Global Equity Market Review and Outlook
Global Equity markets were largely bearish this week as the recent rally in crude oil prices were reversed with Brent Crude prices declining 2.8% W-o-W to close the week at US$61.77/b. Investors reacted to data on U.S crude stockpiles which increased by 1.85m barrels last week, a potential disruption to OPEC’s proposed supply cuts with allies beyond the march deadline, which was intended to curtail oversupply and rebalance the oil markets. Notwithstanding, Brent crude has continued to trade above US$60.0/b due to expectation of an output cut extension by OPEC/non-OPEC members as well as tension in the Middle East. Majority of the indices under our coverage closed the week in the red with Egypt’s EGX 30(-3.5%) and Russia’s RTS ( -2.1%) leading losers.
In the developed markets, the UK FTSE All Share declined 0.8% W-o-W as fragilities in the British government continue to arise following the resignation of two ministers within a week, a major distraction from its BREXIT negotiations. Relatedly, retail sales in the U.K declined 0.3% Y-o-Y in October, the first drop in more than four years. On the flip side, the US NASDAQ rose 0.5% W-o-W while the S&P 500 traded flat as a result of a rally in U.S tech stocks and speculations on the Tax reform proposing Corporate Tax cuts which seems to be gaining momentum.
Across the BRICS, performance was mixed with 3 of 5 indices closing in the green with the Brazil Ibovespa appreciating the most, up 1.0% W-o-W. Similarly, the South Africa FTSE/ JSE and India BSE SENS both gained 0.6% and 0.1% W-o-W respectively. On the Contrary, the Russia RTS lost 2.1% W-o-W while the China Shanghai Composite fell 1.4%W-o-W due to release of weaker-than-expected economic data. In the Eurasia region, all indices trended southward, save the Hong Kong Hang Seng which closed the week in the green, gaining 0.3% W-o-W. The Japan Nikkei lost 1.3% W-o-W, while France’s CAC 40 also declined 0.9% and Germany’s XETRA DAX shed 0.6% W-o-W.
In the African markets, the Ghana GSE composite was the lone gainer, up 4.7% W-o-W. Contrarily, the Egypt EGX 30 was the biggest loser, down 3.5% W-o-W following sell-offs by foreign investors. The Nigerian All Share Index trailed, down 1.3% W-o-W. Similarly, the Kenyan NSE continued its negative run from the previous week, dipping 0.2% W-o-W.
Domestic Equity Market Review and Outlook
Performance in the Nigerian Bourse this week was bearish as the ASI dipped 1.1% W-o-W to close at 36,703.68 points while YTD return moderated to 36.6%. Accordingly, investors lost N73.0bn as market capitalization settled at N12.8tn. However, activity level improved as average value and volume traded jumped 297.4% and 113.0% to N11.0bn and 560.8m units - owing to a cross deal of 128.5m shares of DANGCEM at N210.0 /share in a deal valued at N27.0bn and N9.8bn worth of trade on Nigerian Breweries on Thursday. The top traded stocks by volume are FBNH (194.2m), NIGERIAN BREWERIES (79.9m) and DIAMOND (67.5m) while the leading stocks by value traded are NIGERIAN BREWERIES (N11.0bn), GUINNESS (N1.7bn) and ZENITH (N1.5bn).
The week started off on a positive note as the ASI gained 0.5% following buying interest in DANGCEM (+3.9%). However, performance was quickly reversed on Tuesday (down 96bps) with the ASI recording its largest decline in 7 weeks, as investors took profit in NESTLE (-3.1%), ZENITH (-4.7%) and DANGCEM (-0.6%). The equities market further declined on Wednesday (-0.9%) amid the release of Morgan Stanley Capital International (MSCI) semi-annual index review which removed or reclassified stocks from the Main Frontier Markets Index and MSCI Frontier Small Cap Index. The ASI eventually rebounded on Thursday and Friday, up 0.1% and 0.2% on account of buying interest in GUARANTY (+1.4%) and FBNH (+4.2%) respectively.
Sector performance was largely negative this week with 4 of 5 indices under our coverage declining W-o-W. The Oil & Gas index was the lone gainer, up 0.8% W-o-W owing to price appreciation in FORTE (+10.2%) and MOBIL (3.0%). The losers were led by the Consumer Goods index which fell 2.9% W-o-W as investors sold positions in NIGERIAN BREWERIES (-3.5%), NESTLE (-3.0%) and UNILEVER (-6.2%). The Insurance and Banking indices trailed, shedding 2.0% and 1.3% respectively, following sell pressures in LINKASSURE (-17.6%), MANSARD (-2.4%), ZENITH (-3.5%) and ACCESS (-2.1%). Likewise, a price depreciation in WAPCO (-2.8%) dragged the Industrial Goods Index 1.0% lower.
Investor sentiment, measured by market breadth worsened to 0.5x (18 advancers/45 decliners) from 1.0x recorded the previous Friday. The top performers this week are AGLEVENT (+27.3%), FORTE (+10.2%) and BOCGAS (+9.9%) while the worst performers are CAVERTON (-21.4%), LINKASSURE (-17.6%) and CILEASING (-13.8%). Following this week’s loss, we expect market performance in early trades next week to be driven by bargain hunting in stocks which dragged the market throughout the week.
Money Market Review and Outlook
The week opened with negative system liquidity balance (N46.6bn from a deficit of N11.6bn last Friday) as the CBN conducted OMO sales worth N61.7bn as well as its weekly SMIS sales of US$100.0m. Accordingly, money market rates, Open Buy Back (OBB) and Overnight (OVN) rose 10.6 and 11.9 ppt to close at 17.8% and 19.8% respectively on Monday. Subsequently, on the back of an improving system liquidity which was positive at N26.1bn on Tuesday, money market rates moderated on all other sessions, closing lower on Tuesday (12.2% and 13.4% respectively), Wednesday (10.2% and 11.3% respectively) and eventually a week-low of 6.2% and 6.7% respectively on Thursday. This improvement was largely on the back of Primary market repayments - OMO (N141.7bn) and T-bills PMA (net balance of N0.1bn) which buoyed system liquidity balance to N297.6bn on Thursday. However, rates surged on Friday due to an OMO auction which mopped up N66.0bn from the financial system, hence OBB & OVN rose to 26.7% and 27.7% on Friday, implying a 19.5 and 19.9 ppt increase W-o-W.
Performance in the Treasury Bills market was broadly bullish as average rates fell on 3 of 5 sessions. The week started with sell-offs across long dated instruments as average rate (across three benchmarks we track) rose 3bps to 17.0%. However, performance was reversed on Tuesday as average rate fell 16bps to 16.8% after the National Assembly granted the FGN’s request to raise external debt to refinance expensive T-bills. On Wednesday, rates fell further to 16.5% on average but rose 18bps to 16.7% on Thursday, closing at same level on Friday, indicating a 27bps decrease W-o-W.
At the PMA auction, the CBN auctioned N32.4bn, N22.8bn and N64.7bn of the 91-day, 182-day and 364-day instruments. Given investors’ expectation of a near term monetary easing, the 91-day and 182-day instruments were undersubscribed by 54% and 38% while the 364-day instrument was oversubscribed by 2.2x. Accordingly, the Apex Bank allotted N6.0bn apiece for the 91-day and 182-day instruments while N107.9bn was allotted for the 364-day instruments at previous stop rates of 13.0%, 15.3% and 15.6% respectively.
In the coming week, we expect an OMO maturity of N200.9bn to buoy system liquidity. Nonetheless, we believe the outcome of the last MPC meeting for the year would dictate activities in the money market – particularly sentiment for Treasury Bills.
Foreign Exchange Market Review and Outlook
This week, the CBN conducted its weekly SMIS auction with US$100.0m on offer at a rate of N330.00/US$1.00 in order to meet dollar demand and maintain stability in the Foreign exchange market. Accordingly, rate at the interbank market traded within a range of N355.49/US$1.00– N359.99/US$1.00. Rates opened the week at N355.49/US$1.00 (similar to previous week’s close of N355.49/US$1.00) but depreciated on all other days save for Friday when the exchange rate slightly rebounded to N359.79/US$1.00. Meanwhile, activities at the official market remained stable, with the CBN spot rate pegged at N306.00/US$1.00 on Monday till mid-week before a marginal appreciation on Thursday to N305.95/US$1.00.
At the FMDQ I&E Window, turnover as at Thursday stood at US$674.3bn, relatively lower than US$682.9bn recorded in the same period last week; the Naira opened the week at N359.91/US$1.00 in the Window and closed at N359.84/US$1.00, implying a 2bps appreciation W-o-W. In line with recent trend, FX rate at the parallel market was stable all week. The naira opened the week at N363.00/US$1.00, traded flat till mid-week before depreciating to N364.00/US$1.00 and closed the week at same level.
In the FMDQ OTC futures market, total value of open contracts closed the week higher at US$3.2bn from US$3.1bn recorded in prior week’s close. All 12 contracts have remained undersubscribed with the soon to mature NGUS NOV 2017 the most subscribed with total value of US$490.2m and the recent NGUS OCT 2018 the least with total value at US$49.5m.
Next week, the MPC will be holding its last meeting in 2017 and we believe the current FX framework, which has resulted in stability in FX rates, will be a major talking point. That said, it is unlikely there would be any change in CBN’s FX peg in the near term, given the 2018 budget assumes an exchange rate of N305/US$1.00; hence barring any negative surprises, we expect rates to hover around current levels in the near-term.
Bonds Market Review and Outlook
Activities in the domestic bonds market remained quiet but largely positive during the week as average yield across instruments moderated on all 5 trading sessions. Average yield opened the week flat at 15.2% (from 15.2% the previous Friday) but moderated on Tuesday (down 2bps), Wednesday (down 4bps) and Thursday (1bps) on account of buying interest in JUNE 2018, JUNE 2019 and MARCH 2024 instruments respectively. Average yield across tenors closed at 15.18% on Friday, indicating a 5bps decline W-o-W. The bullish sentiment this week could be attributed to the approval granted by the National Assembly on Tuesday, for the Federal Government to US$5.5bn in external debt – a combination of Eurobond, Diaspora bond and foreign currency loan syndication - to fund 2017 budget deficit and refinance domestic debt. The shift in debt portfolio of the FGN is expected to reduce volume of domestic debt securities issuance in the near term, hence the bullish sentiment.
In the coming week, the DMO will be re-opening the JULY 2021 and MARCH 2027 instruments with offer amounts ranging from N45.0-N55.0bn for each of the bonds. As with trend, we expect the auction to be largely successful with similar marginal rates (to previous auction) as well as higher level of subscription for the long dated bond.
Bullish sentiment returned to Sub-Saharan African Sovereign Eurobonds this week following last week’s sell-off. Across all instruments we track, average yield fell 13bps, 17bps, 23bps, 10bps, 22bps 9bps, 4bps, 8bps on the Nigerian, Ghanaian, Gabonese, Ivory Coast, Kenyan, Zambian, Senegalese and South African instruments. In a related development, the Federal Government of Nigeria has embarked on a road show to raise US$2.5bn in Eurobonds following the National Assembly’s approval. Global Rating Agency - Fitch has assigned the upcoming senior unsecured USD denominated notes B+ with a negative outlook, which is at par with the Agency’s rating on existing sovereign bonds. We expect the issuance to be largely successful given the improvement recorded in macro-economic variables and strong investor appetite for high yielding emerging markets bonds.
Following Moody’s recent downgrade to B2 from B1 of the long-term local currency deposit and issuer ratings of four Nigerian banks - ACCESS, GUARANTY, UBA, and ZENITH, performance in the Nigerian Corporate Eurobond Market was largely bearish this week. The FBNH 2021 (YTM up 1.3% W-o-W) and FBNH 2020 (YTM up 0.5% W-o-W) witnessed the most sell-off. Contrarily, the DIAMOND 2019 (YTM down 0.5% W-o-W) recorded the highest gain. Nonetheless, despite Moody’s recent downgrade, Nigeria’s corporate Eurobonds have all enjoyed positive YTD return with DIAMOND 2019 leading with a return of 26.1%.