Global & Nigeria Markets: Review & Outlook –Week Ended August 26, 2016

Global Market Review and Outlook
Performance in the global equities market remained broadly bearish this week as key indices around the world closed in the red. The week saw investors divert attention to Federal Reserve Chair Janet Yellen’s much awaited speech at the Jackson Hole Economic Symposium. Yellen’s speech is said to address the “tools the Fed has to fight the next battle, the next crisis,” However, investors are more focused on clues for the possibility and timing of a U.S. interest rate hike, as this will have a significant impact on global markets.

Indices in the Developed Markets - US S&P 500 and the UK FTSE - lost 0.5% apiece, while the US NASDAQ declined 0.3% W-o-W. Performance in the Europe & Asian region was majorly driven by the focus on Yellen’s speech. The France CAC 40 remained the sole gainer within the region, up 0.6% WTD. German XETRA DAX slid 0.1% as reports from the IFO Institute for Economic Research surfaced.

In the BRICS grouping, the Brazilian IBOVESPA lost 1.8% W-o-W amid hazy political outlook following the opening of impeachment proceedings against President Dilma Rousseff and speculation of probable increase in fiscal deficit. As at time of writing, China’s Shanghai Composite index had slipped 1.2% WTD, bringing YTD loss to 13.2%. The Russian RTS index erased gains previously recorded as the Index was down 0.7% WTD. Contrarily, the South African FTSE/JSE index remained the only positive index within the grouping, up 1.0% WTD.

In the African region, all indices closed in red save for the Ghanaian GSE which gained 3.8% W-o-W on the back of positive development in the country’s oil and gas sector (highlighted by flagging off oil production in a new oil field) and the IMF’s confirmation that a third fiscal support program is being negotiated with the government. The Kenyan NSE 20 led the list of decliners, down 7.1% W-o-W as banking stocks sank after the Kenyan president signed a bill which capped commercial bank’s interest rate at 400bps above central bank policy rate. The Egyptian EGX 30 for the second consecutive week shed points, down 2.2% W-o-W this week, while the Nigerian All Share Index lost 0.7%as sell pressure in large cap stocks drove the index to a loss.

Equities Market Review and Outlook
The All Share Index (ASI) started the week on a positive note recording gains on Monday, up 0.6% on the back of bargain hunting in blue chip Consumer Goods and Banking stocks such as UBA (+5.5%), GUARANTY (+1.6%), NIGERIAN BREWERIES (+1.4%) and NESTLE (+1.2%). On Tuesday the ASI dipped 2bps, due to losses in DANGCEM (-1.6%) but rebounded on Wednesday, appreciating 0.3% due to interest in large caps. The market tumbled 1.8% on Thursday as DANGCEM slumped 4.7% while Zenith depreciated 1.9% after the ticker was adjusted for interim dividend. The All Share Index closed positive on Friday, up 0.3%, as UBA reported a six month gross earnings of N165.6bn (down 0.1% Y-o-Y from N165.7bn in H1:2014) and PAT of N32.6bn, (up 1.9% Y-o-Y from N32.0bn in H1:2014). The bank also declared a 20kobo interim dividend.

Accordingly, the Nigerian equities market was unable to sustain the gains made in the prior week, depreciating 0.7% W-o-W. Market capitalization also declined by N68.5bn to settle at N9.4tn bringing YTD loss to 4.2%. Activity level was mixed this week as average volume declined 18.3%to settle at 279.5m units, while average value advanced 7.0% to settle at N3.7bn W-o-W.

Overall performance across sectors was broadly mixed with the Oil & Gas index advancing the most, up 6.7% W-o-W on the back of gains in SEPLAT (+14.6%) and FO (+10.6%). Similarly, the Banking Sector and Consumer Goods Indices rose 0.9% apiece, due to gains in UBN (+5.1%), GUARANTY (+4.1%), UBA (+1.8%), NIGERIAN BREWERIES (+1.5%), INTBREW (+7.4%), and UNILEVER (3.0%). Contrarily, the Industrial Index depreciated 1.1% W-o-W on account of losses in DANGCEM (-5.2%) while the Insurance Index remained unchanged.

In line with market performance, investor sentiment advanced, as reflected by the market breadth which strengthened to 1.1x (from 0.7x the previous week). 26 stocks advanced while 24 stocks declined. The best performers for the week were SEPLAT (+14.6%), FO (+10.0%), TRANSCORP (+10.5) and CAP (+10.2%) while FCMB (-14.9%), AGLEVENT (-10.1%), ACADEMY (-9.5%) and SKYEBANK (-7.8%) were the worst performers for the week. The National Bureau of Statistics (NBS) is set to publish key macroeconomic indicators such as Inflation, GDP growth rate as well as unemployment rate next week. As noted above, we expect July inflation rate to inch higher and GDP growth rate for Q2:2016 to worsen. Although we do not expect a knee jerk reaction from investors, we think weaker than expected numbers may further dampen appetite for equities. Thus advice the risk averse investors to trade cautiously.

Foreign Exchange Review and Outlook
The local unit opened the week stronger at the interbank market, as spot rates strengthened to N308.73/US$1.00 on Monday from N316.55/US$1.00 on Friday and further appreciated to N305.18/US$1.00 on Tuesday. The naira however weakened to N316.84/US$1.00 on Thursday before eventually settling at N314.95/US$1.00 on Friday following the decision of the CBN to ban nine deposit money banks (DMBs) from the interbank market on Wednesday. However, parallel market rates tumbled 3.6% W-o-W as the greenback exchanged for the naira at N412.00/US$1.00 on Friday (26/08/2016) relative to N397.00/US$1.00 in the previous Friday. Overall performance of the domestic currency was pressured by volatility in the currency market which was triggered by the sanction imposed on nine DMBs by the Apex Bank due to alleged refusal to remit US$2.3bn to the TSA account.

In the futures market, the AUG 24 2016 contract with a notional value of US$152.5m at US$/N310.00, matured and was settled on the FMDQ platform on the said maturity date. This was replaced by the CBN with a new 12-month contract (AUG 16 2017), with value of open contract offered at US41.00bn at N244.00/US$1.00. In addition, new rates were published for the existing one-month to 11-month contracts.

We believe that the foreign exchange market will continue to be pressured in the interim, especially at the parallel market, as liquidity in the official market remains a concern.

Money Market Review and Outlook
System liquidity opened with a balance of N22.3bn on Monday. Thus, Open Buy Back (OBB) and Over Night (O/N) rates settled at 19.0% and 21.8% respectively on Monday. Rates declined on Tuesday as OBB fell to 17.5% while O/N rate slid to 18.6% following an improvement in liquidity levels which settled at about N25.0bn. The downtrend in rates lingered into Wednesday, with no major inflow or outflow from the system as OBB and O/N trended lower to 17.0% and 18.1%. However on Thursday rates rose, though at tight band, to settle at 16.3% (OBB) and 17.9% (O/N). The uptrend was sustained on Friday given a liquidity balance of N62.8bn as OBB and O/N rate rose to 18.2% and 18.9% following an OMO auction worth N100.0bn of which only N74.6bn was sold at 18.0% by the CBN. Consequently, money market rates slid 4.8% (OBB) and 6.7 % (O/N) W-o-W respectively.
The treasury bills market opened the week on a bearish note as average T-bills rates settled at 16.9%, 1.2% lower than the previous Friday. Rates in the T-bills market further declined on Tuesday to eventually settle at 16.4% on Wednesday. By Thursday, the downtrend was reversed as average rates rose to 16.7% and 16.9% on Thursday and Friday respectively. As a result, average T-bills rate declined 1.2% W-o-W. %. Across the T-bills term structure, 9M and 12M tenors remain the most attractive with rates closing respectively at 17.8% and 17.6% on Friday. We expect rates to trend in line with liquidity dynamics in the coming week as interest in T-bills and OMO instruments currently trading at attractive rates strengthens.

Bond Market Review and Outlook
Consequent on the bearish sentiment that has persisted in the equities market, investors’ interest has turned towards the fixed income market. However, buying interest has remained on shorter tenor T-bills instruments given the current attractive yield environment and as a result, activities in the longer-dated bond market have remained relatively soft and this persisted during the week. Compared to the previous Friday, average yields across benchmark instruments declined 0.9% to 15.1% on Monday. On Tuesday, as trading activity remained marginal, average yields across benchmark instruments slid 0.1% to settle at 15.0%. On Wednesday however, marginal sell pressure drove yields 2 bps higher. Yields on bonds closed flattish on Thursday but eventually rose to 15.1% on Friday, lower by 0.9% W-o-W broadly due to the bullish sentiment on Monday. We expect investors to trade cautiously in opening trades next week ahead of July 2016 inflation data release.

The Sub-Saharan sovereign Eurobond space experienced mixed performance during the week as yields declined on all the Ghanaian Eurobonds (Ghana 2023, 2026 and 2017 down 0.2% 0.2% and 1bps respectively). Yields on the Zambian and Senegal sovereign Eurobonds (Zambia 2024, 2022, Senegal 2024 and 2021 down 0.2%, 0.2%, 0.1% and 0.1% respectively) also declined on a W-o-W basis. On the flip side, yields rose on South African Eurobonds, by an average of 0.3% W-o-W while the Nigerian 2023 Eurobond both rose 0.1% W-o-W. In the Nigerian corporate Eurobond space, sentiment was bearish performance during the week as yields rose across all instruments save for the Fidelity 2018 Eurobond. This may be linked to profit taking and speculations in the global market about probable hike in Fed Fund rate which spooked sentiment for emerging-market assets.