% on Monday. There was a T-bills auction on Friday where N28.0bn, N42.0bn and N120.0bn of the 91-Day, 182-Day and the 364-Day T-bills were auctioned at 9.98%, 12.24% and 14.99% stop rates. The proposed allotment by the Apex Bank was 2.0x the offer amount, implying a significant liquidity mop-up from the system. Thus, OBB and O/N rose to 9.0% and 9.4% on Friday, up 4.5% and 4.4% W-o-W.
In the T-bills market, average T-bills rate remained at last week’s 9.4% as investors awaited the Central Bank’s T-bills auction. On the back of Friday’s primary market auction, average T-bills rate rose 0.6% to close the week at 10.0%, up 0.6% W-o-W.
In the week ahead, we expect money market rates to trend in line with liquidity dynamics dictated by OMO mop-ups by the Apex Bank and the debits for successful bids at the Debt Management Office’s bonds auction.
Foreign Exchange Review and Outlook
Activities in the interbank foreign exchange market was quiet this week as liquidity concerns linger. The spot rate and 1-Year forward quote remained unchanged on both trading days of the week, closing at N282.02/US$1.00 and N317.82/U$1.00 respectively.
We believe that the ability of the CBN to fulfil the $US3.5bn forward commitments in June will massively boost confidence levels in the Nigerian FX market.
The parallel market was also quiet as the Naira was stable, trading at N352.00/US$1.00 on all days of the week.
The market is expected to stay soft in the week ahead in the absence to autonomous supplies and guided trading band in the new interbank market. We also expect rate at the parallel market to trend circa current levels.
Bond Market Review and Outlook
Activities in the bonds market were bearish as average yield on benchmark bonds declined on both trading sessions of the week. Last week’s buying interest slowed amidst increased sell sentiment on Monday driving average yield 0.3% higher to close at 14.0% with increased activity observed on the MAR 2036 and JULY 2034 instruments. On Friday, average yield across benchmark bonds inched 0.1% higher to close the week at 14.1%, up 0.4% W-o-W.
In the Eurobonds market, the Nigerian sovereign Eurobonds continued to witness buy sentiment. Consequently, yields on the JUL 2023 and JAN 2021 Eurobonds declined 0.1% apiece W-o-W whilst the JULY 2018 instrument closed flat. However, contrary to last month when the Nigerian sovereign bonds instruments commanded the highest YTD return, the republic of South Africa and republic of Ghana instruments have overtaken the Nigerian sovereign bond instruments with average YTD return of +12.6% and +9.0% respectively compared with 8.0% average YTD return of the Nigerian sovereign bond instruments.
Next week, the Debt Management Office (DMO) is scheduled to auction N40.0bn of a new issue – JULY 2021 instrument - and N40.0bn each of the JAN 2026 and MAR 2036 bond instruments at its monthly bonds auction next Wednesday. Trading sentiment in H1:2016 was mostly guided by heightened inflationary pressure and FX risk factors; however, we expect the moderation in FX related risk to spur foreign investors’ interest in Nigerian assets in H2:2016 which could offset the tendency of domestic investors to price-in inflation risk. Nonetheless, the aggressive play of the CBN in liquidity management after the return to a more market-friendly FX regime could anchor yields upward in the immediate term.