Market Review and Outlook

...Week Ended December 8, 2017

Global Equity Market Review and Outlook
Performance of Global equity markets this week was largely bearish as majority of the indices under our coverage trended southwards. Relatedly, in the commodities market, oil prices slid as Brent Crude price pared 1.0% W-o-W to US$62.72/b (as of writing) despite the OPEC and allies’ agreement to extend production cuts until 2018 year end. The drop in oil prices can largely be tied to the rise in U.S shale inventories, detailed in the American Petroleum Institute’s (API) report released during the week.

In the developed markets, the U.S. S&P 500 and NASDAQ shed 0.2% and 0.5% W-o-W respectively. However, the UK FTSE All Share appreciated 0.9% W-o-W as the pound sterling slid for much of the week due to market reaction to a sluggish resolution to Brexit talks regarding the Irish border dispute. Relatedly, early on Friday morning, a breakthrough on border talks was reached.

In the markets in the Eurasian classification, the France CAC 40 (+1.6%) and Germany XETRA DAX (+2.5%) were the only gainers for the week. On the flipside, Hong Kong’s Hang Seng declined 1.4% W-o-W on the back profit-taking in the year’s best performers, which led to the largest day-to-day decline in 13 months on Wednesday. Similarly, Japan’s Nikkei 225 closed the week flat.

Performance across the BRICS was mixed, albeit negatively skewed. India’s BSE sens (+1.3%) and Brazil’s IBOVESPA (+1.3%) both gained week-on-week while the South African FTSE/JSE All Share (-2.3%), Russia’s RTS (-1.8%) and China’s Shanghai Comp (-0.9%) all declined from the previous period. South Africa’s equity market led losers under our coverage this week following the resignation of Steinhoff International’s CEO amidst allegations of accounting irregularities. The stock had been amongst the top 10 listed stock on the FTSE/JSE All Share Index by market capitalization before tumbling over 80.0% after the news broke, while all other stocks related to the company also fell.

African markets were similarly bearish as only 1 index under our coverage - the Nigerian All Share Index (+3.5%) - appreciated week-on-week. Egypt’s EGX 30 led the losers, down 2.0%, trailed by Kenya’s NSE 20 (-1.7%) and Ghana’s GSE Composite (-4bps).

Domestic Equity Market Review and Outlook
Sentiment in the Nigerian Equity Market was bullish this week as the All Share Index trended upwards for seven consecutive days to close at a 37-month high on Thursday before paring gains on Friday due to profit-taking.  Consequently, the All Share Index (ASI) rose 3.5% WTD to settle at 39,257.53 points. Accordingly, YTD return expanded to 46.1% while market cap added N457.6bn to close at N13.7tn. However, activity level was mixed with average value traded jumping 39.9% to N7.9bn while average volume traded fell 11.0% to 663.2m units. The most traded stocks by value were ZENITH (N7.4bn), GUARANTY (N4.8bn) and UBA (N2.7bn); by volume, FBNH (310.8m), CUSTODYINS (292.1m) and ZENITH (282.4m) led.

The week started off on a moderately positive note, with the benchmark index marginally adding 8 bps on the back of price appreciations in Consumer Goods stocks- NESTLE (+1.2%) and NIGERIAN BREWERIES (+0.9%). From Tuesday till Thursday, market performance surged, rising 1.4%, 1.5% and 1.2% respectively. The rally was largely due to sustained buying interest in large cap stocks - ZENITH, UBA, NESTLE, NIGERIAN BREWERIES and DANGCEM. On Friday, market dropped 0.7% as profit taking ensued.

Despite the bullish aggregate performance, sector performance for the week was largely mixed though skewed towards the positive region as 3 of 5 Sector indices appreciated against 2 decliners. Leading the gainers was the Consumers Goods index, up 6.1% against the backdrop of sustained buying interest in bellwethers - NESTLE (+7.2%) and NIGERIAN BREWERIES (+9.6%). In the same vein, the Banking index was propped 5.3% higher, driven by gains in ZENITH (+7.9%), ETI (+7.6%), ACCESS (+15.5%) and UBA (+10.0%) while the Insurance index (+0.2%) was buoyed by appreciations in LINKASSURE (+9.7%) and NEM (+7.8%). Conversely, the Industrial Goods and Oil & Gas indices fell 1.4% and 0.5% respectively, dragged by TOTAL (-5.4%), FORTE (-3.2) and DANGCEM (-1.6%).

Investor sentiment as measured by market breadth improved to 2.3x (from 1.7x recorded the previous week) owing to 45 advancers versus 20 decliners. The best performers this week were FBNH (+26.3%), CADBURY (+22.9%) and FIDELITY (+20.9%) while the worst performers were TOTAL (-5.4%), INTBREW (-5.4%) and CHELLARAMS (-4.9%). In the coming week, we envisage some profit taking by investors in early trades. Nevertheless, we maintain a positive near term outlook on the market as Institutional investors embark on year-end portfolio rebalancing.

Money Market Review and Outlook
In an unexpected move, the CBN halted the issuance of OMO bills this week, bucking a trend of consistent OMO mop-ups although financial system liquidity remained in deficit all through the week save for Thursday. Consequently, rates on money market instruments and short tenured bills moderated during the week notwithstanding tight liquidity in the system.

Money market rates – Open Buy Back (OBB) and Overnight rate (OVN) - opened the week in double digits, albeit slightly moderating to 21.5% and 23.3% respectively (from 25.8% and 29.1% at last week’s close) despite a negative liquidity balance of N32.1bn from a surplus close of N183.9bn the prior week. The weaker liquidity was largely on the back of US$100.0m SMIS sales the Apex bank conducted same day. Although financial system liquidity tightened further on Tuesday, closing in deficit of N92.8bn, yet, money market rates trended lower to 16.0% and 16.7% respectively and further moderated to 13.8% and 14.8% by mid-week as system liquidity deficit improved to N75.9bn. However, on Thursday the impact of OMO maturity worth N110.4bn was evident as rates dipped to 6.3% and 7.3% respectively, bringing system balance to close in excess of N78.0bn. In the absence of OMO sales, the OBB and OVN rates closed the week at 5.2% and 6.3% respectively, indicating a 20.7 and 22.8 percentage points decrease WTD.

Performance in the Treasury Bills market this week was largely bullish as average rate across tenors closed lower on all trading sessions. The week opened on a positive note with buying interest in medium term instruments; hence average benchmark T-bills rates dipped 1.1% on average to close at 16.5%. By mid-week, average rate had settled at 15.8% (down 31bps) due to strong appetite for short-dated bills. Average rate closed lower on Thursday (down 13bps to 15.7%) and eventually closed the week at 15.4%, implying a 2.1% decline WTD.

In the coming week, OMO and T-bills worth N70.6bn and N147.5bn will be maturing. Whilst we expect the maturing T-bills to be rolled over, the CBN may yet stall issuance of OMO bills. Thus, barring any OMO mop-up, we expect rates to further moderate in the secondary market for T-bills, whilst money market rates remain in single digit.

Foreign Exchange Market Review and Outlook
At the start of the week, the CBN sustained its intervention in the FX market via Secondary Market Intervention Sales (SMIS), injecting US$100.0m to maintain stability in the Foreign exchange market. Hence, rates were barely changed at all segments of the market. Although the CBN FX spot rate weakened slightly at the start of the week to N307.00/US$1.00 from N306.00/US$1.00 recorded the previous Friday, the peg shifted upward every other day to close at N306.45/US$1.00 on Friday. At the Interbank market, rate depreciated 21kobo W-o-W to N360.29/US$1.00 from N360.08/US$1.00 the previous week.

For the first two trading days, NAFEX rate traded at N359.91/US$1.00 and N359.83/US$1.00 at the Investors and Exporters’ (I&E) Window. NAFEX rate stayed flat at N359.83/US$1.00 from Wednesday till Friday, indicating an 8kobo appreciation W-o-W. Similarly, the naira traded flattish in the parallel market, closing at N363.00/US$1.00 on all trading days.  Activity level in the I&E FX window strengthened compared to the previous week, as total volume of transactions rose to US$900.5m as of Thursday, 18.6% above US$759.2m recorded all through last week.

At the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures contracts stood at US$3.1bn on Friday, 8th December. The APR 2018 instrument was the most subscribed with total value of US$640.9m while the least subscribed was the NOV 2018 with a total value of US$32.0m.

With OPEC’s decision to extend supply cuts agreement till the end of 2018 and continued tension in the Middle East, consensus expectation favours stability in crude oil prices above US$60.0/b. Hence, short to medium term outlook for Nigeria’s oil earnings and FX market liquidity remains broadly positive.

Bonds Market Review and Outlook
Similar to the Treasury Bills market, performance in the local Bonds market was bullish this week with average yield closing lower on all trading sessions as investors continue to strategically position in government securities after the CBN failed to conduct any OMO auction this week. Average yield across tenors opened the week at 14.7% with buying activities centered on the JULY 2021 (down 27bps) and MAY 2018 (down 25bps) instruments. Following the positive close, performance subsequently remained upbeat as average yield fell 6bps to 14.6% on Tuesday, 19bps to 14.4% on Wednesday and 5bps on Thursday. Although the bullish sentiment was evident across tenors, yields fell faster at the short end of the curve, consistent with the rally seen in T-bills. Average yield closed the week at 14.2%, down 51bps WTD.

In the coming week, the DMO will be conducting its last Bond auction for the year; Re-opening the JULY 2021 and MARCH 2027 instruments with offer amounts ranging from N45.0- N55.0bn each. Given the ongoing rally in the secondary market, near-term expectation of monetary easing and absence of primary market issuances this week, we expect marginal rates at the auction to be relatively lower - relative to last month’s auction.

In the Sub-Saharan Eurobond market, sentiment was mixed across Sovereign bonds we track. Yields rose on South African (+8bps) and Ivory Coast (+5bps) bonds and declined on Ghanaian (-5bps) and Nigerian (-3bps) Sovereigns we track. In what has been a stellar year for SSA Frontier Markets FCY bonds, KENYA 2019 (+11.2%), GHANA 2026 (+10.9%) and GHANA 2023 (+9.6%) are the best performing on price return.

Performance across Nigerian Corporate Eurobonds was largely positive this week with the exception of ACCESS 2021 (YTM up 2bps to 8.7%). Yields fell on FBNH 2020 (down 34bps to 8.9%) and FIDELITY 2018 (down 31bps to 4.0%) to top the list of best performers. Against the backdrop of improving macroeconomic and corporate fundamentals as well as favourable oil price environment, all Nigerian Corporate Eurobonds, particularly Tier-2 banks, have continued to enjoy buying interest with positive YTD return. DIAMOND 2019 remains the best performing with a return of 27.4% while ZENITH 2022 has the least with YTD return of 3.5%.