• Friday, March 29, 2024
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Equity market: bullish sentiments persist

Equity market: bullish sentiments persist

Bullish sentiments were sustained in the equity market, as the Nigerian Stock Exchange (NSE) All Share Index (ASI) recorded four days of uninterrupted gains during the prior week.

Accordingly, the NSE-ASI rose 0.5percent w/w to settle at 26,991.4 points and year-to-date (Ytd) return improved to -14.1percent (previously -14.6percent). Meanwhile, market capitalisation depreciated by 0.3percent to close the review week at N13trillion.

The decline in market capitalisation was due to the delisting of Dangote Flour Mills Plc from the exchange following its acquisition by Crown Flour Mills Limited. Also, trading activity level was underwhelming as average volumes and value traded declined by 43.7percent and 56.3percent w/w, to settle at 207.4million units and N2.8billion respectively.

Sector performance was mixed as three out of the six sectors we track closed the week in the green territory.

The Consumer Goods index (+6percent) led the gainers campaign, owing to price appreciation in Flour Mill (+10percent), Dangote Sugar (+9percent), Guinness (+8.4percent), UACN (+8.3percent) and Nestle (+8.7percent). The Oil & Gas (+2.2percent) and Insurance (+0.5percent) indices also ended the week in the green territory, on the back of gains in Forte Oil (+13.8percent), Oando (+8.1percent), Cornerstone (+35.5percent) and Law Union (+9.1percent). However, the Industrial Goods (-2.2percent) and Banking (-0.9percent) sectors ended the week in the red territory, owing to profit-taking in CCNN (-5percent), Dangote Cement (-0.4percent), Access Bank (-4.3percent), ETI (-6percent), Sterling Bank (-8.5percent). Also, the Telecoms sector trended southwards as MTNN (-0.8percent) and Airtel Africa (-3percent) recorded losses.

Read also: Summary of events reported to the NSE November 18-22, 2019

Investor sentiment weakened, though remained above the water, as market breadth declined to 1.7x (previous week: 3.5x). Notably, 40 stocks advanced while 23 stocks declined w/w.

This week, we expect investors to continue to look for investment outlets in stocks with attractive dividend yields amid growing liquidity in the money market space. Also, investors will be on the lookout for the outcome of the MPC to get a sense of the direction of policy stance going into 2020.

Money Market: First week without an OMO auction in 13-weeks

The overall liquidity level in the system improved last week as naira inflows outweighed outflows. The major inflows for the week, though titled towards the last two days of the week, were in the form of OMO maturities (N389.9billion) and Oct-19 FAAC credit to states as well as local governments (above N300billion), which outweighed outflows via Nov-19 bond sales (N157.9billion) on Wednesday.

Meanwhile, sizable retail FX refunds to banks on Thursday were mopped up the following day as banks submitted quotes at the retail FX auction on Friday. In all, average interbank funding rates open buy back (OBB) and overnight (O/N) rates crashed to 4.1percent (previous Friday: 13.6percent).

Elsewhere, improvement in the overall liquidity levels and lack of primary market activities spurred buying interest at the secondary market. Notably, the absence of an OMO auction (the first time in thirteen weeks) drove the secondary market demand for OMO bills by eligible investors. However, average OMO bills stayed unchanged at 13.37percent compared to average yield on NTB which fell by 2.24percent w/w to close the week at 8.65percent.

This week, we expect the CBN to float at least one OMO auction to mop up some of the liquidity from the prior week as well as new inflows from OMO (N352.7billion) maturities on Thursday. Meanwhile, we expect the FG to successfully rollover N150.6billion maturing treasury bills on Wednesday, at a lower stop rate. Accordingly, we anticipate some cautious trading in the secondary market as players concentrate interest in the primary market space.

Bond Market: Auction stop rates, crash to 3-year low

In the bonds space, the Debt Management Office (DMO) conducted its Nov-19 bond auction during the week, offering N150billion – shared between re-opened 5-year (N50billion), 10-year (N50billion), and 30-year (N50billion) notes. Similar to the October 19 auction, investors’ demand remained strong, as total bids worth 1.7x of the offered amount turned up at the auction (same in October 2019). The DMO allotted more notes than it had initially planned to raise, as it took advantage of the strong demand and wide bid rate spread to allot 105.3percent (N157.9billion) of the offered amount via competitive bids while also allotting another N95billion to the non-competitive bidders, taking total allotment at the auction to N252.9billion. Notably, most of the competitive demand was for the 30-year notes (Bid to cover ratio: 5-year: 0.9x; 10-year: 1.9x and 30-year: 2.3x). Accordingly, marginal rates at the auction crashed compared to the last auction in Oct-19; 5-year note down from 14.05percent to 12percent, 10-year note down from 14.23percent to 12.93percent and 30-year note down from 14.60percent to 13.39percent.

Elsewhere, secondary market sentiment was lethargic, as market participants focused on the FGN monthly bond auction and digested the Oct-19 inflation report. Accordingly, average bond yields closed the week unchanged at 12.3percent. A bearish bias dominated the secondary Eurobond market, as selling interests in FGN dollar notes outpaced buying interests. Consequently, average yield inched higher by 19bps w/w, to 6.5percent. Meanwhile, yields on Corporate Eurobonds declined by 4bps w/w to 5.3percent, as investors hunted for bargains.

This week, we expect to see some renewed interest in local FGN bonds as market players continue to look for investment outlets in FGN notes. In the Eurobond space, the dovish tone of developed market central banks and Nigeria’s refusal to join the bandwagon is expected to continue to spur interest in EM/FM assets – capped by crude oil price volatilities.

Currency market: Gross reserves now below $40bn

Across the three major FX windows we cover, the Naira strengthen its stance at the official and parallel market windows while bowing to selling pressures at the I & E window. The local unit depreciated by 11bps w/w at the I & E window, to close the week at N362.64/$1. At the CBN Official window and parallel market, it gained value by 2bps w/w and 14bps w/w, to close at N306.95/$1 and N358.5/$1 respectively.

Elsewhere, at the I & E window, activity levels were lower compared to the preceding period, as average daily turnover decreased by 37.9percent w/w, to $242.6millin. Notably, gross reserves dropped below the $40billion threshold, losing 21bps w/w to $39.95billion.

 

This week, we expect the CBN to continue its FX intervention to shore up the local currency despite concerns around the continuous decline of the external reserves.