Review and Outlook of Global, Nigeria Markets –Week Ended Mar. 18, 2016

Global equities market was moderately bullish this week as the Fed held interest rates steady, underscoring moderate US economic growth, strong job gains and uncertainty surrounding global economy as likely indicators to trigger policy tightening this year. The US Central Bank scaled down its expectations of US rate hikes over the next nine month. The dovish turn of the Fed boosted global markets as the dollar tumbled, lifting global share prices to the highest levels so far this year as risk appetite surged W-o-W. Similarly, oil futures cheered as the world biggest suppliers firmed up plans on output freeze, Brent crude was up 15.3% on Friday to close at US$42.20/b

Performance in the developed market rebounded, the UK FTSE snapped 1.3% W-o-W led by the price appreciation in commodities prices, pulling mining stock southwards as well as gains in banking stocks amid Fed dovish stance on interest rates. Also springing from positive global sentiments, US markets (NASDAQ and S&P) rallied, inching 1.2% and 0.7% respectively W-o-W. Consequently, upbeat global market activities filtered into the Eurasian region as Germany XETRA DAX bounced back 0.6% W-o-W while the France CAC slumped 1.0% W-o-W as losses in losses in Healthcare, Utilities and Technology sectors propelled the index lower. The Japan Nikkei plunged 1.3% while the Hong Kong HANG SENG rose 2.3% W-o-W on the back of bargain hunting in information technology and machinery stock.

In the BRICS classification, all indices under our coverage rose W-o-W. The Russia RTS gained the most, up 6.4% as a result of increased investors risk appetite as oil prices rose and the ruble bubble following news that Russia troops would be withdrawn from Syria. Similarly, the China Shanghai Composite gained the most, up 5.2% as Premier Li assured investors the economy is not in danger of a hard landing despite current challenges. The South Africa FTSE/JSE trailed closely, appreciating 3.7% W-o-W spurred by the bullish sentiments across global equities market and positive reactions to speculations that President Zuma’s grip on power is loosening. Likewise, optimism regarding an apparent impeachment of the current Brazilian president during on-going corruption scandal buoyed the sustained winning run of the Brazil IBOVESPA which rose 2.4% W-o-W. The 0.9% rise in the India BSE was majorly bolstered by the decline in the US Dollar against a basket of other currencies, pulling the rupee to gain as high as 66.80rupee/US$1.00 W-o-W.

Performance across key markets in Africa was broadly bearish save for the Egypt EGX which sustained last week gains to close 14.0% higher, leading the indices advances across all the classification under our coverage. The GSE lagged the most down 1.5% while the Nigeria All Share Index (NSE ASI) and NSE 20 both trailed closely, lagging 1.1% and 0.3% respectively. We believe the bullish performance this week may not be sustained as the health of the global economy remain a challenge.
Equities Market
In contrast to global equities, the Nigerian equities market was broadly bearish this week save for the gains of 8bps and 6bps on Thursday and Friday respectively, on the back of bargain hunting in NIGERIAN BREWERIES (+5.0%). The NSE ASI decline 1.1% W-o-W settling at 25,694.79 points on Friday, while YTD loss closed at 10.3%. Similarly, market capitalization contracted by N101.0bn during the week to closed at N8.83tn. Nevertheless, activity level was mixed as average volume depreciated 2.8% W-o-W while average value inched 22.7% W-o-W to 216.1m units and N1.8bn respectively.

Performance across sectors was broadly negative EX-Consumer Goods index which grew marginally by 1 bps amid gains in CHAMPION (+8.3%). The Banking index lagged the most, down 5bps W-o-W, consequent on sell offs on ETI (-20.3%), ACCESS (-10.6%) and WEMA (-8.0%). The Oil & Gas index and Industrial Goods index trailed, shedding 3bps and 2bps W-o-W amid price depreciation in OANDO (-25.2%), SEPLAT (-5.7%) and WAPCO (-5.3%). Similarly the insurance index lost 1bps on the back of price depreciation in AIICO (-3.7%) and CONTINSURE (-3.3%).

Market sentiment was negative this week as market breadth - advancers/decliners ratio – worsened to 0.5x (from 1.4x) as 19 stocks gained while 41 stocks lost. The best performing stocks for the week are CONOIL (+21.3%), UBA (+9.6%) and LAWUNION (+9.4%) while OANDO (-25.2%), ETI (-20.3%) and ACCESS (-10.6%) declined the most. We expect more earnings announcements to drive market performance in the coming week with marginal swings on selected tickers due to profit taking activities.
Money Market
As expected, money market rates (MM) trended higher at the start of the week consequent on lower liquidity levels in the system from the levels at the close of the previous week, but steadily declined in the days leading to the end of the week. On Monday, the Open Buy Back (OBB) and Overnight (O/N) rates closed at 7.4% and 7.9%respectively. However on Tuesday, liquidity levels rose by about N44.3bn on the back of coupon payment on the FGN2024 bond and as a result, money market rates declined as the OBB and O/N rate fell to 7.0% and 7.7% respectively. Money Market rates hovered around the same level on Wednesday as OBB rates inched 4bps higher while O/N rates declined 18bs to close at 7.1% and 7.5% respectively. On the back of OMO maturity of N45.5bn hitting the system and a T-bills maturity of about N172.0bn, system liquidity rose while OBB and O/N rates declined, subsequently, OBB and ON rates closed at 5.3% and 5.8% respectively. Money market rates continued its decline on Friday as OBB and ON closed at 4.8% and 5.3%, dropping 0.3% each W-O-W respectively.

The T-bills market was broadly bearish this week, average rates trended higher than last week’s level. Average T-bills rates closed on Monday at 7.0%, up 10bps from the previous trading session on the back of lower financial system liquidity. As liquidity levels remained low amid deposit money banks (DMBs) provisioning for CBN FX intervention auction, average T-bills rates inched even higher by midweek to 7.9%, up 0.9% from Monday’s close. Average rates however declined 0.2% on Thursday as liquidity levels increased. Average T-bills rates declined on Friday closing at 6.9%, up 2bps W-O-W.

In the coming week, we expect that money market rates will trend higher if liquidity continues to shrink.

Foreign Exchange
As opined in the FX review and outlook section of our previous weekly report, the foreign exchange market maintained relative calmness this week as all and sundry animatedly await the MPC meeting scheduled for Monday and Tuesday next week. As there has been no announced change in the stance of the CBN as regards maintaining exchange rate yet, the Naira/Dollar exchange rate at the CBN and Interbank remained at N197.00/US$1 and N199.50US$1 all week.

Activities in the BDC and parallel market were similar to the regulated segment of the market as it witnessed stability all week. Naira/Dollar at the BDC traded at N324.00/US$1 on Monday and Tuesday, appreciating to N322/US$1 by Thursday. Activities at the parallel market trended similar to the BDC, as Naira/Dollar traded N324/US$1 on Monday but remained at N325/US$1 till the end of the week.

Next week, we expect that activities in the foreign exchange market may be dictated by expectations and a lot of speculative pressure arising from early “hearsay” reports on the “Would be”, “Should be”, Could be” pronouncements from the deliberations at the MPC meetings. However, we do not expect that there would be any major pronouncements by the MPC as status-quo may likely be maintained.

Bond Market
This week, activities in the bonds market remained broadly bearish amidst expectations from the outcome of the MPC meeting next week. Average yields across benchmark bonds rose 0.1% from the concluding trading session of last week on Monday as investors reposition ahead of Wednesday’s N100.0bn bonds auction, closing 10.8%. On Tuesday however, following the release of the Monthly Nigerian Inflation report which showed inflation levels for February at a 38-Month high (11.2%) investors’ sentiments turned bearish and sell offs were recorded across board as average yields rose to 11.3%. Typically this implies that Investors real return on Investments has significantly declined, hence there was increased expectation of higher rates at the March bond auction given that investors would require a premium to invest in Nigerian Bond Instruments.

At the bond auction on Wednesday, the issued instruments were the FGN FEB2020, FGN JAN2026 and FGN MAR 2036 bonds at marginal rates of 11.3%, 12.1% and 12.4% respectively against expectations of higher rates. There was an oversubscription of about N162.4bn at the bonds auction, with total bids coming to N262.4bn.

Average yields across benchmark bonds dropped 0.1% on Thursday to settle at 11.3% amidst buying pressure as investors who were unsuccessful at the bonds auctioned re-directed attention to the secondary market. Buying pressure was sustained on Friday especially at the longer end of the curve, consequently average yields across benchmark bonds stayed flat to close the week at 11.3%, up 0.1% W-O-W. In the week ahead, we opine that buying pressures will continue considering the high percentage of unsuccessful bids at the bonds auction, hence we expect that average yields will decline.

Afrinvest Research