Equities Rally as the CBN Blinks on FX Policy

Nigerian equities rebounded from a 3-day losing streak to close on Wednesday at its highest point in June-2016 as the CBN announced a new foreign exchange policy guideline with improved flexibility. The market initially opened on a high note as investors anticipated the CBN’s guideline but dipped at mid-day before closing bullish subsequent to the press briefing of the CBN Governor. The benchmark All Share Index (ASI) surged 3.2% to close at 27,891.96 points, bringing MTD return to 0.8% and paring YTD losses to -2.6%. Market capitalization added N294.6bn to N9.6tn while market activity was equally strong with volume and value traded advancing 244.7% and 43.4% to 588.4m units and N3.5bn respectively.

All Sector Indices Close Green
All sector indices closed positive today in line with the strong appetite witnessed across board. The Banking Index led advancers with a 4.0% appreciation consequent on buy sentiment on Tier-1 lenders - GUARANTY (+7.8%), ZENITH (+5.4%) and UBA (+6.5%) - while the Industrial Goods index (+2.8%) followed at a distance with DANGCEM (+5.0%) the major mover of the index. The Consumer Goods index gained 2.4% as investors positioned in blue-chip brewers - NIGERIAN BREWERIES (+4.5%) and GUINNESS (+5.0%). The Oil & Gas index rallied 1.1% on the back of renewed appetite towards OANDO (+5.0%) while the Insurance Index recorded the smallest gain (+0.6%); NEM (+9.5%) and AIICO (+3.9%) drove the index.

Market Sentiment Overwhelmingly Positive
Market Sentiment was positive at 3.3x as 33 stocks gained while 10 shed points. Top gainers were NEM (+9.5%), GUARANTY (+7.8%), FCMB (+7.7%), SKYEBANK (+7.1%) and TRANSCORP (+6.6%) while UPL (-5.0%), GLAXOSMITH (-4.9%), ETI (-4.7%), NEIMETH (-4.7%) and CUTIX (-4.2%) led losers.

We expect the bullish sentiment to be sustained in the sessions ahead as domestic investors position in advance of the official take-off of the liberalized FX market on Monday which is expected to attract portfolio investors. Whilst we view the new development in the FX market positive in aiding price discovery in the FX market as well as reducing pressures on public finances and the external reserves; the caveat on maintaining the list of “banned”41 items will continue to make the parallel market thrive. Nevertheless, the moderation in FX risk, which hitherto had been obscuring valuation of assets in the economy, will unlock more value for equity investors, especially in Banking and Consumer Goods counters.