Global Market Review and Outlook
Performance of the global equity markets was broadly bullish this week as the IMF raised its outlook on global growth while commodity prices strengthened and political tension eased in Spain, after Catalan separatists deferred declaration of independence. Brent Crude is up 3.0% W-o-W as of writing, the largest weekly gain since mid-September from US$55.62/b to US$57.15/b, due to a decline in U.S. stockpile in addition to optimism expressed by OPEC that global surplus will be cleared by next year. Prices also rose amid growing tensions in Iraq between the central government and Kurdish fighters.
In the developed market, performance was positive W-o-W as all the indices closed in the green, except the US NASDAQ which closed flat. The UK FTSE advanced 0.2% W-o-W and in the same vein, the US S&P 500 increased marginally by 0.1% W-o-W. US markets were partly driven by technology stocks as well as IMF’s bullish outlook on global growth, while the U.K market advanced due to rally in banking stocks and dollar-earnings companies following expectation of a soft-BREXIT and a weaker Pound.
Across the Eurasian markets, performance was largely positive save the France CAC 40. The Japan Nikkei 225 led gainers with a 2.2% W-o-W increase on account of continued bets on the re-election of Prime Minister Abe. Similarly, the Germany XETRA DAX and Hong Kong HANG SENG rose 0.2% and 0.1% respectively W-o-W. However, the France CAC 40 declined 0.3% W-o-W. Across the BRICS, performance was largely bullish as all indices trended northward, with the Russian RTS taking the lead with a 2.6% W-o-W gain while the Indian BSE and the China SHANGHAI COMPOSITE advanced 1.8% and 1.3% W-o-W respectively.
In African markets, performance was mixed as 2 of 4 indices closed in the negative. The Nigerian All Share Index led gainers with a 1.5% W-o-W gain while the Egypt EGX 30 trailed with a 0.3% W-o-W increase. Contrarily, the Kenya NSE 20 dipped 1.4% W-o-W, the worst performing in Africa. This decline is largely attributed to the political tension in the country as opposition leader, Raila Odinga, pulled out of the rerun presidential election scheduled for next week. The Ghana GSE Composite also closed the week 0.1% lower.
Domestic Equity Market Review and Outlook
The Nigerian Bourse sustained bullish momentum in trading sessions this week as the All Share Index (ASI) rose 1.5% W-o-W to close at 36,848.17 points, while YTD return advanced to 37.1%. Similarly, market capitalization increased by N181.5bn to N12.7tn, although activity level declined as average volume and value traded softened 16.7% and 28.5% W-o-W to 310.9m units and N2.7bn respectively. The week started off on a positive note on the first trading session (up 1.4%) but the market pulled back gains on Tuesday and Wednesday as investors booked profit (down 0.2% and 0.3% respectively). However, the sentiment rebounded on Thursday and Friday as investors positioned in previous decliners.
Sector performance was largely bullish as all indices rose W-o-W. The Insurance index led gainers, up 7.9% W-o-W, due to strong rally in MANSARD (+25.5%) and LINKASSURE (+17.3%). The Oil & Gas index followed suit, rising 1.8% W-o-W on the back of gains in TOTAL (+5.0%) and OANDO (+4.7%). Similarly, the Banking index appreciated 1.4% W-o-W as a result of strong appetite for GUARANTY (+3.2%) and ZENITH (+2.0%). Positive sentiment towards DANGCEM (+2.7%), CCNN (+20.1%) CADBURY (+1.6%), and GUINNESS (+1.5%) buoyed the Industrial and Consumer Goods Indices which advanced 66bps and 5bps W-o-W respectively.
Investor sentiment strengthened further to 1.8x (from 1.6x recorded last week) after 40 stocks advanced against 20 decliners. MANSARD (+25.5%), CCNN (+20.1%) and LINKASSURE (+17.3%) were the best performing stocks while the worst performing were UPL (-13.7%), AGLEVENT (-11.6%) and LAWUNION (-9.0%). As Q3 earnings scorecards of banks and industrial goods companies begin to trickle in from next week, we expect performance to be driven by investors’ assessments of earnings quality. However, as we remain optimistic on Q3 earnings, we expect market performance to stay positive in the near term.
Money Market Review and Outlook
As the Apex bank continued with daily OMO mop-ups on all trading days of the week, system liquidity remained tight; as such, money market rates trended higher and remained within double digits range all week. At the start of the week, Open Buy Back (OBB) and Overnight (OVN) rate closed at 29.2% and 32.1% respectively - higher than 25.8% and 26.0% on the previous Friday- as the announcement of the SMIS wholesale FX auction as well as an OMO auction (Offered: N70.0bn, Sale: N43.2bn) by the CBN weighed on system liquidity which was in a deficit of N283.6bn. Similarly, on Tuesday OBB and OVN trended higher to 45.5% and 48.3% respectively, as the CBN floated another OMO auction which took out N25.4bn from the system, while liquidity deficit worsened to N302.8bn. On Wednesday however, OBB and OVN rate moderated to 41.7% and 44.3% respectively and further pared to 22.5% (OBB) and 25.9% (OVN) on Thursday following an OMO maturity of N61.5bn which resulted in an improvement in system liquidity, albeit still in a deficit of N185.6bn. OBB and OVN rate eventually closed the week at 33.3% and 35.3%, up 7.5 and 9.3 percentage points W-o-W respectively.
Sentiment in the Treasury bills market was largely bearish throughout the week as low liquidity levels continued to pressure activities. At the start of the week, average yield stood at 18.5%, higher than 18.4% on Friday, and remained at this level on Tuesday. However as system liquidity tightened on Wednesday, average yield on benchmark bills further increased to 18.6% before closing the week at 18.6% up 15bps W-o-W.
In the coming week, an OMO maturity of N75.9bn will hit the system, although we expect the impact to be subdued by sustained OMO mop ups by the Apex bank. Hence, money market rates are expected to remain within current double digits range.
Foreign Exchange Market Review and Outlook
In line with the recent trend, the CBN injected US$195.0m into the foreign exchange market on Monday to keep rates stable at all segments. Nonetheless, interbank rate depreciated 14bps W-o-W to N355.99/US$1.00 from its last Friday’s close of N355.49/US$1.00 while official rate was unchanged at N305.50/US$1.00. Contrary to last week’s appreciation in rate at the parallel market, the Naira traded flat at N363.00/US$1.00 all through this week. At the I&E Window, the naira appreciated on the first two trading sessions during the week; closing at N360.50/US$1.00 on Monday then rising to N360.31/US$1.00 on Tuesday before declining to N360.71/US$1.00 by mid-week. It however marginally strengthened on Thursday to N360.52/US$1.00 following a 35.1% daily jump in volume of transactions to US$341.2m. Consequently, the NAFEX rate extended gains till Friday to close the week at N360.43/US$1.00, indicating a 21 kobo appreciation W-o-W.
In the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures for the 12 instruments on the calendar stood at US$3.1bn as at Thursday 12th October, with the APR 25 2018 enjoying the most level of subscription at a value of US$517.3m whilst the JUN 27 2018 instrument currently has the least subscription at a value of US$117.3m.
With the price of crude oil stabilizing above US$50.00/b in the last two months, external reserves continue to grow steadily, closing at US$33.1bn on Wednesday. We expect the FGN’s proposed external borrowing to fund 2017 budget to further stabilize reserves and support CBN’s capacity to continue to intervene in the FX market. As such, we expect rates to continue to trade within a tight band at all segments in the near term.
Bond Market Review and Outlook
Investor sentiment stayed bullish in Nigeria’s bond market for the sixth straight week as average yield across tenors declined 27bps W-o-W to 15.1%. Most instruments initially traded flattish to begin the week, bar minor selloffs on May 2018 (+22bps), March 2027 (+7bp) and April 2037 (+7bp), but sentiment strengthened on subsequent trading sessions. The positive sentiment was particularly skewed towards the longer duration bonds with MAR 2036, JUL 2034 and JUL 2030 yields moderating 56bps, 20bps and 14bps W-o-W to 14.8%, 15.1% and 15.0% respectively. Amongst the mid-tenured instruments, we observed a more mixed performance reflected in flattish close in JAN 2026, in contrast to buying interest in MAR 2027 (-61bps).
The bullish sentiment this week was spurred by the guidance issued by the Debt Management Office (DMO) last week on lower domestic borrowing plans by the Federal Government in Q4:2017. The FGN is planning to issue N270.0bn – N330.0bn via primary market auctions in Q4:2017 compared to N360.0bn-N450-bn in Q3:2017. President Buhari’s request to the National Assembly on Tuesday for approval to raise $5.5bn in external debt confirmed the transitional shift away from domestic financing to foreign sources, hence the strong appetite for local bonds this week. We expect sentiment to stay bullish in the short term against the backdrop of increased demand by local and offshore fund managers’ vis-à-vis proposed decline in volume of primary market issuance.
In the same vein, performance across Sub-Saharan African sovereign Eurobonds maintained positive momentum from last week with the majority of instruments under our coverage closing the week on lower yields as investor confidence is spurred by rallying commodity prices. Yields on Nigeria 2018 (-22bps), Ghana 2023 (-12bps) and Gabon 2024 (-9bps) decreased the most W-o-W. Whereas Ghana 2026 (+9.1%), Zambia 2024 (+9.1%) and Ghana 2023 (+8.5%) have appreciated in value the most YTD.
Likewise, Nigerian Corporate Eurobond performance was largely positive resting on an average yield decline of 2bps W-o-W. Moderations in yields of ACCESS 2021(-69bps) and DIAMOND 2019 (-66bps) were contrasted by rises in FBN 2020 (+128bps) and FIDELITY 2018 (+9bps). The top gainers in price YTD are FBN 2024 and DIAMOND 2019, up 27.9% and 25.7% respectively.