Global equities market performance in the month of March was largely bearish as key indices around the world ended Q1:2015 lower. Weaker sentiment for equities remained driven by faltering global growth, softer commodity prices and policy responses in key markets. However, performance for the week was rather choppy as the US central bank maintained that it would proceed ‘cautiously’ with plans to raise interest rates in 2016. In the developed markets, the US S&P 500 and NASDAQ improved 1.2% and 2.0% respectively W-o-W, mostly due to renewed investors interest in equities following the US Fed’s comment that it will be cautious on rate hikes ahead of US Job reports. Contrariwise, the UK FTSE eased 0.1% W-o-W.
In the Euro-Asian markets, France CAC and Germany DAX slipped 1.3% and 1.4% W-o-W apiece on the back of speculation that the US Job numbers expected today will come in lower. The Japanese Nikkei recorded the largest loss for the week, tumbling 4.9% W-o-W after survey suggested that manufacturers’ business sentiment is at its lowest in close to 3years. However, Hong-Kong Hang Seng rose 0.8% W-o-W amid better than expected manufacturing Purchasing Managers' Index (PMI) in China.
Performance in the BRICS markets was also mixed with the China Shangai Composite index closing the week 1.0% higher. The Brazil IBOVESPA added 0.8% W-o-W despite concerns surrounding President Dilma Rousseff’s looming impeachment. The Brazilian index has rallied 15.5% YtD as prospects of a change in government increases. Russian RTS slipped 0.2% W-o-W, the index has appreciated 14.2% YtD. On the flip side, India BSE and South Africa FTSE index slumped 0.3% and 1.7% respectively.
Key indices in Africa ended the week lower with the Nigerian ASI leading the pack with 1.5% W-o-W decline amid a flurry of earnings releases. Kenya NSE followed with a 0.5% W-o-W decline even as Egypt EGX (-0.3%) and Ghana (-0.2%) GSE also depreciated W-o-W.
Weekly Equities Market Review and Outlook
The Nigerian equities market ended the month of March on a positive note, as the All Share Index (ASI) appreciated 3.0% M-o-M. Performance for the month was bolstered by relatively attractive dividend yield as well as bargain hunting in key counters despite a flurry of profit warnings and unimpressive FY:2015 earnings announcements. Gains in the month was driven by M-o-M appreciations in TIGERBRANDS (+68.1%), OANDO (+40.7%), FIDELITY (+21.8%), DANGCEM (+18.4), FLOURMILLS (+11%) and UBA (+9.0%). However, a Q-o-Q review indicated that bearish sentiment persists as the market depreciated 11.7% in Q1:2016. In actual terms, market capitalization declined N1.1tn in Q1:2016 to settle at N8.7tn on 31st of March 2016.
Performance for the week ended lower as listed companies flooded the market with their earnings scorecard for FY:2015 in a bid to meet up with the 31st of March deadline. The ASI depreciated 1.5% W-o-W on losses in NIGERIAN BREWERIES (-9.6%), GUARANTY (-10.7%) and ZENITH (-15.5%). Activity level moderated during the week as average volume and value traded declined 11.0% and 34.9% to 315m units and N1.6bn W-o-W.
The Banking sector remained under pressure, depreciating 6.3% in March 2016 while posting the worst performance of 19.25% in Q1:2016. This was not surprising given the number of profit warnings and inspiring performance scorecards submitted during the period as most players in the sector booked huge impairment losses amid tougher economic environment. The Consumer goods index followed with a Q-o-Q loss of 17.5%, however the index improved 1.9% in March as bargain hunting in TIGERBRANDS (+68.1%), FLOURMILLS (+11%), and NIGERIAN BREWERIES (+5.9%) drove the index northwards. The Oil and Gas index recorded the worst performance in March, down 8.2% due to sell down in SEPLAT (-14.0%) following its disappointing FY:2015 result which more than offset gains in OANDO (+40.7%) and CONOIL (+15.3%) during the month. However, the Industrial goods index recorded a MtD gain of 5.63% in March following gains in DANGCEM (+18.4%).
Market sentiment as indicated by market breadth (advancers/decliners ratio) for the week remained soft at 0.7x (relative to 0.6x in prior week) as 24 stocks appreciated against 35 decliners. VITAFOAM (+14.8%), OANDO (+14.5%), and FCMB (+11.3%) topped the advancers’ list while UCAP (-35.0%), TRANSCORP (-16.0%) and UBA (-15.9%) declined the most. Market performance for Q2:2016 remains fuzzy as fundamental drivers stays weak amid tepid policy responses and poor macroeconomic outlook. Nevertheless, performance for the rest of the year is expected to be broadly determined by 2016 budget execution.
Money Market Review and Outlook
Money market activities resumed on Tuesday after the Easter holiday with system liquidity at the same levels as Thursday’s close. Liquidity levels inched lower as Deposit Money Banks (DMBs) provisioned for the weekly CBN FX intervention auction on Tuesday, but rates were barely changed at market close with the OBB and ON flat at 12.7% and 13.3% respectively. Liquidity levels remained at low levels on Wednesday, OBB stayed flat at 12.7% and ON rose 0.5% to 13.8. However, on the back of an OMO-bills maturity worth N179.0bn and the refund for unfulfilled bids at the FX auction to the DMBs which hit the system on Thursday, liquidity levels rose while OBB and ON rates declined 7.1% and 7.3% to close at 5.6% and 6.4%respectively. OBB and ON rates declined 1.8% and 2.1% on Friday to close at 3.8% and 4.3%, down 8.9% and 9.0% WTD.
The T-bills market was broadly bearish this week as average T-bills rates increased on all trading days reflecting market expectation of tightening monetary policy. On the back of low system liquidity at week open, average T-bills rates increased 0.3% to close at 8.0% on Tuesday. Average rates continued its northward march on Thursday, closing at 8.4%, even as liquidity levels rose, on the back of the OMO maturity of N179.0bn. Average T-bills rates inched higher by 0.2% on Friday to close at 8.6%, up 0.9% WTD. In the week ahead, we expect money market rates to trend in a similar weekly cyclical pattern dictated by provisioning for FX auctions and refunds. We do not anticipate major inflows save for the N218.9bn T-Bills maturity on Thursday which would be offset by an auction of the same amount.
Foreign Exchange Review and Outlook
Activities in the foreign exchange market this week mirrored last week’s stability. The Naira/Dollar exchange rate remained unchanged at N197/US$1 at the CBN and N199.50/US$1 at the interbank market. At the Bureau-De-Change, the naira appreciated against the dollar marginally on all trading days of the week, with the Naira/Dollar rate trending lower from N322.00/US$1.00 on Tuesday (appreciating N1 from Thursday) to close at N320.00/US$1.00 on Friday. The parallel market was also stable as Naira/Dollar traded for N323.00/US$1.00 on all trading days save for Wednesday when it rose marginally to N324.00/US$1.00.
Meanwhile, gross external reserves stood at US$27.8bn as the Apex bank maintained its stance on the local unit while crude oil prices (Brent) declined 4.0% W-o-W to settle at US$38.6pb on Friday 1st April. As policy status-quo remains, we believe the spread between the official and unofficial exchange rates will remain.
Bond Market Review and Outlook
Similar to last week, activities in the bonds market was slightly bearish this week. The market was flat on Tuesday as average yield across benchmark bonds were unchanged but expanded 5bps on Wednesday. There was increased activities on the FGN JUN2019 and FGN FEB 2020 bonds by foreign portfolio investors on Thursday leading to a moderation of the bearish tone set at the start of trade on Tuesday. However, the market still closed bearish with yields increasing across longer dated instruments. There was bargain hunting on Friday which pared losses; average yield settled at 11.6%, up 8bps WTD.
Whilst the bonds market remains more attractive to investors against the volatility in other asset classes, we expect average yields to decline as institutional investors and PFAs reposition their portfolios for the second quarter of the year.