COVID-19 cases sustained an uptrend this week, rising 7.3% to 26.5 million with the death toll increasing 4.4% to 868,028. While cases appear to have slowed globally, there are concerns about rising cases in the US (6.3 million cases), Brazil (4.0 million cases) and India (3.9 million cases). Although COVID-19 vaccine development is yet to reach final stage globally, the Trump administration this week hinted at the potential delivery of COVID-19 vaccines to US citizens starting November 1. While vaccine development has proceeded at a fast pace, health experts believe the US’ timeline is optimistic as clinical trials have not been concluded, implying huge risks. Elsewhere, China-US relations worsened this week as the US imposed new restrictions on Chinese diplomats which prevents them from visiting universities or meeting local government officials without approval. The move was said to be in retaliation to the several barriers imposed on US diplomats by the Chinese government.
Performance in the developed markets was bearish this week as 6 of 7 indices under our coverage lost w/w. US’ S&P 500 and NASDAQ indices slipped 4.1% and 5.9% w/w respectively amid worsening US-China relationship. Similarly, UK’s FTSE All-Share index dropped 2.7% w/w as businesses began to cut down on investments due to COVID-19. Also, Hong Kong’s Hang Seng index shed 2.9% w/w. In Europe, Germany’s XETRA DAX and France’s CAC 40 indices lost 1.6% and 1.0% w/w respectively, reflecting weak investor sentiment due to a lack of consensus by member countries around the proposed €750.0 billion COVID-19 recovery plan. On the flip side, Japan’s Nikkei 225 index advanced 1.4% w/w due to the expectation of more economic stimulus.
Across the BRICS markets that we cover, the performance was negative. South Africa’s FTSE/JSE All Share index topped the laggards as it lost 4.1% w/w. Similarly, Russia’s RTS, India’s BSE Sens and Brazil’s Ibovespa indices fell 3.8%, 2.8% and 2.8% w/w respectively. Lastly, China’s Shanghai Composite index closed the week lower by 1.4%.
The African markets under our coverage posted a mixed performance as 3 of 6 indices recorded gains. Egypt’s EGX 30 index led the laggards, declining 2.5% w/w despite Moody’s affirming the country’s B2 credit rating with a stable outlook. Similarly, Mauritius' SEMDEX and Ghana’s GSE Composite indices lost 1.1% and 0.4% w/w. Conversely, Kenya’s NSE 20 index was the best performer as it gained 3.4% w/w. Also, Morocco’s Casablanca MASI and Nigeria's All-share indices advanced 1.2% apiece.
Performance across the Asian and Middle East markets under our coverage was bearish with 3 of 5 indices that we cover closing lower w/w. Turkey’s BIST 100 index saw the most decline as it fell 1.7% w/w as the country imposed new COVID-19 related restrictions. Also, Thailand’s SET and Qatar’s DSM 220 indices closed 1.1% and 0.5% w/w lower. On the other hand, Saudi Arabia’s Tadawul ASI index recorded the most gain, closing 1.4% w/w higher as the number of new coronavirus cases continued to reduce. In the same vein, the UAE’s ADX General index appreciated 0.4% w/w.
Domestic Equities Market: The Bulls Dominate Trade... ASI up 1.2%
The local market sustained last week’s positive performance as the bulls showed no signs of an early retreat, posting gains on all trading sessions. Across the week, sentiment was strong as investors reacted to positive developments in the Nigerian FX market, better-than-expected corporates earnings releases (majorly STANBIC, ZENITH and ACCESS) and improved economic activities. Consequently, the All-Share index rose 1.2% w/w to 25,605.64 points, market capitalization rose to ₦13.4tn (+ ₦154.4bn w/w) and YTD loss moderated to -4.6%. The bullish bias drove activity level as average volume and value traded advanced 106.2% and 48.4% to 441.9m units and ₦2.2bn respectively. The most traded stocks by volume were TRANSCORP (117.2m units), UACN (88.0m units) and ZENITH (69.7m units) while ZENITH (₦1.8bn), GUARANTY (₦847.4m) and DANGCEM (₦624.1m) led by value.
Sector performance was impressive w/w as the bulls registered their towering presence across all sectors under our coverage. The Oil & Gas and Banking indices gained the most, up 3.7% and 2.8% respectively due to buy interest in MOBIL (+10.0%) and ETERNA (+5.5%) as well as STANBIC (+5.4%) and GUARANTY (+4.5%). Similarly, price appreciation in CORNERSTONE (+17.9%), NIGERIAN BREWERIES (+8.1%) and HONEYWELL (+3.2%) buoyed the Insurance and Consumer Goods indices by 2.0% and 1.5% w/w. Lastly, gains in MTNN (+0.7%) and BUACEMENT (+0.8%) spurred a 1.5% and 0.4% uptick in the AFR-ICT and Industrial Goods indices respectively.
Investor sentiment as measured by market breadth (advance/decline ratio) improved to 2.2x from 0.9x last week as 40 stocks gained against 18 that declined. ROYALEX (+26.9%), CORNERSTONE (+17.9%) and UNIONDAC (+12.5%) led the top gainers while LASACO (-16.1%), TRIPPLEG (-12.0%) and ACADEMY (-10.0%) led the decliners. While we expect the soft gains in the domestic market to be sustained, we note that investors are likely to pocket gains in the week ahead. Also, the resumption of FX sales could provide foreign investors the long-waited opportunity to sell their stakes and limit exposure. Thus, we anticipate a mixed performance in the coming week.
Foreign Exchange Market: Naira Appreciates at the Parallel Market Ahead of Resumption of Sales to BDCs
This week, the external reserves inched higher marginally by 2bps w/w to $35.7bn (2/9/2020) despite the weekly FX intervention sales by the CBN. On the global front, oil prices fell this week, down 6.8% w/w to $42.7/bbl. as data from the Energy Information Administration (EIA) revealed slowing demand for oil. Meanwhile, optimism about the resumption of FX sale to BDC operators beginning from September 7, 2020 as international flights resume fueled gains in the local currency this week.
The CBN spot rate closed flat at ₦379/$1.00. At the parallel market, naira appreciated by ₦37.00 to close at ₦440.00/$1.00 due to expectations of increased liquidity in the coming week. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate depreciated 46kobo to close at ₦386.13/ $1.00. Activity level in I&E Window increased by 32.1% to $215.6m from $163.2m recorded in the previous week.
The total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures Contract Market increased 1.0% ($117.2m) to $12.500bn. The SEPT 2021 instrument (contract price: ₦423.90) received the highest subscription of $70.0m which took total value to $95.1m. On the other hand, the SEPT 2020 instrument (contract price: ₦389.54) recorded the least subscription at $0.5m with a total value of $1.5bn. We expect the exchange rates to remain range-bound at the official market and the I&E window. However, due to the expected intervention of the CBN at the parallel market, we believe the currency would appreciate in the coming week.
Money Market: Buying Interest in OMO Drives Rate Lower
The OBB and OVN rates opened the week at 9.1% and 9.6% respectively, lower than the previous close of 13.9% and 14.9% despite a decline in system liquidity to ₦244.9bn from ₦949.6bn. On Wednesday, the OBB and OVN rates fell to 4.7% and 5.3% respectively from 5.8% and 6.4% (on Tuesday), and further declined on Thursday to 2.5% and 3.3% as system liquidity stood at ₦261.8bn. Finally, on Friday, OBB and OVN rates trended lower to close the week at 1.6% and 2.3% respectively as system liquidity rose to ₦804.3bn.
On Thursday, following the inflow from OMO maturities worth ₦321.5bn, the CBN conducted OMO auction worth ₦100.0bn to mop-up excess liquidity in the system. Demand at the auction was healthy as the 82-day (Offer: ₦10.0bn; Subscription: ₦10.0bn; Sale: ₦10.0bn), 180-day (Offer: ₦10.0bn; Subscription: ₦18.0bn; Sale: ₦10.0bn) and 355-day (Offer: ₦80.0bn; Subscription: ₦116.7bn; Sale: ₦80.0bn) instruments were oversubscribed at 1.0x, 1.8x and 1.5x with marginal rates of 4.9%, 7.9% and 8.9% respectively.
In the secondary treasury bills market, the performance was bullish as average yield across benchmark tenors trended lower, down 23bps w/w to close at 2.0%. At the close of the week, the medium-term instruments enjoyed the most buying interest as average yield declined 60bps w/w to 1.8%, while yield on the long-term instruments fell 9bps w/w to 3.1%. Conversely, the short-term instruments closed flat for the week. In the coming week, we expect the CBN to sustain its OMO auction given elevated system liquidity.
Bonds Market: The Domestic Bonds Market Reverses Bullish Outing
The domestic bonds market ended the week bearish as average yield rose 10bps w/w to 7.9% following sell-offs on 3 of 5 trading sessions. Across tenors, the medium-term bonds had the most buying interest as yield dropped 1bp while yields on short and long-term bonds rose 2bps and 32bps w/w respectively due to sell pressures.
Across the SSA Eurobonds space, demand was strong leading to a bullish outing as average yield declined 37bps w/w to 8.1%. The Zambia 2022 and 2024 instruments saw the most buying interest as yields increased 197bps and 139bps w/w respectively. Trailing, yields on the Ghana 2022 and Kenya 2024 instruments rose 104bps and 58bps w/w respectively.
Performance at the African Corporate Eurobonds market under our coverage was positive as average yield dipped 9bps w/w. The SIBANYE GOLD 2023 and BAYPORT MANAGEMENT 2022 instruments saw high demand following a 125bps and 62bps drop in yield respectively. In the coming week, we expect to see improved demand in both the domestic bond and Eurobond markets.