The past week in the equities market was rather eventful as the first full trading week of the year recorded a 9.1percent weekon-week (w/w) surge to close at 29,415.4 points. The market capitalization also expanded to N15.2trillion, following the N1.18trillion listing of BUA CEMENT. The market was abuzz with activity as the average value traded increased by 28percent to N6.9billion and average volumes traded increased by 4percent to 600million units.
Four out of the five sectors under our coverage closed positive. The industrial sector (+22.3percent) recorded the highest gain on the back of the new listing of BUACEMENT (+17.1percent), DANGCEM (+21.13percent) and JBERGER (+9.80percent). The Banking sector (+8.4percent) followed suit driven by ZENITH (+13.5), FBNH (+ 15.9percent) and GUARANTY (+6.1percent). The Insurance sector (+ 2.1percent) was driven by gains in MANSARD (+2.5percent), CORNERST (+9.4percent). The consumer goods sector (+0.8percent) was not left behind with
FLOURMILL (+16.5percent) and HONYFLOUR (+7percent) driving gains. The oil and gas (-2bps) sector, on the other hand, declined marginally due to FO (-6.1percent) and SEPLAT (-0.4percent).
Investors’ sentiment was clearly bullish, indicated by a market breadth of 3.2x as 38 stocks advanced against 12 decliners. This week, we expect demand high dividend-paying stocks (e.g.) MTN, ZENITH, UBA) as well as interest in DANGCEM and BUA CEMENT, due to recent corporate action, to sustain moment in the equities market. However, we do not rule out profit-taking.
Money Market: Open Buy Back (OBB) and Over Night (O/N) rate spikes to 10.2percent
For the previous week, overall system liquidity remained elevated, as naira inflows in the form of OMO maturities ( N469.8bn), outweighed naira outflows such as the FX Wholesale auction and OMO sales (N411.0bn). However, the average interbank funding rate at the close of the week increased to 10.2percent (up 7.5percent w/w).
Read also: NSE gains but Oil & Gas, consumer goods stocks missing in action
In terms of primary market activities, the CBN floated an OMO auction, with N350billion on offer and a total subscription of N411.1billion. Notably, demand was heavily skewed towards the 362-day bill (bid to cover: 1.2x), with no sale on the 180-day and an unimpressive demand for the 89-day (bid to cover: 0.01x). Also, the Apex bank was able to guide stop rates lower, at the long end, by 1basis point (bp) to 13.25percent.
Elsewhere, the secondary Nigeria Treasury Bill (NTB) market remained tight, as local participants held onto existing bills. However, we saw a bit of buying interest, as average yield declined by 37bps w/w to 4.2percent. Likewise, the average yield in the secondary OMO market dropped by 37bps w/w to 12.7percent, as eligible investors latched onto existing bills. As a result, total value traded for OMO and NTB bills increased 35.7percent and 6.7percent w/w, to N1.2trillion and N70.8billion respectively.
This week, we expect activities at the primary NTB market to take a bullish turn, as the DMO seeks to rollover a total of N201.5billion. Also, we expect the CBN to float at least one OMO auction, with OMO maturities worth N434.7bn scheduled to hit the system on Thursday. Elsewhere, bond coupon payment worth N106.3billion is expected, further elevating system liquidity. In all, on the back of the buoyant level of liquidity in the system, we expect rates to continue to moderate.
Bond Market: Sovereign Eurobond rallies as average yield dips 29bps
S entiment s in the secondary bond market were upbeat during the previous week, as investors continued to scramble for available outlets. Notably, buying interests were seen across all tenors, as average yield declined by 29bps w/w, to settle at 10.4percent. However, the total value of bonds traded declined by 18.6percent w/w to N428.1billion.
At the Eurobond market, Nigeria’s sovereign debt rallied, as average yield declined 29 bps, to 5.9percent. This was as the negative effect from a drop in Brent crude oil prices (-4.7percent w/w to $65.4/b), was outweighed by positive sentiments from the expected U. S.- China Phase one trade deal signing. Notably, this rally was seen across sovereign Eurobond issuances in Africa under our coverage. At the other end of the spectrum, the average yield on Corporate Eurobonds recorded a bearish performance, ticking up 5bps to 5.1percent.
Elsewhere, following the release of the Lagos State Government’s plan to issue N100billion, from its N500billion Debt Issuance Programme, the National Pension Commission (PENCOM) issued a circular noting that the Lagos state government had failed to meet the minimum requirement for qualified investments by PFAS. However, this was reversed following communication by the Lagos Government with PENCOM clarifying its position.
Looking ahead, we expect interests in the secondary bond market to remain significant, as a result of the buoyant level of system liquidity. For Eurobonds, following the expected signing of the U.S.China phase one deal this week, we could see continued fund flows to developing and emerging market assets like Nigeria. However, the trajectory of oil prices could cap overall interests.
