After four days of consecutive losses in the Nigerian Bourse, the All Share Index further dipped 0.3% to 28,131.28pts on the last trading day. YTD loss closed at 18.8%. Similarly, market capitalization decreased N24.7bn to N9.7tn at the close of trade. Market activity also waned as the volume decreased to 146.2m units (-18.5%) and value traded increased 2bps to N1.1bn.
With 0.1% rise, the Consumer Goods sector reversed the previous day's lost on the back of price appreciation in NESTLE (+0.9%). The Industrial Goods sector improved very marginally as a result of gains recorded in BERGER (+0.2%). Bargain hunting in OANDO (-9.6%) and SEPLAT (-3.4%) counters resulted in the 0.6% decline in the Oil & Gas sector. Furthermore, the Banking index (-0.6%) also slumped while the Insurance index closed unchanged.
Market sentiment improved as market breadth (advancers/decliners ratio) reduced to 0.5x from 0.8x the previous session. Top gainers were LIVESTOCK (+5.0%), ETRANZACT (+4.9%) and ACCESS (+2.8%) while top losers were OANDO (-9.6%), UNITY BANK (-5.0%) and CAVERTON (-4.8%). In the week ahead, activities in the market are expected to be broadly dictated by the expectation surrounding the decision of the MPC which will be sitting for its last meeting during the week. We expect stocks to trade sideways as investors await the MPC decision.
Weekly Equities Market
Similar to the week before, sentiments in the equities market remained generally bearish. The All Share Index lost on all trading days; W-o-W and YTD losses are ended at 2.5% and 18.8% respectively. Investors lost N244.2bn W-o-W as market capitalization ended the week at N9.7tn. Market activities declined; average volume and value traded this week decreased to 158.7 units (+59.5%) and N1.4bn (+69.4%) W-o-W respectively.
A W-o-W analysis of NSE sector indices reveals that the Oil & Gas sector recorded the most negative change (-5.5%); this is against the backdrop of price decrease in OANDO (-19.6%). Amid the waning investor sentiment in the stock market, the Banking sector followed, having declined 3.9% W-o-W on account of STANBIC (-11.8%) and GUARANTY (-8.0%). Similarly, the Consumer Goods index (-2.8%), Industrial Goods index (-0.4%) and the Insurance (-0.2%) W-o-W performances were also negative.
Market breadth improved to 0.5x from 0.2x last week as 19 stocks gained, 41 depreciated and 122 remained unchanged. Top stocks that closed positive W-o-W were PORTPAINT (+9.9%), ETRANZACT (5.3%) and LIVESTOCK (+5.0%); top losers for the week were DANGOTE FLOUR (-26.1%), OANDO (-19.6%) and STANBIC (-11.8%). We believe that the major drive for the market next week would be the much anticipated decision at the end of the 6th MPC meeting from the 23rd to the 24th of November. Nonetheless, the current market valuation signals significant upside potential in fundamental stocks for investors with a long term horizon.
As the Apex bank continues to hold on to its Open Market Operation (OMO) policy tool to curb excessive liquidity in the financial system, liquidity in the system remained high this week leaving rates at their low levels. Hence, benchmark rates (Open Buy Back -- OBB & Overnight -- O/N) within the money market, though on a gradual rise, maintained their low levels on all trading days. Following the CBN FX intervention refund in the previous Friday, liquidity balance opened higher at N950.0bn on Monday, thereby pushing OBB lower to 0.5% while O/N rate stayed at 1.0% and average NIBOR settled at 10.8%.
Against dealers' preparation for the Central Bank's FX intervention set to hold on Wednesday, rates trended higher to 0.6% and 1.0% for the OBB and O/N respectively on Tuesday. Consequently, the intervention which led to a slight decline in market liquidity saw money market and average NIBOR rates rising even higher to 0.9% (OBB), 1.1% (O/N) and 10.9% respectively on Wednesday. However, after increasing to 1.0% and 1.4% on Thursday, the OBB and O/N rates closed the week lower at 0.9% and 1.3% respectively following expectations of the FX intervention refund by the Apex bank on Friday.
Despite T-Bills maturities and re-issuance worth N22.9bn during the week, activity level in the T-Bills market was generally poor for the week. Notwithstanding the prevailing level of market liquidity, the T-Bills market recorded further sell-offs in the longer end of the curve on some trading days in the week. Consequently, average rates rose 0.9% W-o-W to settle at 5.2%. In the coming week, we expect rates to trend within the same range as system liquidity stays robust in the interim.
Foreign Exchange Market
The Nigerian foreign exchange market had a calm week in the absence of a major news flows or official circulars that would has triggered reaction in the currency market. Exchange rate stayed within the tight range of N196.97/US$1.00 and N197.00/US$1.00 in the official market, as with the weeks before. The local currency appreciated by 2kobo from N196.97/US$1.00 on Tuesday to N197.00/US$1.00 on Wednesday. We believe this remained a deliberate measure by the CBN to allow the Naira adjust for the FX intervention exercise carried out on Wednesday.
Similar to FX activities of previous weeks within the interbank window, the offer rate of the Naira depreciated on all trading days except Friday. This may be linked to the weekly FX intervention of the CBN that push interbank rates lower and then gradually higher as dealers begin to exhaust their Dollar holdings while waiting for the next Dollar sale from the Apex Bank. Consequently, exchange rates opened at N197.72/US$1.00 on Monday and depreciated 12kobo to N197.84/US$1.00 on Tuesday. Equally on Wednesday, we noticed a further 16kobo depreciation of the Naira to N198.00/US$1.00. Though we commend the unrelenting stance of the CBN to maintain stability in this market, we however note that average forward rate within the interbank market pegged at N228.69/US$1.00 this week while the parallel market traded even higher between N230.00/US$1.00 and N232.00/US$1.00 indicating market expectation and valuation of the naira.
Nigeria's Gross external reserves settled at US$30.4bn on Tuesday compared to US$37.4bn of same date in 2014. As earlier stated, the currency controls of the CBN is admirable nonetheless, we believe a further devaluation of the currency may be necessary to cushion the effect of the low oil prices and ease pressure on the reserves.
Activities in the bond market was quite bearish this week as investors sold down on their positions in some instruments. While liquidity remains robust in the market, we believe this is weak performance is not unconnected to the unsettled expectations of investors against likely the commencement of liquidity mop-ups by the CBN in the near term following the creation of the fiscal team and the 2016 expansionary budget. Consequently, on Monday, the broad sell-off noticed among all instruments pushed average yields 45bps higher on to settle at an average of 11.5%. However, following buying interest across all tenors, there was a calm in bearish mood on Tuesday and Wednesday, bringing average yields to settle at lower levels of 11.3% and 11.0% respectively.
This however drove profit taking across the medium to long term instruments mainly in the APR 2017 JUL 2017 and AUG 2017 bonds which rose 97bps, 91bps and 87bps respectively while JAN 2022 and MAR 2024 instruments suffered the highest price declines of 1.7% and 1.8% accordingly on Thursday. Against this, average yields rose to 11.3% on Thursday and settled at 11.5% on Friday thereby raising average W-o-W yields by 0.5%. Given the sustained high level of liquidity, we believe willing investors have already cashed into the bond market while other await further improvement in country's polity and monetary environment. However, we expect market activity in coming sessions to be driven by monetary policy pronouncements if different from status quo, as the Monetary Policy Committee (MPC) meets next week.