Weekly Market Report –Week Ended Jan. 08, 2016

Daily Equities Market Review and Outlook
The equities market softened today after the mild rebound in the previous session, as the benchmark All Share Index shed 0.9% to close at  27,028.39 points, bringing WTD and YTD performance to -5.6%. The index was weighed down today by the weak investor sentiment for Banking and Consumer Goods counters which led to heavy sell down in -- NIGERIAN BREWERIES (-3.1%), ETI (-4.7%), ZENITH (-3.7%), UBA (-4.5%), UNION (-8.7%) and FLOURMILL (-5.0%). Market activity measured by total volume and value traded was surged 42.6% and 17.0% to 235.6m units and N1.9bn respectively.

Similar to the overall bearish sentiment  in the bourse, all sector indices closed weaker, led by the Banking Index which lost 2.5% due to sustained rout in banking stocks --  ETI (-4.7%), ZENITH (-3.7%), UBA (-4.5%), UNION (-8.7%). This was followed by the Consumer Goods index which shed 1.3%, following the bearish sentiments in NIGERIAN BREWERIES (-3.1%) and FLOURMILL (-5.0%). The Insurance index also retreated 0.5%-- pressured by CONTINSURE (-4.6%); whilst the Oil & Gas index declined a marginal 0.2% on the back of sell down pressure in OANDO (-1.8%).
Sentiment measured by the Advancers/Decliners ratio in the Nigerian Bourse remained weak at 0.3x -- from 0.2x the previous session; as only 7 stocks gained against 27 that declined. Top gainers were OKOMUOIL (+9.8%), DANGSUGAR (+4.9%), IKEJAHOTEL (+4.8%), VONO (+4.3%) and LEARNAFRCA (+2.5%) whist HONYFLOUR (-8.9%), UNITYBNK (-8.6%), FLOURMILL (-5.0%), MCNICHOLS (-5.0%) and ETI (-4.9%) led losses. Against the backdrop of the weak fundamentals, highlighted by the softening oil prices and increased pressure on the local currency unit, we expect sentiment to remain weak on the bourse over the short term.

Weekly Equities Market Review and Outlook
The Nigerian Equities Market was bearish on the first trading week of the New Year as investors booked profit on the year-end rally whilst general sentiment was also weak following the selling pressure in the global markets and sustained rout in crude oil prices. The All Share Index (ASI) shed 5.6% W-o-W to close at  27,028.39 points with the biggest drop coming on Wednesday, 6th when a 9.7% decline  in DANGOTE CEMENT led to a 3.3% drop in the broader index. Market capitalization also weakened N81.8bn to close at N9.3tn. Market activity was weaker this week relative to the flurry of activities towards last week when portfolio managers picked up instruments to realign their portfolios. Consequently, average volume and value traded fell 81.8% and 50.9% to 179.7m units and N1.5bn respectively.

The sell down this week cut across all sectors with 4 sector indices  closing negative while the Industrial Goods index was the lone gainer, advancing 0.4% on gains in CCNN (+8.0%) and WAPCO (+8.5%) which offset the bigger loss in DANGCEM (-5.9%). The Consumer Goods index pared 9.9% , more than the 7.9% gained last week, as investors booked profits while sentiments for consumer counters remained weak as oil prices dropped to the lowest level in 14 years, leading to apprehension of the feedback on consumer spending. The Banking index was also spooked, ending the weak 4.9% weaker due to a broader routs in all banking stocks as investors weighted the impacts of deteriorating macro fundamentals on assets quality and future cash flow of banks. The Oil & Gas and Insurance indices also declined 1.6% and 1.0% respectively.

Market sentiment gauged by the gainers/loser's ratio settled at 0.4x, with 17 gainers and 47 loser's. Top gainers were OKOMU (+19.6%), VONO (+18.5%), LEARN AFRICA (+15.5%), WAPCO (+8.5%) and CCNN (+8.0%) whilst SKYE (25.3%), UNITY (24.1%), NIGERIAN BREWERIES (-19.5%), HONEYWELL (-15.6%) and ETERNA (-13.7%) topped losses. The strong correction this week showed a herd pattern as most of the stocks that were sold off were the same ones that pulled the broader index up last week. This may be due to profit-taking and portfolio re-adjustment by fund managers after closing their books for the year. Nevertheless, we cannot discount the impacts of the weak macroeconomic fundamentals - following another bearish week for crude oil -- and liquidity tightening by the CBN this week on the overall sentiment for equities. We remain bearish on equities in the short term.

Foreign Exchange Review and Outlook
Developments in the currency market remained on changed as the local unit trade within tight bands on all trading days this week. Since mid-December last year, the CBN has kept its official exchange rate unchanged at N197.00/US$1.00. Against the above, interbank market rate held steady at N199.10/US$1.00 during the week. Notwithstanding this, we however note that electronic transactions with the naira master cards exchange at rates far higher than the approved interbank rate.

BDC and parallel market spread compared to the official market rates continued to widen considerably. Compared to the N197.00/US$1.00 peg of the local currency, on Monday, rates at the BDC segment of the market was as high as N265.00/US$1.00. Irrespective of the dollar sales to BDCs on Wednesday, the rate depreciated N1.00 to close at N266.00/US$1.00 and further depreciated N14.00 to N280.00/US$1.00 on Thursday as huge dollar demands remain unmet.

In the first 4 trading days of the week, external reserves had declined 0.5% YTD to US$28.9bn as inflows continue at a lower rate relative to outflows given lower oil prices of US$32.00/b (Brent). With the visit of the IMF Boss during the week, where emphasis was laid on further flexibility in the management of the currency. We believe the Apex Bank may review its current position on the pricing of the Naira going forward.

Money Market Review and Outlook
System liquidity opened the year at about N1.1tn on Monday. Consequently, money market rates - Open Buy Back (OBB) and Overnight (O/N) - and average NIBOR rates ended at 0.5%, 1.0% and 7.9% respectively on Monday. Contrary to general expectations stemming from the last MPC meeting of 2015 that the CBN would leave system liquidity at robust levels to spur lending to the real sector after due approval, the CBN resume the year with a contractionary stance, by resuming its Open Market Operations (OMO) mop up exercise during the week. This started on Tuesday an OMO auction which wiped out N167.0bn off the market. Thus, liquidity levels closed slightly lower, pushing OBB and O/N rates higher to 0.9% and 1.3% accordingly. Similarly, provisioning for CBN special FX intervention took place on Wednesday to further shrink liquidity levels to N470.5bn. Consequently, money market rates climbed to 1.1% (OBB) and 1.6% (O/N). On Thursday, the Apex Bank conducted yet another OMO auction that pushed liquidity even lower and OBB and O/N rates higher to 1.7% and 2.3% a piece.

The Treasury Bills market witnessed some form of activity on all trading days in the week. However, the OMO auctions held by the CBN during the week triggered bearish sentiments across instruments in the Treasury Bills market. Also, as the Debt Management Office (DMO) embarked on its first Primary Market Auction (PMA) worth N136.2bn on Wednesday, average yields rose to their week's high at 6.7%. Consequently, after opening at an average of 5.9% on Monday, average yields closed the week at 6.3%. In the absence of further inflow into the market in the week ahead, we expect rate to trend higher if market liquidity continues to shrink.

Bond Market Review and Outlook
The performance of the Nigerian bond market was majorly bearish this week as investors free up liquidity to meet up with the speculated bond auction scheduled for the coming week, together with increased mopped up exercise and FX intervention provisioning observed during the week.    As a result average yields closed the week at 10.7% from an average of 9.8% on Monday.

The general sell-offs in the market was noticed across all bond tenors on all trading days in the week. As noted above, the bearish sentiments can be attributable to the decline in liquidity levels given the series of CBN OMO mop-ups that took place during the week and the N136.2bn worth of Treasury Bills auction that took place on Thursday. Consequently, the price on all instruments rose across board with the highest price decline of N2.72 recorded in the JUNE 2019 instrument which closed at N113.69.

In the coming week, we expect an increase in average yields as the DMO embarks on its monthly bond auction for January together with further decline in market liquidity if the Apex Bank continues its mop up activities.