Review and Outlook of Global, Nigeria Markets –Week Ended Dec. 09, 2016

Global Market Review and Outlook
Global equities have been trending positive since the US November Presidential election with Wall Street stimulated to an all-time high on expectation of higher growth as a result of president-elect Donald Trump planned fiscal stimulus. In the US markets, the NASDAQ and S&P 500 indices closed higher this week as investors remain eager to buy into the post-election rally that has been running since the past month. Other sentiment boosters include monthly hiring numbers, GDP growth and inflation.

In the Euro-Asian region, European stocks rose as banking gains climbed following the European Central Bank’s decision to cut its monthly asset purchases to 60billion euros per month from next April from current 80billion euro per month. However, the ECB President maintained a bullish tone, which helped shrug off concerns about political instability in Italy. The France CAC rose 1.0% W-o-W while German DAX closed 2.5% higher on account of gains in other cyclical sectors such as miners and autos.  The Hong Kong HANG SENG gained 0.7% W-o-W while the Japan NIKKEI rose for the 5th week, up 0.2% W-o-W on account of gains on Wall Street and strong buying interests of exporters on the back of weaker yen.

All indices in the BRICS markets closed in the green. The Indian BSE appreciated as gains in real estate, fast moving consumer goods and banking sectors supported the index. Likewise, the Brazilian IBOVESPA and South African FTSE gained W-o-W.
 
Equities Market Review and Outlook
The Nigerian equities market sustained a positive outing for the second consecutive week as the benchmark index rose 0.3% W-o-W to settle at 25,817.69 points.  The All Share Index (ASI) recorded marginal gains on all trading days of the week save for Tuesday when the ASI dipped 0.3% on account of profit taking. Overall performance was largely driven by significant interest in FORTE (+62.8%) which touched a record low in the previous week as well as price appreciation in TOTAL (+10.1%), ZENITH (+3.3%) and NIGERIAN BREWERIES (+1.4%). Consequently, the YTD loss eased to -9.9% while market capitalization improved by N28.1bn W-o-W to settle at N8.8tn. Activity level was mixed as average volume traded fell 63.9% and value traded rose 6.4% to 178.9m units and N2.1bn.

Performance across sectors remained mixed with the Oil & Gas index appreciating the most, up 7.7% on the back of sustained interest in FORTE (+62.8%) and TOTAL (+10.1%). The Banking index followed, adding 0.5% W-o-W due to gains in FBNH (+10.8%) and FIDELITY (+8.9%). In the same vein, the Insurance index rose 0.4% consequent on price appreciation in NEM (+5.4%) and CONTINSURE (+3.1%). On the flip side, the Industrial Goods index topped losers’ chart, down 3.3% due to loses in WAPCO (-9.1%) while declines in NESTLE (-1.2%) and GUINNESS (-12.5%) dragged the Consumer Goods index 0.8% lower.

Market breadth (advancers/decliners ratio) slightly waned to 0.8 (from 0.9x in the previous week) on account of 27 advancing stocks against 36 declining stocks. The best performers were FORTE (+62.8%), PORTPAINT (+26.5%) and TRANSCORP (+19.7%) while the worst performers included GUINNESS (-12.5%), NEIMETH (-9.1%) and AVONCROWN (-9.1%). The sentiment in the local bourse remains driven by bargain hunting, particularly in stocks like FORTE and PORTPAINT which has rallied significantly in the last few trading sessions. We expect performance in the week ahead to follow a similar trend.
 
Money Market Review and Outlook
At the start of the week, the Open Buy Back (OBB) and Overnight (OVN) rates remained at similar levels to the close of the previous week, settling at 10.3% and 11.1% respectively on Monday. The stability recorded in money market rates was predicated on liquidity level which improved slightly to N141.7bn at market close on Monday (from N128.7bn on Previous Friday) despite the OMO auction floated by the CBN – N10.5bn of the 346-Day instrument allotted at a stop rate of 18.6%. OBB and OVN rates fell to 4.7% and 5.3% respectively on Wednesday on account of improved liquidity levels following an OMO maturity of 105.0bn which hit the system as well as reported reimbursement of States for over-deduction on Paris-club loan. These boosted liquidity balance of DMBs to N473.5. Hence, despite the floating of OMO auctions on all trading days of the week, liquidity remained robust and money market rates continued to trend lower, eventually settling at 3.2% and 3.9% for OBB and OVN respectively, representing a 6.8% and 6.6% W-o-W decline in rates.

Considering the relatively high liquidity level in the system, sentiment in the Treasury Bills market was largely bullish all through the week as investors took advantage of the attractive yield environment. Buy interest was noticed across all tenors but with more interest in shorter tenured bills. Average T-bills yield stood at 19.2% on Tuesday and declined to 18.8% on Wednesday. Following a spike in liquidity on Thursday, buy sentiment on T-bills strengthened further as average yield further declined to 17.8% on Friday.

All through the week, investors’ interest remained centered on shorter tenored T-bills and this is expected to continue in the coming week, especially given the current system liquidity and closure of T-bills primary market for the year.

Bond Market Review and Outlook
Activity level in the Bond market remained rather soft during the week, as investors continued to favour shorter tenored instruments (T-bills) which currently offer attractive yields. Nevertheless, performance of the Bonds market was positive as average yield pared W-o-W across Benchmark instruments to settle at 15.8% on Friday.

Similarly, the FGN Eurobonds enjoyed buying interest during the week as average yield across all instruments declined from 6.4% on Tuesday to close the week at 6.3% with the JAN 2021 instrument being the pest performer. Performance of the Corporate Eurobonds was equally bullish as ACCESS 2017 and FIDELITY 2018 instruments fell 0.2% and 1.3% W-o-W respectively.

In the coming week, the DMO will conduct its last Bond auction for the year 2016. The instruments on offer are: JUL 2021 (N30.0 - 40.0bn on offer), JAN 2026 (N20.0 - N30.0bn on offer) and MAR 2036 (N30.0bn - 40.0bn on offer). In our view, the trend witnessed in the previous 3 consecutive bond auctions in which instruments were under allotted on account of higher range of bids will likely persist at the December auction. November 2016 Inflation report due for release next week will drive sentiment. Investors will be looking to see the pace of M-o-M CPI growth in setting trading strategy for next year. We project a flattish M-o-M movement but still expect Inflation rate to accelerate on Y-o-Y basis due to low base effect.

Foreign Exchange Review and Outlook
There was no new development in the foreign exchange market this week as the CBN maintained its daily US$1.5m intervention at a pegged rate of N305.00/US$1.00. Thus, the interbank spot rate was flat at N305.00/US$1.00. Liquidity however remained a bottleneck to performance of the FX market with spread between interbank and parallel rates ranging from N180.00/US$1.00 to N170.00/US$1.00.

Meanwhile, the parallel market remained volatile with exchange rate on the street opening at N484.00/US$1.00 (relative to N482.00/US$1.00 last Friday) according to AbokiFX but depreciated to N485.00/US$1.00 by Friday. Amid sustained concerns by investors about the direction of foreign exchange policy and the absence of decisive policy actions to restore confidence in the Nigerian economy, a former deputy governor of the CBN, Mr Kingsley Moghalu noted in an article published by Financial Times during the week that restoring transparency in the market and a phased approach to structural reforms are key priorities for the Apex Bank and other economic managers.

At the FMDQ OTC derivatives market, the value of FX futures opened contract increased by US$73.2m to US$3.8bn from US$3.7bn in the previous week. Strong interests were observed in the NGUS JUN 2017, NGUS JUL 2017 and NGUS AUG 2017 contracts which traded at N276.00/US$1.00, N272.00/US$1.00 and N269.00/US$1.00 with value of each contracts expanding by US$15.00m, US$12.00m and US$22.00m respectively. Performance in the week ahead is expected to stay broadly the same in the absence of rate-sensitive pronouncements from the CBN.

Afrinvest

Category: 
myfinancialintelligence.com