Global Market Review and Outlook
Performance of global equity indices under our coverage was broadly mixed across regions. Oil prices trended northward during the week, rising as high as US$55.00/b, following retaliatory US attacks on a Syrian airfield. This move triggered sell-offs in the US markets as the NASDAQ and S&P 500 slid 0.6% and 0.2% respectively W-o-W, while the UK FTSE rebounded from the previous negative close, up 0.4% W-o-W as Purchasing Managers Index (PMI) data showed better than expected readings. Across the European markets, the France CAC gained 0.1% even as investors keep a keen eye on the political developments in the country while the German DAX slid 0.8% W-o-W. Likewise, the Asian markets recorded a mixed performance as the Japanese NIKKEI (-1.3% W-o-W) extended its bearish streak to the fourth consecutive week while the Chinese Shanghai Composite and Hong Kong Hang Seng indices rose 2.0% and 0.2% W-o-W respectively.
All indices in the BRICS classification, save for the Brazil IBOVESPA which depreciated 0.5% W-o-W, trended northward. Surprisingly, despite the political turmoil that has recently plagued South Africa as well as the series of downgrades by various rating agencies, the South African FTSE/JSE advanced 1.5% W-o-W. The Russian RTS also followed suit, improving 0.5% W-o-W following gains in oil prices while the Indian BSE Sens appreciated 0.3% W-o-W.
Across the African bourses, the Ghanaian GSE was the best performing index, up 1.7%W-o-W. The Nigerian All Share Index closed positive for the second consecutive week while the Egyptian EGX 30 erased last week’s loss, to close 0.8% higher W-o-W. The Kenya NSE was the sole decliner, down 0.4% W-o-W.
Equities Market Review and Outlook
The Nigerian equities market extended gains into the second week as the benchmark index rose 0.9% W-o-W to close at 25,746.52 points, paring YTD loss to 4.2%, while market capitalization increased by N79.6bn to N8.9tn. The All Share Index posted gains on two out of five trading sessions with the largest loss recorded on Monday after sell-offs in some market bellwethers. On Tuesday, rally in OANDO (+6.3%) which submitted FY: 2016 result during the week was offset by losses in Tier-1 banks – ETI (-3.0%), UBA (-2.3%), GUARANTY (-0.6%) - to ensure a flattish close. However, the ASI rebounded mid-week (+0.8%) and this was sustained on Thursday (+1.1%) on account of renewed buying interest in some mid-cap stocks. The index closed marginally down on Friday, losing 3bps. Weekly activity level expectedly moderated due to high base impact of last week’s MOBIL crossing; hence average volume and value on trading days declined 75.4% and 94.4% W-o-W to 157.2m units and N1.2bn respectively.
Sector Indices recorded a broadly bullish performance as all indices appreciated, save for the Banking index which fell 0.2% W-o-W on account of declines in UBA (-8.8%) and ETI (-2.9%). On the flipside, the Industrial Goods index topped the gainers chart (+5.2%) - bolstered by gains in CAP (+15.7%) and WAPCO (+10.5%). The Oil & Gas index followed, up 4.3% W-o-W due to sustained rally in MOBIL (+20.0%) and OANDO (+18.0%). MOBIL OIL NIGERIA was recently fully divested by ExxonMobil and the new majority shareholder is mandated by the Investment and Securities Act to make a take-over bid to all minority shareholders at acquisition price of N417.12 per share. In the same vein, the Insurance and Consumer Goods indices gained 2.0% and 0.8% W-o-W, driven by price appreciation in CONTINSURE (+14.4%), NEM (+5.0%) , 7UP (+26.4%) and DANGFLOUR (+21.6%).
In line with the broadly bullish performance, investor sentiment improved as market breadth rose from 1.4x in the previous week to 1.7x this week - 34 stocks appreciated while 20 declined. LEARNAFRCA (+26.5%), 7UP (+26.4%) and NASCON (+21.4%) topped the gainers’ list while UBA (-8.8%), TRANSEXPRESS (-8.1%) and MAYBAKER (-7.4%) led the losers’ chart. With the expiration of the 31st of March deadline for submission of FY: 2016 results, a number of listed companies (such as ETI, DIAMOND, UNITY, and FBNH) have submitted late filing notification to the Exchange. We expect investors to begin to position ahead of the release of Q1:2017 results; nevertheless, we do not rule out the possibility of profit taking at opening trades next week following the 2-week bullish streak.
Money Market Review and Outlook
As expected, money market rates trended in line with liquidity dynamics as the CBN conducted OMO auctions on all trading days except Tuesday and Wednesday and sold FX to banks via Wholesale Forward interventions three times this week. The week opened with financial system liquidity at N95.8bn, down 25.7% compared to previous Friday’s open of N128.9bn, while the CBN conducted OMO sales worth N7.0bn and Wholesale FX intervention of US$150.0m on same day; thus, money market rates – OBB and OVN rose slightly to 10.7% and 11.4% at market close on Monday. Money market rates rose further mid-week as Treasury bills maturity worth N239.4bn was offset by a rollover of the same amount, while the CBN also conducted FX auctions on Tuesday and Thursday. Consequently, OBB and OVN rates inched higher to 14.2% and 14.6% respectively on Thursday and eventually closed the week at 14.7% and 15.3%, up 4.2 and 3.8 percentage points W-o-W respectively.
In the Treasury Bills market, the CBN conducted an NTB auction on Wednesday where it sold N35.0bn, N33.5bn and N166.4bn of the 91-day, 182-day and 364-day tenor bills at respective stop rates of 13.6%, 17.2% and 18.7%. Secondary market performance was mixed but largely bearish due to tight liquidity. Rates moderated 5bps on average across tenors to close at 17.5% on first trading day before recording a flat close and 8bps decline on Tuesday and Wednesday respectively. Sentiment turned bearish on Thursday with rates inching higher by 10bps across benchmarks and eventually settled at 17.6% on Friday, up 8bps W-o-W.
In the week ahead, we expect money market rates to respond to liquidity levels to be shaped by different primary market activities which include the DMO monthly bonds auction, OMO auctions and the FGN savings bonds debit.
Foreign Exchange Review and Outlook
The Apex Bank continued its drive to boost liquidity in the FX market through the special wholesale forward sales of FX for maturing LC obligations as well as providing Deposit Money Banks (DMBs) with sufficient FX liquidity to meet demands for retail invisibles. During the week, the CBN sold a total of US$250.0m in series of wholesale FX auctions for maturing obligations related to Raw Materials and Machineries, Agriculture, Airlines and Petroleum Products. The CBN also released a statement on its readiness to meet dollar demands in a reaction to speculations that DMBs were not meeting demands for retail invisibles. Furthermore, the CBN provided a contact number for customers to report banks that fail to meet dollar demands for PTA, BTA, medical and tuition fees.
Notwithstanding the wholesale and retail liquidity injections and pronouncements by the Apex Bank, FX rate at the parallel market weakened on most trading days of the week before appreciating marginally on Friday. According to AbokiFX parallel market reference basket, the Naira/Dollar FX rate opened the week at N390.00/$US1.00 and depreciated through the week to N398.00/US$1.00 on Thursday before appreciating marginally on Friday to N397.00/$US1.00. Interbank rate however remained stable during the week, trading flat at N306.20/US$1.00 on all trading days save for Monday when it closed at N306.25/US$1.00 and Friday when it appreciated to N306.15/US$1.00. At the FMDQ OTC FX Futures Market, total value of open contract increased by US$104.0m to US$4.1bn from last week’s close of US$3.9bn with significant interest in the recently issued NGUS MAR 28 2018 instrument.
Whilst the recent moves by the Apex Bank to ease FX liquidity constraints and force the convergence of the parallel and official markets rates are commendable, the month-long rally in the parallel segment seems to have come to a halt regardless of efforts by the CBN to guarantee supply for retail invisibles demand. This further justifies the call for removal of capital controls and readmitting the 41 inadmissible items in order to further reduce the parallel market premium and ensure FX rates convergence. We continue to see FX rate trending within the band of N390.00 – N400.00/US$1.00 in the parallel market pending a review of the 41 items exempted from accessing FX at the official market.
Bond Market Review and Outlook
Similar to last week’s performance, bearish sentiment was evident in the local bonds market as yields trended northward on most trading days. However, a strong performance recorded on Monday ensured average yield across benchmarks declined marginally by 1bp to close at 15.76%. The bonds market opened the week on a soft note with minimal activities. Notwithstanding the quietness of the market on Monday, we observed buying interest in the medium to long end of the yield curve - JUL 2021, JAN 2026, JUL 2030 and MAR 2036 – which drove yields down 4bps on average. However, sell sentiment filtered into the market on Tuesday and persisted till the end of the week.
In the week ahead, we expect activity level to increase as the Debt Management Office (DMO) is scheduled to auction N35.0bn, N50.0bn and N50.0bn of the JUL 2021, MAR 2027 and APR 2037 (new issuance) instruments on Wednesday. As with recent auctions, we expect to see stronger investor appetite for the longer dated instruments. Relatedly, the Federal Government through the DMO commenced the second tranche of the FGN Savings Bond issuance by offering 2-year and 3-year notes with maturities due April 12, 2019 and 2020 at 12.8% and 13.8% respectively. The instruments were on offer from Monday 3rd April till 12pm, Friday 7th April. Similar to the first savings bonds offer, the minimum subscription amount was set at N5,000 while the maximum subscription was set at N50,000,000.
In the Eurobonds market, all the Sub-Saharan sovereigns rallied save for the South African sovereigns which recorded sell-offs amid increased credit risk of the issuer on the back of its credit rating downgrade. Fitch and S&P Global ratings recently downgraded South Africa’s long term foreign currency rating to junk status citing political tensions highlighted by the sacking of the country’s finance minister. Other SSAs however enjoyed strong buy sentiment as yields dropped 10bps and 20bps on Nigerian and Zambian Sovereign Eurobonds respectively. Notwithstanding the recent resignation of the country’s Central Bank Governor, average yield on the Ghanaian sovereign Eurobonds fell 28bps as investors hunted for bargains after last week’s selloffs while average yield on the Ivory Coast sovereigns fell 21bps this week.
On the Corporates side, sentiment was bullish on Nigerian Corporate Eurobonds as investors hunted for bargains. Consequently, yields fell on all the Nigerian corporates save for Diamond 2019 (up 3bps) and FBN 2021 (up 15bps). The Fidelity Bank 2018 saw the most buying interest as yield fell 83bps whilst yield on the Access 2021 and Guaranty 2018 declined 8bps apiece. Likewise, bargain hunting in FBN 2020 and Zenith 2019 saw yields on both notes drop 13bps and 2bps respectively.