Mixed sentiment trials equities, fixed income markets

While Nigerian equities and fixed income markets are still in search for key triggers, analysts expect overall sentiment in these markets to be mixed. For equities, much of this week outlook favours mixed sentiment with a bullish bias; while for bonds, analysts expect a mixed-to-bearish market as offshore activity or inactivity remains.

In response to biting macro challenges, induced by acute FX shortage, the Federal Government is considering selling some of its state assets to provide FX liquidity the economy. Although finer details on specific assets planned to be sold are not yet public, the rationale and merits of the proposed sale have formed subjects of discussions most recently.

The Debt Management Office (DMO) had early this week disclosed plans to raise between N250 billion and N340 billion ($794.91 million-$1.08 billion) in local currency-denominated bonds in the fourth quarter (Q4’16).

DMO said it would auction between N90billion and N120 billion worth of bonds maturing in 2021; N70billion to N100 billion in the debt maturing in 2026 and N90billion to N120 billion worth in the paper maturing in 2036.

In its latest issuance calendar, the debt office said the bonds will be re-opened from previously issued debt. Nigeria had planned to raise between N305billion and N395 billion worth of debt in the third quarter (Q3) but ended up issuing N460 billion worth.

Amid this development, research analysts expect a mixed-to-bearish bond market as offshore activity or inactivity remains the key driver of the direction of yields. “Amid lack of clarity with sentiment reflecting nervousness across-the-board, the equity market may remain mixed this week”, said research analysts at DLM.

“This week, with the equities market still in search of key triggers, we expect overall sentiment will be mixed, albeit with a bearish bias as investors are likely to lock-in profits from earlier positions. For the fixed income market, we see scope for yields to trend higher from current levels, with the CBN likely to ramp up the pace of OMO issuance in a bid to sustain its tight monetary policy stance”, said analysts at United Capital Plc.

“Notwithstanding the weekly positive return for the ASI (+140bps), we note that sector performances were mixed across board. We expect the mixed sentiment with a bullish bias to persist in the week ahead,” Vetiva Capital analysts said in their recent equity research.

The value of listed Nigerian equities increased by about N133billion last week due to modest buying interest witnessed in mid and large cap stocks. The overall stock market sentiment was influenced by the outcome of the Monetary Policy Committee (MPC) meeting which held last week Monday and Tuesday.

The stock market benchmark performance indicator –the All Share Index (ASI) rose to 28,247.07 points from week open level of 27,858.48 points, an increase of 1.4 percent. The equities market capitalisation closed higher at N9.703trillion from preceding week level of N9.570 trillion. Overall, thirty-three (33) stocks recorded price gains while twenty-four (24) stocks recorded a decline during the review week. Conoil emerged as the best-performing stock after rising by 33.5% to close the review week at N42.50.

The bonds market had a surprising reaction to the MPC’s decision to hold all its key indicators stable. Demand persisted across all tenors thus driving yields generally downwards; bond yields dropped by an average of 40basis points (bps) across the curve on a week on week basis. Meanwhile market watchers observed that sentiments were slightly bearish in the T-Bills space last week especially on the short end where rates rose by 170 basis points (bps), but dipped by 87bps on the long end. This according to DLM financial highlight was due to resistance caused by system liquidity level, adding that overall, yields rose by an average of 42bps week on week.

Last week, N140.89billion T-Bills: 91D (N28.12bn), 182D (N23.68bn) and 364D (N89.08bn) were offered and sold at marginal rates of 14%, 17.12% & 18.30% respectively. At last week’s OMO auction, the CBN offered N200billion OMO bills with tenors ranging from 245D to 364D but sold N408.17bn at marginal rates ranging between 18.00% & 18.50%.