United Capital investment views: Equities end Q3 in a loss

This past week saw equities extend gains, as investors took positions in oversold counters especially in the Consumer Goods sector, in a continuous hunt for bargain. As such, at 28,335.4 points, the ASI closed the week 0.3% higher from the previous week, with the YTD loss now trimmed to -1.1%. The market however recorded a loss of –4.3% in Q3 as speculative trades dominated transactions within the quarter.
The money market opened N227.6bn long in the past week. However, liquidity was relatively tight for a large part of the week, mostly on the back of an OMO issuance by the Apex bank on Tuesday which effectively mopped c.135.4bn at 18.5%. At the end of the week, the Open Buy Back (OBB) and Overnight (O/N) rates rose marginally w/w, closing at 14.3% and 15.3% respectively vs. 30bps and 83bps higher than the previous week accordingly.
This week, we expect broadly sideways trading patterns likely to be more tilted towards tactical asset allocation as investors continue to await positive triggers especially from the macro side. Going into Q4, we anticipate investors will remain cautious, with an eye on the pace of economic reforms and developments in the FX market. That said, FY-16 dividend play towards the end of the quarter will likely drive demand. For the FI market, we expect sentiment to remain mixed, with yields trends likely to be tied to the actions of the Apex bank with regards to the pace of OMO announcements.
Global and Macro-economic market update
Deutsche Bank related concerns drive mixed sentiment across markets
US equities ended the week higher, locking in their best quarterly gains, as litigation payment worries around Deutsche Bank which had earlier rocked investor sentiment, subsided on hopes the lender will pay a lower-than-feared fine to U.S. regulators. The S&P 500 and Nasdaq Composite indices gained 0.8% apiece w/w, led by a rebound in financial shares. The Dow Jones Industrial Average also advanced 0.9% w/w, with all 30 of its components finishing in the green. We note that all three benchmarks logged their strongest quarterly gains since December 2015, aided by the Federal Reserve’s unwillingness to raise interest rates.
European stock markets erased earlier sharp losses and closed slightly higher at the end of the week, as concerns over Deutsche Bank’s financial health subsided. The Stoxx Europe 600 rose 0.1%, after recovering from steep losses of c.1.7% earlier in the week. Except the Chinese index, most equity indices in Asia closed the week lower, as traders dialed back hopes for proposed oil-production cuts, and as Deutsche Bank worries continued to rattle global markets. The Japanese Nikkei Stock index ended down while Korea’s Kospi was also 1.2% lower. Hong Kong’s Hang Seng fell 1.9%, but China’s Shanghai Composite closed up 0.2%.

Read also:https://businessday.ng/energy/oilandgas/article/at-least-20bn-investments-lost-annually-on-delayed-oil-sector-reforms-nnrc/
On the domestic scene, last week saw the Federal government release its bond issuance calendar for Q4-14, through the debt management office (DMO). The quarter will see between N250.0bn – N340.0bn issued in three tranches (12th October, 16th November and 14th December) across three instruments in the quarter (July 2021, March 2026 and March 2036).
Domestic financial markets review and outlook
Equities: ASI consolidate gains, close positive for the third consecutive week
This past week saw equities extend gains, as investors took positions in oversold counters especially in the Consumer Goods sector, in a continuous hunt for bargain. As such, at 28,335.4 points, the ASI closed the week 0.3% higher from the previous week, with the YTD loss now trimmed to -1.1%. The market however recorded a loss of –4.3% in Q3 as speculative trades dominated transactions within the quarter.
A closer look at the sectoral performance revealed that sentiment was mixed albeit with a bullish undertone. Specifically, the Consumer Goods sector traded higher to lead gainers’ chart with +2.5% weekly return.
In the same vein, the Oil and Gas sector posted gains of +1.4% w/w, just as the Insurance index followed suit with a positive weekly return of 0.9%. Positive momentum was mainly driven by the likes of LAW UNION & ROCK INSURANCE (+32.7%), FLOURMILLS (+9.4%), CONTINENTAL REINSURANCE (+9.4%), DANGFLOUR (+9.1%), MOBIL (+6.8%) and SEPLAT (+6.3%). On the flip side, the Banking Sector was down -2.3%, just as the Industrial Goods sector the trailed by -0.8% w/w as ASHAKA (-18.5%) and GUARANTY (-4.3%) closed on the hind limb. When compared to the previous week, overall market sentiment worsened with market breadth settling at 1.1x (relative to 1.3x in the previous week) as 35 stocks appreciated against 32 decliners. Average volume edged lower by 17.8% w/w to 241.5m units , while the average value traded appreciated by 52.9% to N2.4bn.
This week, we expect broadly sideways trading patterns likely to be more tilted towards tactical asset allocation as investors continue to await positive triggers especially from the macro side. Going into Q4, we anticipate investors will remain cautious, with an eye on the pace of economic reforms and developments in the FX market. That said, FY-16 dividend play towards the end of the quarter will likely drive demand,

Money Market: Lower liquidity drives money market rates higher w/w
The money market opened N227.6bn long in the past week. However, liquidity was relatively tight for the most part of the week, mostly on the back of an OMO issuance by the Apex bank on Tuesday which effectively mopped c.135.4bn at 18.5%. At the end of the week, the Open Buy Back (OBB) and Overnight (O/N) rates rose marginally w/w, closing at 14.3% and 15.3% respectively vs. 30bps and 83bps higher than the previous week accordingly. This week, barring unexpected inflows, we expect money market rates to trend higher from current level with the Central bank likely to remain unrelenting in its monetary tightening policy stance by mopping up excess system liquidity
FI Market: Yields mixed, but with a bearish undertone
In the past week, trades were mostly choppy in the FI market with yields confined within a tight range as opposing views balanced out across the yield curve albeit with a slight bearish tilt. For the T-bills market, average yield across maturities was up 15bps to 19.6%, mostly driven by relatively tight system liquidity on OMO mop up by the Central bank.
Trading was also soft in the Bond market, and average yields rising only marginally by 31bps to 15.1%, as market players responded to the Q4-16 debt issuance calendar released by the Debt Management Office (DMO).
The DMO expects to issue between N250.0bn – N340.0bn in three tranches across three instruments in the quarter (July 2021, March 2026 and March 2036). We see a mixed week for the FI markets this week, with yield trends likely to be tied to the actions of the Apex bank with regards to the pace of OMO announcements. Furthermore, there is also a T-bill auction of N129.6bn slated for mid-week, although impact on liquidity levels will likely be neutralized by maturity of a similar amount.
Naira continues to see renewed pressure at the parallel market
At the spot market, the naira closed at N311.6 NGN/USD in the past week, appreciating strongly by 3.8% from the previous week. At the parallel market however, the domestic currency lost further grounds against the greenback to 475.0 NGN/USD from 434.0 NGN/USD a week earlier. Despite recent introduction of a new FX policy regime, the naira continues to see pressure as investors remain curious about the effectiveness of the new FX policy. At the international market, Oil price closed the week higher, adding US$3.2pb to US$49.1pb following decision by OPEC member to commence a production target that will range from 32.5mb/d to 33.0mb/d, a reduction of about 700mb/d in production volumes from August level, effectively signaling the first production cut in over 8 years. We expect pressure on the naira will remain this week, as the new FX policy continues to find its footing.