Global & Nigeria Markets: Review & Outlook

Global Market Review and Outlook
Performance in the global equities market was largely bearish this week as investors await details on President Trump’s proposed tax cut and trade policies following Treasury Secretary, Steven Mnuchin’s comments on plans to pass a “very significant” tax reform plan in August.

All indices in the developed market closed lower save for the US S&P which rose 0.5% on account of gains in telecoms and health care sectors. The US NASDAQ waned 0.1% W-o-W while the UK FTSE fell 1.2% W-o-W. Stocks in the Euro-Asian region also depreciated as banks and commodity related sectors led losses amid poor earnings numbers submitted by Standard Chartered Bank and Royal Bank of Scotland. Also, France CAC and German DAX slid 1.0% and 0.1%W-o-W. Hong Kong HANG SENG eased 0.3% while the Japan NIKKEI emerged loan gainer in the region, increasing 0.3% W-o-W.

Performance in the BRICS region was mixed with the China SHANGHAI COMPOSITE advancing the 1.6% while the Indian BSE trailed closely, adding 1.5% W-o-W. Conversely, the Russian RTS and Brazil IBOVESPA trended southwards, down 2.3% and 1.7% W-o-W respectively. Likewise, the South African FTSE dipped 1.3%.

Similar to the previous week, all indices across the African region closed higher save for the Egyptian EGX which recorded the first W-o-W decline in February on account of profit taking. On the other hand, the Nigerian All Share Index recorded gains, up 0.3% on account of renewed interest in the Consumer Goods sector. The Ghana GSE added 2.6% while the Kenya NSE advanced 2.0%W-o-W.

Equities Market Review and Outlook
The Nigerian equities market recorded its first weekly gain in the month of February after three consecutive weeks of declines. Performance was majorly driven by renewed interest in NIGERIAN BREWERIES (up +13.0% W-o-W) which released its FY: 2016 report on Monday (Gross Revenue: up 6.7% to N313.7bn, PAT: down 23.5% to N28.4bn).  Rebound in the share prices of Nigerian Breweries was driven by bargain hunting - after the stock touched its 6-month low on 14/02/2017 - as well as a N2.58 dividend declaration by company for the year ended 31/12/2016. The All Share Index (ASI) recorded a 0.3% W-o-W uptick while YTD loss eased to -6.0%. Market capitalization improved N29.6bn to settle at N8.7tn. Other market movers for the week include GUINNESS (+11.6%) which we believe enjoyed a spill over effect from a rally in NIGERIAN BREWERIES. Activity level was mixed as average volume dipped 29.2% to 151.8m units while value traded rose 12.8% to N1.9bn respectively.

As noted above, the Consumer Goods index rebounded from weeks of decline, topping sector gainers with a 4.1% W-o-W gain on the back of a rally in NIGERIAN BREWERIES (+13.0%) and GUINNESS (+11.6%). The Insurance index was also up 0.3% W-o-W owing to gains in CUSTODYINS (+4.9%) and MANSARD (+4.7%). Conversely, the Industrial Goods (-2.8%) and Oil & Gas indices (-2.5%) were weighed down by sell-offs in WAPCO (-7.1%) and FORTE (-15.0%) respectively. Similarly, the Banking index dipped 0.8% W-o-W as ACCESS (-1.8%) and GUARANTY (-1.0%) recorded losses during the week.

Market breadth however retreated to 0.5x (from 1.0x in the previous week) as 17 stocks appreciated while 31 depreciated. NIGERIAN BREWERIES (+13.0%), GUINNESS (+11.6%) and NPFMCRFBK (+9.3%) topped gainers’ list while UNILEVER (-16.2%), FORTE (-15.0%) and VITAFOAM (-14.0%) led laggards. Despite positive performance in the consumer goods sector index this week, investors are still wary about FY:2016 earnings due to pressure on production cost and finance expenses. However we see a likely rebound in NESTLE which has tumbled 33.7% YtD.
Money Market Review and Outlook
System liquidity oscillated during the week, closing the first trading day with a negative balance of N175.3bn. The largest withdrawal from system liquidity occurred on Tuesday as the CBN announced FX forwards sales worth US$370.0m which saw money market rates (OBB and OVN) close the day at 128.3% and 132.0% respectively. On Wednesday rates moderated to 30.8% and 33.7% but a further FX sales worth US$230.0m by the CBN pressured OBB and OVN rate to 111.6% and 133.3% on Thursday. OBB and OVN rates settled at 13.1% and 14.1% respectively on Friday, down 4.7% and 4.5% W-o-W respectively.

Performance in the Treasury Bills market was largely bearish due to tighter system liquidity during the week. Average yield trended higher on most trading sessions, up 36bps on Monday but eased by mid-week as system liquidity improved. Nonetheless, average rate rose 55bps W-o-W closing at 16.9% on Friday.

Next week, there will be a Treasury Bills maturity of N310.2bn and a rollover of the same amount. We expect the auction to be oversubscribed given the attractive yields each of the instruments offer.

Foreign Exchange Review and Outlook
The CBN issued a new FX policy directive this week to provide foreign exchange to all commercial banks to meet the needs for personal travel allowances (PTA), business travel allowances (BTA),  medical needs and school fees for onward sale to customers effective immediately. Approved rate for these retail transactions was pegged at a rate not exceeding 20.0% above the interbank market rate. Initial reaction to the announcement drove parallel market rates to N520.00/US$1.00 on Monday. However, parallel market rate rebounded for the rest of the week, up 10.9% W-o-W to settle at N460.00/US$1.00, as speculators digested the impact of the new directive. Meanwhile, the CBN continued its daily intervention at the official market, with rates trading tightly around at the CBN’s spot rate of N305.50/US$1.00.

Value of opened contracts at the FMDQ OTC FX Futures market closed at US$3.9bn, about the same as previous week’s close. The NGUS FEB 22 2017 contract matured during the week with a notional value of US$266.1mn and was replaced with the NGUS FEB 28 2018, a total value of US$1.00bn at N291.25/US$1.00. This will be the 8th Futures contract to be maturing since the introduction of the FMDQ OTC FX Futures in June 2016.

While we believe the successful implementation of the new FX directive would ease pressure in the parallel market, flexibility in pricing and allocation in the interbank market remains a necessity to restore confidence in the system.
Bond Market Review and Outlook
Similar to the Treasury Bills market, sentiments in the local Bonds market was bearish this week as average yield closed higher on 4 out of 5 trading sessions. This was largely due to the relatively tight system liquidity as well as CBN’s FX forwards sales during the week. Eventually, average yield closed the week at 16.2% indicating a 17bps appreciation W-o-W.

Positive sentiments filtered across SSA sovereign instruments as yields fell across the Nigerian, Ghana, Gabon, Ivory Coast, Kenya, Zambia, Senegal, and South African instruments –save for the South African 2024 and 2041.  The Nigerian 2023 instrument emerged the best performer under our coverage with a YTD return of 6.4%.

Despite the downgrade of some Banks by Fitch Ratings Agency amid a successful issuance of the US$1.00bn Nigerian Eurobond, the Nigerian Corporate Eurobonds have been experiencing positive sentiments. This week saw positive performance filter through a range of instruments as yields fell on all Corporate Eurobonds but for the ACCESS 2017 (yields rose 11bps) and FIRST BANK 2021(yields rose 2bps). Nonetheless, the DIAMOND 2019 remains the best performing with YTD return of 13.3%.