Weekly Market Review and Outlook

Photo L-R: Oscar Onyema, Chief Executive Officer, The Nigerian Stock Exchange (NSE) presenting a replica of the closing gong to Asisat Oshoala, African Female Footballer of the Year, during the Closing Gong ceremony held in her honour at The Exchange.


Global Equity Market: Performance Bearish as Stocks Experience Corrections
Performance of the Global Equity Market was largely bearish this week as 15 of the 16 indices under our coverage closed the week in the red. The poor performance was largely due to speculations of a possible interest rate hike by the US Fed on the back of higher inflation levels as well as market correction following a largely bullish performance in January. Furthermore, oil prices trended lower during the week to settle at US$64.44/b after data released on Wednesday showed an increase in US fuel and crude production.

In the developed markets, all indices trended southwards. In the US, the S&P 500 and NASDAQ depreciated 6.6% and 6.4% W-o-W respectively as a result of aggressive profit taking by investors as well as speculations of an interest rate hike by the US Fed. Similarly, the UK FTSE 100 weakened 4.3% W-o-W as investors reduced exposure to equities on the back of expectation of a possible interest rate hike by the Bank of England.

Across markets in the BRICS classification, performance was also bearish as all indices declined W-o-W. China’s Shanghai Composite fell the most, down 9.6% W-o-W following sell offs in blue chip stocks ahead of the Chinese new year holiday next week. The Russia RTS followed closely, dipping 6.6% W-o-W on the back of weaker oil prices during the weak as well as sell pressure from global markets. Similarly, South Africa’s FTSE/JSE ASI depreciated 4.9% as political tensions with regards to the resignation of President Zuma, mount. In the same vein, the Brazil IBOVESPA and India BSE Sens slid 3.4% and 3.0% W-o-W respectively.

The generally bearish sentiment filtered into markets in Europe and Asia with the, Hong Kong HANG SENG falling 9.6% against the backdrop of price declines in energy and financial services stocks while the Japan Nikkei 225 lost 8.1% W-o-W. Likewise, Germany’s DAX slid 5.3% W-o-W while France’s CAC 40 closed out the negative performance with a 5.2% W-o-W decline.

Sentiment in the African markets was also weak as all indices, save for Ghana’s GSE Composite which gained 3.4% W-o-W on the back of positive expectations for domestic growth, closed in the red. The Nigerian ASI shed the most, down 3.4% W-o-W on the back of sustained profit taking during the week while Egypt’s EGX (-1.1% W-o-W) and Kenya’s NSE 20 (-0.3% W-o-W) also trended southwards. We expect the market to rebound in the coming week following positive expectations ahead of the earnings season in the UK and US as well as investors buying the dip.

Domestic Equity Market:  NSE ASI Loses 3.4% W-o-W on the back of Sell-Offs across Sectors
The bearish trend which began in the previous week was sustained this week as the benchmark index further slid 3.4% W-o-W to settle at 43,127.92 points while YTD return moderated to 12.8%. Accordingly, investors lost N541.9bn in value as market capitalization fell to N15.4tn. sell offs were recorded across small to large cap stocks with losses in DANGCEM, FBNH and GUARANTY as the major drags to performance. However, activity level was mixed as average volume rose 35.4% to 885.1m units while average value fell 13.8% to N4.9bn The top traded stock by volume were STERLING (1.8bn), SKYE (282.m) and LASACO (266.9m) while STERLING (N3.9bn), ZENITH (N2.2bn) and GUARANTY (N1.7bn) were the top traded stocks by value.

The All Share Index started the week on a negative note and this was sustained till the end of the week. On Monday, the ASI shed 45bps on account of losses in market bellwethers - DANGCEM, UBA and FBNH - and further weakened 87bps on Tuesday following sell offs in banking stocks, especially ZENITH, FBNH and GUARANTY. On Wednesday, the benchmark index shaved 77bps on the back of profit taking in DANGCEM, NIGERIAN BREWERIES and STANBIC while price depreciation in Consumer and Banking sector counters dragged the ASI 49bps lower on Thursday. The market closed the week in the red, falling 34bps on Friday; hence a decline of 3.4% was recorded W-o-W.

Performance across sectors was bearish as all indices closed in the red. The Industrial Goods index led laggards, down 3.5% on account of losses in CCNN (-6.9%) and DANGCEM (-4.1%). Following closely was the Banking index which shed 3.4% due to sell pressure on SKYE (-25.2%) and WEMA (-14.0%). Similarly, the Consumer Goods index fell 2.6%on account of profit taking in NESTLE (-5.9%) and NIGERIAN BREWERIES (-5.3%) while the  Oil & Gas and Insurance indices were dragged 1.3% and 0.7% lower by price depreciation in MOBIL (-7.6%) and WAPIC (-14.7%) respectively.

Investor sentiment as measured by market breadth (advance/decline ratio), weakened significantly to 0.3x from 1.2x recorded the previous week as 22 stocks advanced relative to 63 stocks that declined. The best performing stocks for the week were LINKASSURE (+25.0%), CAVERTON (+21.0) and PRESTIGE (+16.7%) while HMARKINS (-27.1%) SKYE (-25.2%) and UNIC (-21.7%) led decliners. Although the market closed the week negative, we expect to see a rebound as a result of bargain hunting by investors as well as positive expectations for the full year earnings season.

Money Market Review and Outlook: Rates Spike Following Tighter System Liquidity
Money market rates - Open Buy Back (OBB) and Over Night (OVN) - trended higher on 3 of 5 trading days as the CBN conducted OMO auctions on all days of the week. At the start of the week, OBB and OVN rates closed at 18.4% and 19.3% from 11.6% and 12.2% recorded the previous Friday following an OMO auction worth N110.0bn as well as Wholesale Secondary Market Intervention Sales (SMIS) worth US$100.0m which were conducted by the CBN.

On Tuesday, OBB and OVN rates further increased to 35.8% and 37.4% respectively as the CBN mopped up N20.0bn (offered N40.0bn) through its OMO auction. Similarly, the uptrend was sustained on Wednesday as rates further surged to 53.0% and 53.1% respectively consequent on  a N12.3bn decline in system liquidity which settled at N10.2bn. However on Thursday, system liquidity improved following an OMO maturity of N67.7bn which hit the system, hence OBB and OVN rate declined to 46.7% and 48.0% respectively. Money market rates remained in double digits on Friday, albeit lower than Thursday, closing the week at 43.3% and 45.5%, up 31.7 and 33.3 Percentage points W-o-W respectively.

In the Treasury Bills market, activities stayed bearish as average rates across instruments trended higher on 3 of 5 trading sessions.  At the start if the week, activities remained minimal with sell-offs seen at the shorter end of the curve and rates closing at an average of 13.9 %( up 2bps from 13.9% recorded the previous Friday). The upward trend was maintained till the end of the week, closing 12bps higher on Tuesday (13.9%), increasing 21bps on Wednesday (14.2%), 22bps on Thursday (14.1%) to eventually close the week at 13.9%, implying a 30bps increase W-o-W.

In the primary market, the CBN offered N40.0bn, N30.0bn and N70.0bn of the 94-day, 191-day and 234-day instruments at stop rates of 12.6%, 14.4% and 14.4% respectively. All instruments were undersubscribed save the 234-day instrument which was oversubscribed by 1.4x (subscription:N95.7bn). In the coming week, despite the OMO maturity of N55.0bn, we expect money market rates to remain at current levels as the Apex bank continues with its frequent OMO Mop ups.

Foreign Exchange Market: Naira Stable despite Drop in Oil Prices
In line with historical trend, at the start of the week, the CBN injected US$100.0m via the wholesale SMIS intervention window into the system in order to maintain stability across all segments of the Foreign exchange market. Accordingly movements were recorded at various segments of the market during the week.

FX rate at the interbank market weakened N1.47 during the week from N332.90/US$1.00 last week to settle at N334.37/US$1.00 on Friday. Similarly, the CBN’s FX rate opened the week at N305.80/US$1.00, depreciated 5 kobo to N305.85/US$1.00 by midweek and traded flat till the end of the week. However, at the I & E  FX window, the Naira traded at N360.36/US$1.00 at the start of the week, which was a 14kobo depreciation from the previous Friday’s close of N360.12/US$1.00. This rate was sustained till Wednesday but reversed on Thursday with the Naira appreciating by 27 kobo to N360.09/US$1.00. This rate was maintained on Friday, presenting a 3 kobo appreciation W-o-W.  At the parallel market, the naira traded flat at N363.00/US$1.00 all through the week.

Activity level in the I &E window weakened relative to the previous Thursday as total volume of transactions fell 32.4% W-o-W to US$716.6m from US$1.1bn recorded the prior week. At the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures closed the week at US$3,320.75m (08/02/2018), US$34.0m higher than US$3286.86m in the prior week. The APR 2018 instrument was the most subscribed with a total value of US$657.9m while the JAN 2019 contract was the least subscribed with total value of US$10.0m.

Despite the decline in crude oil prices during the week, we maintain a positive outlook on the CBN’s ability to sustain its intervention in order to maintain stability in the FX market. Furthermore, we anticipate a Eurobond issuance in the first quarter of the year and we believe this could further buoy the size of Nigeria’s external reserves in the near term.

Bond Market: Bearish Sentiment Lingers as Average Yield Rises 0.4% W-o-W
Investor sentiment in the domestic bond market was largely bearish this week as average yield trended northwards in 4 of 5 trading sessions.  Average yield at the start of the week settled at 13.5%, marginally higher (1bp) than the previous Friday’s close, consequent on sell offs in short and longer tenored instruments, although more skewed towards the longer end of the curve - JAN 2026 (+6bps)  and MAR 2027 (+4bps)  instruments drove average yield higher. On Tuesday, sustained sell-offs across all instruments weighed on performance as average yield closed the day 28bps higher at 13.8%. The bearish sentiment lingered into Wednesday as yield on most instruments save the APR 2018, MAR 2024 and APR 2037 which saw increased buying interest, declined, thus driving average yield 10bps higher to settle at 13.9%. This negative trend was halted on Thursday as average yield declined 4bps to settle at 13.8% on the back of buy interest in mid to long-tenored instruments. However, on Friday sentiment weakened as average yield increased 5bps to close the week at 13.9%, up 40bps W-o-W.

The bearish sentiment filtered into trading activities on Sub-Saharan Africa Eurobonds this week as yields across instruments under our coverage trended higher W-o-W with only 5 of 22 instruments recording price appreciation. Nigerian Eurobonds recorded sell-offs as yields acrossall instruments increased W-o-W with the JUN 2018 (up 50bps) recording the most sell-offs. Average yield across the Ghanaian, Ivory Coast, Kenyan, Zambian and Senegalese instruments rose 20bps, 30bps, 10bps, 30bps and 30bps respectively. YTD performance on all instruments save for the SOUTH AFRICA 2024 (+0.3%) and SOUTH AFRICA 2041 (+0.9%), is negative. The NIGERIA 2047 (-4.0%), NIGERIA 2027 (-3.4%) and NIGERIA 2032 (-3.2%) have the least YTD return.

Across the Nigerian Corporate Eurobonds market, sentiment was mixed albeit more bearish as yields on 8 of 12 instruments rose W-o-W. The ACCESS 2021 (up 20bps to 7.6%) and ZENITH 2022 (up 20bps to 6.0%) instruments recorded the most sell-offs while the FBNH 2021 (down 20bps to 8.9%) witnessed the most buying interest. The FBN 2021 instruments is the best performing with YTD returnof (+3.1%).