Weekly Market Review and Outlook – Week Ended Mar. 17, 2017

Global Market Review and Outlook
It was bullish week for global equities as positive sentiment filtered through a range of indices under our coverage. As anticipated, the US Fed raised its benchmark interest rate by 25bps thereby bringing it to a target range of 0.75% - 1.00%. This is coming on the back of the last FOMC meeting held in December 2016, where Fed Chair, Janet Yellen indicated the possibility of 3 rate hikes in 2017. Performance in the developed market was positive. The UK FTSE advanced 1.1% W-o-W while the US S&P and NASDAQ closed higher at 0.4% and 0.7% W-o-W respectively as markets reacted positively to a Fed rate hike.

In the BRICS region, all indices closed northwards with the Russian RTS leading the pack, up 6.5%W-o-W to erase last week’s loss. The India BSE SENS and South African FTSE/JSE closed 2.4% W-o-W apiece. Likewise, the Brazil IBOVESPA and China SHANGHAI came in higher at 1.5% and 0.8% W-o-W respectively.

The Eurasian region saw all indices closed in the green save for the Japan NIKKEI, down 0.4% ahead of the G20 meeting and National holiday on Monday. The Hong Kong HANGSENG surged 3.1% amid comments from the Hong Kong Monetary Authority (HKMA) on the possibility of a rate hike while the France CAC and German DAX gained 0.7% and 1.0% W-o-W respectively.

Major indices in the African region closed higher. The Nigerian All Share Index extended gains to the second week, up 1.6% W-o-W while the Egypt EGX 30 gained 1.0% W-o-W. Similarly, the Ghanaian and Kenya NSE 20 closed 0.2% and 0.7% higher W-o-W respectively.

Equities Market Review and Outlook
The Nigerian All Share Index (ASI) extended W-o-W gains, advancing on 4 of 5 trading sessions to close at 25,653.16 points. The week opened on a negative note, down 40bps on the first trading day as investors adjusted for ZENITH’s closure date and booked profit in DANGCEM. However, the market rebounded the next trading session and has been on a bullish streak, recording gains on Tuesday (+0.6%), Wednesday (+0.1%), Thursday (+0.5%) and Friday (+0.9%). In the same vein, market capitalization improved by N143.7bn to settle at N8.9tn while YTD loss eased to -4.5%. Activity level was mixed during the week as average volume rose 0.5% to settle at 205.7mn units while average value fell 39.4% to settle at N1.5bn W-o-W.

Performance across sectors was broadly bullish as all sectors closed in the green. The Banking index topped this week’s sector indices, up 2.4% W-o-W on account of price appreciation in GUARANTY (+7.3%), UBA (+9.6%) and DIAMOND (+16.0%). The Insurance Index closely followed advancing 2.1% W-o-W due to buying interest in CONTINSURE (+13.2%) and MANSARD (+6.0%). Similarly, the Industrial goods index came in higher at 1.5% driven by gains in DANGCEM (+3.1%) and PORTPAINT (+9.4%) while the Oil & Gas index (+0.1%) closed the week positive as a result of gains in SEPLAT (+4.7%) and TOTAL (+0.9%). The Consumer goods index closed the week flat.

In line with market performance, investor sentiment improved as market breadth -advancers/decliners ratio - stood at 1.5x (against the previous 0.9x) on account of 30 stocks that advanced against 20 declining stocks. The best performing stocks for the week were DIAMOND (+16.0%), CONTINSURE (+13.2%) and AFRIPRUD (+9.6%) while NEM (-11.0%), 7UP (-9.6%) and NAHCO (-9.1%) were the worst performers. With the upcoming MPC meeting scheduled to take place on 20th and 21st of March, 2017, it is highly unlikely investor sentiment will be shaped by the expectations of this meeting given the present weak appetite for equities and the attractive yields in the fixed income market.  We are of the view therefore that investors will continue to play short on equities while having a much longer view on fixed income securities.

Money Market Review and Outlook
Despite a drop in system liquidity and increased primary market activities during the week, Open Buy Back (OBB) and Overnight (OVN) lending rates trended southwards on most trading days save for Tuesday when it rose 1.2 and 1.1 percentage points respectively. Available data showed that the week opened with financial system liquidity at negative N66.2bn. Nonetheless, OBB and OVN rates closed 0.5ppt and 0.7ppt lower than Friday’s close, settling at 14.0% and 14.6% respectively. This was despite the announcement of an OMO auction by the CBN where the Apex Bank offered N10.0bn of the 143-day and N20.0bn of the 318-day instruments although no sale was however recorded. Though OBB and OVN rates rose on Tuesday to 15.2% and 15.7% as banks got debited for the Special Wholesale Intervention Forward Sales of $150.0m carried out on Monday, OBB and OVN rates trended southwards till Thursday, settling at 11.0% and 12.3% respectively. However as the debit for successful bids at the DMO Bond auction dragged liquidity on Friday, OBB and OVN rose 3.3% and 2.7% points respectively to close  at 14.3% and 15.0%, down 0.2% and 0.3% W-o-W respectively. 

Activities in the Treasury Bills market were bullish this week as buying interest was evident during the trading sessions. Consequently, average yield dipped on most trading days save for Monday when it closed flattish as late sell-offs tapered the impact of the earlier buying interest on yields. Subsequently, average T-bills yield closed 16.8% on Friday, down 2.0% W-o-W. In the primary market, the Central Bank auctioned N39.0bn, N48.5bn and N126.3bn respectively of the 91-day, 182-day and 364-day instruments. The auction was oversubscribed by 0.8x with investors showing more interest in the longer dated bills (as with the recent T-bills auctions). The 91-day, 182-day and 364-day bills were issued at stop rates of 13.6%, 17.2% and 18.6% respectively.

Next week, we expect a T-bills maturity of N135.0bn to hit the system but its impact on system liquidity level is expected to be tapered by a scheduled roll-over of the same amount. Nonetheless, we expect money market rates to hover around current levels.

Foreign Exchange Review and Outlook
The Central Bank continued its liquidity injection drive this week as it continued Special Wholesale Intervention Forward Sales for maturing Letters of Credit (LCs). Similarly, Deposit Money Banks continued to sell Personal & Business Travel Allowances as well as Tuition and Medical fees. As a result, exchange rate at the parallel market firmed up slightly. Naira/Dollar exchange rate opened the week at N460.00/US$1.00 but appreciated to N455.00/US$1.00 by Thursday, before closing the week at N450.00/US$1.00.

However, the Naira marginally weakened against the Dollar at the interbank market during the week as Naira/Dollar exchange rate fell from N306.00/US$1.00 on Monday to N306.75/US$1.00 by Thursday before appreciating slightly to N306.50/US$1.00.

Activities at the FMDQ OTC FX Futures Market remained relatively quiet during the week. Nevertheless, total Value of open contracts increased to $4.09bn as at Thursday, March 16 from $3.99bn recorded last week. The April 26 2017 (which was the cheapest instrument for an extended period of time at the launch of the Futures market) remains the most subscribed, with value of open contracts at $893.77m. Next week, the March 22, 2017 contract (value of open contracts at $354.71m) will be maturing, we expect the Apex Bank to replace it with a March 2018 contract, in line with recent trend.

In the week ahead, we expect the Apex Bank to continue its drive to boost FX liquidity in the market. Current external reserves level of $30.3bn (March 15, 2017) suggests that the CBN is in a healthy position to continue dollar sales to the market.

Bond Market Review and Outlook
The local bonds market was relatively quiet ahead of the Debt Management Office’s (DMO’s) scheduled primary market auction. Average yield on benchmark bonds opened the week at 16.0% and closed flattish on the first 3 trading days. On Wednesday, the DMO offered N45.0bn, N50.0bn and N35.0bn respectively of the JUL 2021, MAR 2027 (New issuance) and MAR 2036 instruments. The PMA was oversubscribed by 0.6x as total subscription stood at N216.4bn relative to offered amount of N130.0bn. Investors showed preference towards the longer tenored instruments as total subscription to the MAR 2027 bond stood at N75.99bn relative to offered amount of N50.0bn whilst total subscription to the MAR 2036 instrument settled at N102.18bn relative to offered amount of N80.0bn. The JUL 2021 instrument was however undersubscribed as total subscription stood at N38.21bn compared to offered amount of N45.0bn. Consequently, the DMO allotted N30.0bn, N50.0bn and N80.0bn of the JUL 2021, MAR 2027 and MAR 2036 instruments at marginal rates of 16.24%, 16.29% and 16.28% respectively. Post DMO auction, the secondary market reacted with sell-offs as investors took profit particularly on the MAR 2036 instrument. As a result, average yield rose 4bps on Thursday, before eventually closing at the week at 16.0% on Friday, down 2 bps W-o-W.

The Federal Government through the Debt Management Office also commenced the issuance of the first tranche of the Retail Savings Bond. The savings bond (with a maturity date of March 22, 2019) was offered at an interest rate of 13.01% (paid quarterly). Offer for subscription was open from Monday 13th March – Friday 17th March.

Contrary to the performance recorded last week, performance of the Sub-Saharan sovereign Eurobonds was largely bullish as investors hunted for bargains across board despite a rate hike by the US FED during the week. Consequently, yield on all SSA sovereigns fell save for the Nigerian 2021, South African 2041 (up 6bps apiece) as well as the Gabon 2024 and Ivory Coast 2028 (up 3bps apiece). Average yield on the Ghana, Kenyan and Zambian sovereign Eurobonds dropped 15bps, 8bps and 17bps respectively whilst yield on the South African 2017 declined 29bps. Similarly, yield on the Nigerian 2023 and 2018 Eurobonds fell 11bps and 17bps respectively.

Similar to last week, performance of the Nigerian corporate Eurobonds was mixed as yields rose on a number of instruments whilst the others recorded buying interest. During the week, sell-offs were recorded on the FIDELITY 2018 (up 42bps), GUARANTY 2018 (up 2bps), ACCESS JUNE 2021 (up 13bps) and the FBN 2021 (up 4bps). On the other hand, the ACCESS 2017 Eurobond (down 41bps) continued to enjoy buying interest whilst yield also fell on the ACCESS OCT 2021 (down 10bps) and the DIAMOND 2019 (down 4bps).