Review and Outlook of Global, Nigeria Markets –Week Ended April 22, 2016

Global Equities Market
On the global scene, investors awaited the deliberations from the European Central Bank (ECB) in order to get some sense of direction as regards the plans of the ECB in stimulating growth in the region. Following the meeting, policy rates were left unchanged, signalling that the Central Bank may not be increasing stimulus package in the interim, and thereby strengthening the value of the Euro. Nonetheless, the statement later attributed to the ECB’s President about using all the tools at his disposal for as long as needed changed market sentiments, paring earlier gains in the Euro.

Performance across global equities markets under our coverage was broadly positive this week, though less impressive than the previous week.  Across the developed markets, performance was mixed as the US NASDAQ continued on the bullish run advancing 0.5% W-o-W while the S &P 500 was down 0.4% W-o-W amidst mixed earnings releases for Q1:2016. In the European markets, the German DAX and the France CAC improved 3.5% and 1.8% W-o-W respectively despite losses that were sustained on Thursday post-completion of the ECB’s meeting where rates were kept unchanged. The Japanese Nikkei grew 4.3% W-o-W following news flow suggesting that the BoJ will extend its policy stance on negative rates which further weakened the domestic currency. Similarly, the Hong Kong Hang Seng gained 0.7% W-o-W.

It was a mixed outing across the markets in the BRICS classification. The Russia RTS continued on its bullish run as the index appreciated the most, up 4.7% W-o-W, riding on the waves of strengthening commodity prices. The India BSE followed suit, appreciating 0.8% W-o-W while the Brazil Ibovespa slid 0.5% W-o-W amid heightening political risk. Despite the better than forecast Q1:2016 GDP numbers from China released last week, the Shanghai Composite fell 3.9% W-o-W due to mounting concerns as regards possible credit defaults and the sustainability of current measures taken to prop up growth in the economy. The South African FTSE slid -0.3% W-o-W.

Performance across the African markets improved this week as the Ghana GSE was the only declining index (-2.3%) W-o-W. The Egypt EGX advanced the most, up 4.3% W-o-W, followed by the Kenya NSE and the Nigerian All Share Index which appreciated 0.5% and 1.2% W-o-W respectively.
Weekly Equities Market Review and Outlook
The performance of the Nigerian equities market broadly improved this week despite the overall bleak short term outlook, as bargain hunting and corporate releases drove market performance. At the start of the week, the bourse was greeted with a technical glitch on the trading floor, which halted trading activities for an extended period of time, however upon resumption of trading, the index declined 0.4%. On Tuesday, trading hours were extended in order to ensure that the problem had been resolved, consequently the All Share Index (ASI) appreciated 0.1%. The bullish streak was extended into the 3rd consecutive day on Thursday as investors continued to see value in market bellwethers trading at attractive entry prices, driving the ASI 0.5% northwards. Despite the negative close on the last day of the week, the gains recorded during the week outweighed the losses hence the ASI advanced 0.5% W-o-W to 24,850.11points, trimming YTD losses to 13.2%. Market capitalisation rose N42.0bn W-o-W to settle at N8.5tn. Activity level waned this week following the disruptions in trading activity at the start of the week as average volume and value traded fell 36.2% and 20.4% to 176.8m units and N1.2bn respectively.

Sector performance stayed mixed as 2 sector indices advanced while 2 declined and 1 stayed flat W-o-W. The Banking index chaired sector gainers, up 3.8% on account of rally in GUARANTY (+4.0%) and ZENITH (+6.1%) after both companies released better than expected Q1:2016 results. The Insurance index trailed closely, appreciating 2.6% on the back of gains in MANSARD (+10.3%) and NEM (+3.9%). On the other hand, the Consumer Goods index declined the most (-0.8%) following sell offs in NESTLE (-3.1%) and NIGERIAN BREWERIES (-0.3%) while the Oil & Gas index fell 0.7%. The Industrial Goods index closed flat.

Sentiments in the market improved this week as market breadth (advancers/decliners ratio) improved to 1.4x (from 0.7x in the previous week) consequent on the 40 stocks that advanced against 28 that declined. The top advancing stocks this week were ETERNA (+25.8%), LEARNAFRCA (+17.4%) and TIGERBRANDS (+16.3%) while LAWUNION (-21.9%), CONOIL (-18.2%) and PZ (-13.4%) declined the most. The positive performance and rebound in market sentiment this week was driven by better-than-expected corporate scorecards for the Q1:2016 period. Sentiment is likely to switch to profit-taking mode in the week ahead as investors continue to speculate on weak macro fundamentals, but further declaration of impressive earnings results may counteract this.

Money Market Review and Outlook
Financial system liquidity remained at low levels throughout this week. At the start of the week, system liquidity level hovered around last Friday’s closing levels, consequently, Open Buy Back (OBB) and Over Night (O/N) rates remained at 4.0% and 4.6%. However, OBB and O/N rates rose 2.8% and 1.8% to 5.8% and 6.3% respectively on Tuesday as system liquidity further reduced. This was on the back of Deposit Money Banks (DMBs) provisioning for the FX intervention auction which pressured O/N rate further on Wednesday to 7.3%. OBB and O/N rates however declined 0.5% apiece on Thursday and settled at 4.5% and 5.0% on Friday, up 0.5% apiece respectively W-o-W.

Activities in the treasury bills market was mixed this week. Average T-bills rate closed at 8.3% at the end of Monday’s trading session but declined 0.1% to 8.2% by the end of Tuesday’s trading session as buying interest increased. Average T-bills rate settled at 8.1% by mid-week. There was a T-bills auction on Wednesday by the Apex bank, the treasury bills auctioned were N36.8bn, N35.0bn and N95.7bn of the 91-day, 182-day and 364-day instruments at stop rates of 7.9%, 9.0% and 10.2% which were higher than stop rates at the previous T-bills auction. We associate the increase in stop rates to higher interest rate expectation by investors. As a result, the market reacted as average T-bills rate rose 0.6% to 8.7% by the end of Thursday’s trading session, eventually closing at 8.6% on Friday.

In the week ahead, we expect money market rates to trend upward in the earlier trading sessions of the week as DMBs provision for FX but will decline towards the week’s end as DMBs get refunds for unfulfilled bids at the FX intervention auction as well as expected inflow of N96.4bn worth maturing OMO bills on Thursday.

Bond Market Review and Outlook
This week, sentiment in the bonds market was mixed but broadly bearish. Average yield across benchmark bonds rose 0.1% from last Friday’s close of 12.0% to 12.1% at the end of Monday’s trading session. On Tuesday, average yields on benchmark bonds rose 0.9% with increased activity noticed on the FGN MAR 2036 instrument as it was added as a 20Y Tenor benchmark. However, yields moderated 0.4% to 12.6% as investors positioned in bargain opportunities, eventually settling at the same level on Friday. W-o-W, benchmark yields are up 0.6% as market continue to price in tighter liquidity and higher interest rate expectation into valuation. We expect these factors to continue to impact positioning decisions of investors.

Foreign Exchange Review and Outlook
Presently, the CBN is still unable to adequately meet dollar demands as the Apex bank continues to refund Deposit Money Banks (DMBs) for huge volume of unfulfilled bids at the weekly FX auctions. The impact of the FX unavailability is being felt across sectors especially the petroleum sector as difficulties with importation of refined crude continues to adversely affect economic output. Liquidity in the financial system has also been fluctuating widely with a feedback on market rates.

However, speculative pressures remain relatively passive in the foreign exchange market, hence the stability in exchange rates at all segments of the FX market, though the wide spread between the official rate and parallel market rate remains. The official Naira/Dollar rate at the official segment of the market stayed unchanged at N197.00/US$1.00 whilst the interbank rate remained at N199.50/US$1.00. The Bureau-de-Change segment of the market maintained the stability observed in recent weeks as the naira traded at N322.00/US$1.00 from Monday till Wednesday then appreciated to N320.00/US$1.00 by Thursday.

We expect that the relative calmness in the foreign exchange market will continue in the week ahead. Although, the comprehensive details of the Yuan/Naira currency deal remains unavailable, we believe completion of the transaction has the potential of reducing the dollar demand pressure especially for imports from China. This is likely to rein in speculative pressures in the FX market in the interim.