Global Equity Market Review and Outlook
Performance of global equity indices was largely bullish this week as 14 of the 16 indices under our coverage closed the first trading week of 2018 in the green. The positive performance can be attributed to sustained investor appetite for equities following the impressive return in 2017 as well as the usual “January effect”- a period in which increased buying activity is recorded in the first month of the year.
Across the developed markets, the US S&P 500 and NASDAQ gained 1.9% and 2.5% respectively W-o-W with stocks in the financial and technology sector driving gains on Wall Street. The positive performance can be tied to expectation of impressive earnings as well as the euphoria surrounding the tax reform bill signed into law by President Donald Trump late last year. The UK FTSE also followed suit, advancing 0.4% W-o-W.
In the BRICS classification, performance was positive as all indices closed in the green. The Russian RTS led gainers, advancing 5.1% W-o-W as the sustained rally in oil prices continues to buoy investor sentiment. Similarly, Brazil’s Ibovespa improved 2.7% W-o-W on account of optimism around economic data releases and forecasts which point to a possible recovery in in the domestic economy. Likewise, China’s Shanghai Composite appreciated 2.6% W-o-W while India’s BSE Sensex marginally rose 0.3% W-o-W.
Performance of bourses under our Europe and Asia classification was also positive as all indices trended northwards W-o-W. Japan’s Nikkei appreciated the most, gaining 4.2% W-o-W followed by Hong Kong’s Hang Seng index (+3.0% W-o-W). The generally positive sentiment was also observed in European markets as Germany’s XETRA DAX rose 3.0% W-o-W while France’s CAC 40 followed with a 2.6% appreciation W-o-W.
In the African markets, performance was mixed. The NSE ASI gained 1.8% W-o-W on the back of a broad based rally across sectors while Ghana’s GSE Composite gained 1.3% W-o-W. On the flipside, Egypt’s EGX 30 and Kenya’s NSE 20 depreciated 0.8% and 0.3% W-o-W respectively.
Domestic Equity Market Review and Outlook
In line with the trend across major global equity indices, performance of the local bourse in the first trading week of the year was positive as the All Share Index (ASI) added 1.8% W-o-W to settle at 38,923.26 points while YTD return stood at 1.8%. Accordingly, investors gained a total of N242.0bn in value as market capitalization increased to N13.9tn. In the same vein, activity level improved as average volume and value traded rose 42.0% and 66.5% to 753.3m units and N11.0bn respectively. The top traded stocks by volume were TRANSCORP (512.8m), DIAMOND (348.9m) and SKYE (331.7m) while NIGERIAN BREWERIES (N4.0bn), ZENITH (N2.6bn) and NESTLE (N2.1bn) were the top traded stocks by value.
The market kicked off the week on a positive note primarily due to buy interest in ZENITH, ACCESS and DANGSUGAR which drove the ASI 6bps higher. On Wednesday, the positive performance was reversed as sell offs in DANGCEM dragged the benchmark index 20bps lower; ex-DANGCEM, the ASI would have performed positively following price appreciation in small and mid-cap stocks. On Thursday, the benchmark index increased 1.3% on the back of sustained rally in GUARANTY, ZENITH and UBA while the positive trend was extended into Friday as the ASI grew 64bps.
Sector performance was bullish this week as all the indices advanced W-o-W. The Banking index led the gainers chart, up 6.3% W-o-W due to price appreciation in GUARANTY (+5.5%) and ZENITH (+8.8%). The Insurance index trailed, inching 4.7% higher, buoyed by gains in MANSARD (+16.6%) and AIICO (+9.6%). The Industrial Goods index followed suit, climbing 3.5% W-o-W due to upticks in WAPCO (+11.4%) and CCNN (+4.6%). Also, bargain hunting in NIGERIAN BREWERIES (+2.4%), DANGFLOUR (+15.2%), SEPLAT (+3.8%) and FORTE (+5.8%) pushed the Consumer Goods (+1.5%) and Oil & Gas (+1.0%) indices higher.
Investor sentiment, measured by market breadth, strengthened to 5.4x from 1.3x in the previous week as 54 stocks advanced while 10 declined. The top performing stocks this week were STERLING (+30.6%), FCMB (+28.4%) and DIAMOND (+26.0%) while MOBIL (-12.6%), NEM (-7.8%) and NEIMETH (-4.0%) were the worst performers. Following a broadly bullish performance this week, we expect to see some profit taking in early trades next week.
Money Market Review and Outlook
Aggregate system liquidity opened the year positive at N400.7bn while Money market rates –Open Buy Back (OBB) and Overnight (OVN) - opened in single digit at 4.7% and 5.5% respectively, indicating an 84bps and 100bps increase from the previous Friday’s close. The Apex bank resumed primary market sales during the first week of the year, mopping up a total of N157.6bn (T-bills) and N161.5bn (OMO) from the system. As a result, aggregate liquidity balance declined at the start of the week – albeit still positive, but inched higher on subsequent days as OMO repayments worth N193.6bn buoyed liquidity levels to N661.7bn by Thursday’s close. Consequently, OBB and OVN rates remained in single digits all through the week save for Friday, trading within a band of 3.7%- 5.5%. By the end of the week, money market rates jumped to 18.3% and 19.0% as the CBN conducted OMO sales which mopped up N260.5bn; hence rates closed the week 14.5 percentage points higher apiece W-o-W.
Average rate in the Treasury bills market trended lower on 3 of the 4 trading sessions, indicating a largely bullish performance. Average rate closed the first session bearish at 14.5% (a 5bps increase from previous Friday) as investors sought to free up funds in anticipation of the T-Bills PMA to be held mid-week. Accordingly, sentiment in the secondary market picked up as average rate closed 5bps and 46bps lower on Wednesday and Thursday respectively before settling at 13.9% on Friday, down 48bps W-o-W.
Following the cessation of T-Bills PMA in December 2017, activities in this week’s PMA were largely positive as all instruments were oversubscribed. The CBN offered N11.8bn, N33.9bn and N115.8bn for the 91-day, 182-day and 364-day instruments respectively which were oversubscribed by 2.1x (N24.3bn), 1.3x (N44.9bn) and 2.7x (N319.2bn) in that order. Allotment levels were same as offered, issued at stop rates of 12.5%, 13.9% and 14.3% respectively – a 40bps, 107bps and 127bps drop from the last PMA auction held in November.
Next week, an OMO maturity of N309.1bn is expected to hit the system; hence money market rates should remain in the single digit band, barring the resumption of aggressive OMO mop ups by the CBN. More so, we expect a largely positive performance in the secondary T-Bills market as investors with unsuccessful bids at the PMA held this week mull over opportunities in the secondary market.
Foreign Exchange Market Review and Outlook
At the start of the week, the CBN sustained its intervention in the FX Market via Secondary Market Intervention Sales (SMIS), offering US$100.0m to market participants on Tuesday in a bid to maintain stability in the foreign exchange market. Hence, rates opened the week at similar levels from the previous Friday. On Tuesday, the CBN spot rate stood at N306.00/US$1.00 (same as previous Friday); however, a 5kobo appreciation was recorded on the following day and rates remained at this level till the end of the week, closing at N305.95/US$1.00. Likewise, at the parallel market, rates opened the week at N365.00/US$1.00 and stayed flat on all trading days.
However, at the NAFEX market, rates on the first trading day closed flat at N360.28/US$1.00 before depreciating 88 kobo to N361.16/US$1.00 by midweek. This downturn was reversed on Thursday as the NAFEX rate traded at N360.75/US$1.00, before closing the week at N360.34/US$1.00 which implies a 6 kobo depreciation. Relatedly, activity level in the I&E window softened relative to the previous week as total value of transactions declined to US$394.6m (as at Thursday), indicating a 2.7%decline against US$405.7m in the prior week.
Trading activity in the FMDQ OTC futures market was minimal this week as none of the 12 OTC futures contracts received new subscriptions. As a result, total value of open contracts of the Naira settled OTC futures instruments stood flat at US$3.3bn on Friday, same value in the prior week. Nonetheless, the NGUS APR 2018 instrument remains the most subscribed with total value of US$656.9m at a rate of N361.64/US$1.00 while the recently issued NGUS DEC 2018 is the least at US$10.0m at a rate of N362.00/US$1.00.
In the coming week, we expect the naira to trade at similar levels as the CBN sustains its weekly interventions in the Foreign Exchange market. This view is further supported by rising crude oil prices which have stayed over US$60.0/b in the past month and external reserves currently at US$39.1bn (04/01/2018).
Bonds Market Review and Outlook
Sentiment in the domestic bond market was mixed this week as average yield moderated in 2 of 4 trading sessions. The week started off on a negative note as average yield rose 7bps to 14.1% on Tuesday following sell-offs in short and longer tenored instruments - notably MAY 2018 (up 75bps) and MARCH 2036 (up 73bps) bonds. However, sentiment turned positive the following day, with yields falling 8bps to 14.0% as investors sought for buying opportunity in the MARCH 2036 (down 27bps) and further declined 14bps on Thursday to 13.9% following increased buy interest in the JULY 2021 (down 55bps), JAN 2027 (down 46bps) and MARCH 2036 (down 33bps). Average bond yield ended the week on a positive note, settling at 13.7% which implies a 40bps decline W-o-W.
Sub- Saharan Africa Eurobonds opened the year on a positive note, as investors continued their search for high yield emerging market instruments. Across the Eurobonds under our coverage, average yield fell 26bps, 38bps, 36bps, 21bps, 27bps, 25bps, 4bps and 23bps W-o-W on the Nigerian, Ghanaian, Gabonese, Ivory Coast, Kenyan, Zambian, Senegalese and South African instruments in that order. Nonetheless, the SOUTH AFRICA 2041 (+3.3%), IVORY COAST 2028 (+2.8%) and NIGERIA 2047 (+2.5%) had the highest YTD return.
Following a largely positive year for Nigerian corporates, sentiment on the corporate Eurobonds remained strong in the first trading week of the year. Consequent on the bullish sentiment, average yield on all corporates fell W-o-W. The FIDELITY 2018 (down 35bps W-o-W to 3.1%) witnessed the most buy interest, trailed by ECOBANK NIGERIA 2021 (down 27bps W-o-W to 9.6%). Year to date return on all instruments is currently in the green, with ZENITH 2022 (+0.9%) advancing the most.