Weekly Market Review and Outlook

Photo L-R: Nike Akande, President, Lagos Chamber of Commerce & Industry (LCCI); Selloua Chakri, Head of Market Structure Strategy, MEA, Bloomberg L.P; Kemi Adeosun, Minister of Finance, Federal Republic of Nigeria; Oscar Onyema, Chief Executive Officer, The Nigerian Stock Exchange (NSE) at The NSE & Bloomberg CEO Roundtable event at the Exchange yesterday.


Global Market Review and Outlook
Performance across the Global equity markets this week was largely bearish as most of the indices under our watch trended southward. In the UK, the huge fire that engulfed the Grenfell Tower in London on Wednesday triggered concerns regarding safety in the country. The terrifying event which occurred just shortly after the June 8 election that saw current UK prime minister, Theresa May, lose sound footing in the securement of her leadership of the parliament, is believed to have further exacerbated worries and uncertainty concerning Brexit.

Consequently, the UK FTSE led losses in the Developed Market, shedding 0.8% W-o-W on account of increasing worries amongst investors on the current social and political tension within the country. The US S&P and NASDAQ dipped 0.3% W-o-W and 1.1% W-o-W respectively against the backdrop of the rout in tech stocks due to concerns on overstretched valuation as well as the “dovish hike” in policy rate by the Fed on Wednesday.

Across the BRICS markets, performance was largely bearish as all indices closed in the red. The Brazil IBOVESPA declined 1.2% W-o-W on the back of the lingering political tension associated with the corruption case against Brazil President Michel Turner while the Russia RTS slid 2.1% W-o-W following the U.S Senate’s signal to expand sanctions to Russia amidst an ongoing probe into Russia’s meddling in last year’s U.S election. In the same vein, the China SHANGHAI dipped 1.1% W-o-W despite actions by the monetary authority to boost liquidity in the financial system.

In the Eurasia region, much like the BRICS, performance was broadly bearish as all indices trended southward. The France CAC 40 fell 1.0% W-o-W due to the recent developments in the UK that have created some uncertainty regarding Brexit. Also, the Japan Nikkei 225 declined 0.3% W-o-W despite the Bank of Japan’s decision to leave monetary policy unchanged which saw the yen remain near a two-week low against the dollar. Likewise, the German XETRA DAX fell 0.7% W-o-W. However, African Bourses closed bullish as all indices we track appreciated save for the Egypt EGX 30 which slipped 1.5% W-o-W. The Nigerian All Share Index extended bullish momentum, rising 1.6% W-o-W on the back of increasing investor appetite for equities. Similarly, the Kenyan NSE 20 and Ghana GSE gained 2.1% W-o-W and 0.9% W-o-W respectively.

Equities Market Review and Outlook
The upbeat performance in the Nigerian Equities market since introduction of the I&E window was extended to this week’s trading sessions as Investor sentiment towards equities remained bullish. Investors initially took profit in the opening trades of the week but the market rebounded on Wednesday with the momentum being sustained till Friday. Consequently, the All Share Index gained 1.6% W-o-W to close at 33,810.56 points, pushing YTD gain to 25.8%. Performance was largely driven by price appreciations in GUARANTY (+6.7%), ZENITH (+10.6%), UNILEVER (+20.9%), MAYBAKER (+60.6%) and CCNN (+33.7%). Accordingly, investors gained N187.9bn as market capitalization improved to N11.7tn. Activity level, however, was mixed as average volume traded in the week declined 11.7% to 547.4m units while average value increased 9.8% to N6.4bn.

Performance across sectors was mixed, although positively skewed, as 3 of 5 indices advanced W-o-W. The Banking index advanced the most, up 5.0% W-o-W on account of upticks in GUARANTY (+6.7%) and ZENITH (+10.6%) while the Insurance index trailed closely, accumulating 3.6% W-o-W on the back of gains in MANSARD (+12.1%) and AIICO (+5.4%). Similarly, the Consumer Goods index inched 0.5% higher W-o-W due to bullish sentiment in UNILEVER (+20.9%) and NIGERIAN BREWERIES (+5.1%). On the flip side, the Oil & Gas index declined 4.2% W-o-W due to profit taking in FORTE (-13.6%) and SEPLAT (-1.8%), while the Industrial Goods index slid 0.3% W-o-W on account of losses in WAPCO (-0.9%).

Investor sentiment as reflected by the market breadth (advancers/decliners’ ratio) softened to 0.9x (from 2.3x recorded in the previous week) as 35 stocks advanced while 39 declined. The best performing stocks for the week were MAYBAKER (+60.6%), SKYEBANK (+41.5%) and CCNN (+33.7%) while INTBREW (-19.2%), FORTE (-13.6) and LEARNAFRCA (-12.6%) were the worst performers. Whilst we remain optimistic that the upbeat market performance would persist in the near term as investor sentiment remains largely driven by strengthening macroeconomic fundamentals and FX management, we envisage some profit taking by investors on value stocks in the early trading sessions of next week.

Money Market Review and Outlook
Money market rates spiked at the start of the week on the back of several OMO issuances and FX auctions conducted by the CBN which pressured liquidity levels; thus, Open Buy Back (OBB) and Overnight (OVN) rates jumped 99.0 and 108.2 percentage points to close at 116.7% and 126.7% on Monday respectively (from 17.7% and 18.5% recorded the previous Friday). The CBN conducted OMO auctions on the first two trading days, selling N5.3bn and N2.1bn of OMO bills on Monday and Tuesday respectively, in addition to FX auctions on both trading days which also drained liquidity. However, money market rates moderated in subsequent sessions - OBB and OVN rates settled at 16.3% and 17.3% respectively on Wednesday and further declined to 6.3% (OBB) and 6.7% (OVN) on Thursday as N205.0bn in OMO maturity bolstered liquidity levels. Consequently, the CBN automatically rolled over the maturing bills at 16.0% stop rate and further mopped up N86.8bn on Friday via an OMO auction. N1.0bn and N85.8bn were allotted for the 174-day and 305-day maturities at stop rates of 18.0% and 18.6% respectively. OBB and OVN rates subsequently inched higher to 15.2% and 15.7% on Friday, down 2.5 and 2.8 percentage points W-o-W.
Activity in the secondary T-bills market was largely bullish as average T-bills rate trended lower on 4 of 5 sessions. Average T-bills rate opened the week 36 bps lower to close at 18.2% on Monday. However, sentiment turned bearish on Tuesday following an OMO auction floated by the CBN. By mid-week, the bearish sentiment was bucked as rates trended 55bps lower despite T-bills maturity of N214.4bn and a rollover of N236.7bn – implying a system debit of N22.3bn. The CBN offered N39.0bn of the 91-day, N23.0bn of the N182-day and N174.6bn of the 364-day instruments. All instruments were oversubscribed but the Apex Bank allotted the exact amount offered at stop rates of 13.5%, 17.3% and 18.6% respectively. Average T-bills rates settled at 18.1% on Friday, down 38bps W-o-W.

In the week ahead, we expect the CBN to continue its aggressive stance by way of OMO and SMIS auctions. Hence, we expect money market rates to be altered by liquidity dynamics.

Foreign Exchange Market Review and Outlook
At the foreign exchange market, we have continued to see improvements in liquidity and rates convergence since the launch of the NAFEX window and sustained CBN interventions in the interbank market via Wholesale and Retail SMIS which have buoyed confidence in the economy and financial markets. On Monday, the Apex Bank intervened in the inter-bank FX market, selling US$413.5m in a bid to further guarantee liquidity in the market and support the naira. Another auction of US$260.0m was conducted on Tuesday, with the CBN offering US$100.0m to dealers in the whole-sale window, while the Small and Medium Enterprises (SMEs) window was allotted US$28.0m. Retail invisibles demand received the sum of US$25.5 million for Business/Personal Travel Allowances, school tuition, medicals, etc.

Against this backdrop, the naira exchange rate at the official market was flat at N305.7/US$1.00 from the previous week’s close of N305.6/US$1.00. Meanwhile, at the FMDQ NAFEX segment, the currency appreciated 1.0% W-o-W to N371.25/US$1.00 from N375.08/US$1.00 published in the prior week. However, rate at the parallel market depreciated to N370.00/US$1.00 from the previous Friday’s close of N367.00/US$1.00.

At the FMDQ OTC Futures segment, the value of open contracts closed the week higher at US$3,297.71m from the previous week’s close of US$3,290.25m. The NGUS JUN 2017 contract will mature in the coming week with a notional amount of US$657.07m. As with trend, we expect the CBN to replace the maturing contract with the NGUS JUN 2018 instrument. However, we noticed that the NGUS MAY 30 2017 instrument has not attracted any subscription since its issuance in May 2017. This could be tied to the less favorable pricing of the derivatives contract prices (which is in a backwardation now) since the change in settlement exchange rate to NAFEX from NIFEX.

We expect the stability in the FX market to be sustained in the short to medium term as the CBN continues its intervention in the spot and forward markets as well as the improvement in the NAFEX window.
Bond Market Review and Outlook
Performance in the local bonds market was mixed this week as yields rose on 3 of 5 sessions. Activity kicked off on a quiet note as yields were barely changed across tenors save for the JULY 2021 instrument which investors sold off on. Yields further expanded 23bps on Tuesday, majorly due to sell offs in mid to long tenored bonds. The trend was reversed on Wednesday due to buy sentiment in the JAN 2026 and JULY 2030 instruments; hence yields fell 19bps on average across tenors. Average yield on benchmark bonds eventually closed the week at 16.0%, down 8bps W-o-W. Next week, the DMO will be re-opening JULY 2021, MAR 2027 and APR 2037 instruments with offer amounts of N40.0bn, N50.0bn and N50.0bn respectively. We expect yields to continue to trend within a tight band as expectation of market interest rates remains unchanged despite lower inflation numbers. 

Sentiment on Sub-Saharan Africa Sovereign Eurobonds stayed bearish this week as yields rose on a range of instruments within our coverage. The bearish sentiment could be attributed to the US Fed’s decision to raise its benchmark interest rate while maintaining the possibility of one more rate hike during the year. Consequently, yields on all Nigerian, Ghanaian, Gabonese, Ivory Coast, Kenyan, Zambian and Senegalese instruments rose on a W-o-W basis. However, yields fell on shorter-dated South African Sovereigns, despite recently released data that indicates the country is in a recession.

Performance of Nigerian corporate Eurobonds remained mixed this week as investors sold off majorly on the FIDELITY 2018 (up 12bps), ACCESS 2021 (up 17bps W-o-W) and FIRST BANK 2020 (up 16bps W-o-W) whilst taking up interest in the ACCESS 2017 (down 3.7% W-o-W) and ACCESS 2021 (down 17bps W-o-W). DIAMOND 2019 Eurobond has posted the highest YTD return at 22.4% while the soon to mature ACCESS 2017 is the worst performing with YTD loss of 0.8%. During the week, UBA successfully raised US$500.0m in its debut Eurobond issuance. The Bond, which matures in June 2022 was issued at a coupon rate of 7.8% and priced at 7.9% effective yield – similar to Nigeria’s US$1.0bn Eurobond issuance in March. The favourable pricing and oversubscription (by 2.4x) of the Bond reflects the high demand for high yield bond and investors positive assessment of the fundamentals of the issuer.