Nigeria & Global Markets: Review & Outlook

Global Equity Market Review and Outlook
Despite the ongoing rally in commodity prices, sentiments across the global equity indices under our coverage were mixed, this week. Oil maintained another strong week against the backdrop of growing confidence in enforcement of the OPEC production cap and rising tensions in Saudi Arabia, one of the world’s largest oil suppliers, which have been driven by the ongoing anti-corruption purge by the Crown Prince.

Across the developed markets, the bears prevailed this week as the U.S. indices were dragged by Investors’ reaction to the Senate’s plan to delay the introduction of corporate tax cuts until 2019. Thus, the S&P 500 and NASDAQ lost 0.1% and 0.2% respectively W-o-W. Similarly, the UK FTSE All Share closed 1.6% lower W-o-W, as rising political concerns, stemming from the resignation of two cabinet members within a week, weighed on investors’ appetite for U.K. assets.

Performance across the indices in the BRICS classification was mixed as 3 of 5 indices closed the week in the red. China’s Shanghai Composite appreciated the most owing to improved confidence in the country’s economic outlook which buoyed investor sentiment. Likewise, the South African FTSE/JSE All Share improved 0.4%. On the flipside, the downtrend in the Brazil IBOVESPA was sustained during the week, sliding 2.4% W-o-W. In the same vein, India’s BSE Sens and Russia’s RTS fell 1.1% and 0.1% respectively.

In the Eurasia region, France’s CAC 40 and Germany’s XETRA DAX fell 2.2% apiece W-o-W. However, Japan’s Nikkei 225 maintained its upward momentum to gain 0.6% W-o-W, reaching a 25 year high on Wednesday. Similarly, the Hong Kong Hang Seng rose 1.8% on the back of China’s improving economic outlook.

In the African markets, performance was mixed, albeit more skewed towards the green as 3 of 4 indices trended northward W-o-W. Ghana’s GSE composite led gainers, up 0.9% W-o-W trailed by EGYPT’S EGX 30 (+0.9%) and Nigeria’s All Share Index (+0.5%). On the flipside, the Kenya NSE 20 was the lone decliner, down 1.0% W-o-W.

Domestic Equity Market Review and Outlook
Performance of the local Bourse was largely positive this week as the benchmark index advanced on 3 of 5 trading days in the week. The market opened the week on a negative note, as losses in ZENITH (-1.0%) and UBA (-2.0%) dragged the ASI marginally down 2bps. From midweek, performance was majorly influenced by activity in DANGCEM as the ASI rebounded on Tuesday (+0.2%) and gains were extended into Wednesday (+0.3%) on the back of price appreciation in Industrial Goods stocks. However, on Thursday, the uptrend was reversed as profit taking in DANGCEM pulled the benchmark index 24bps southward. On Friday, the ASI closed 0.2% up, following gains in GUARANTY (+1.2%) and NIGERIAN BREWERIES (+0.6%). Consequently, the All Share index rose 0.5% to close the week at 37,120.28 points while market capitalization increased N62.5bn to N12.8tn . Accordingly, MTD and YTD return expanded to 1.2% and 38.1% respectively. Activity level softened as average volume and value traded declined 3.4% and 22.2% to 263.2m units and N2.8bn respectively. The most active stocks in terms of total volume traded were DIAMOND (147.2m), FBNH (132.8m) and FIDELITY (100.6m); similarly, in terms of total value GUARANTY (2.6bn), NIGERIAN BREWERIES (1.8bn) and FBNH (0.9bn) led the charts.

Sector Performance was mixed this week with 3 of 5 indices closing in the green. The Oil & Gas index led gainers, up 0.8% W-o-W owing to appreciations in FORTE OIL (+10.3%) and MOBIL (+2.5%), whereas the Banking and Industrial Goods indices followed, inching 0.5% and 0.4% higher as investors took positions in DIAMOND (+9.4%), GUARANTY (+4.3%) and DANGCEM (+0.9%). On the other hand, the Insurance and Consumer Goods indices declined 1.1% and 0.1% on account of losses in LINKASSURE (-12.8%), MANSARD (-3.2%), NIGERIAN BREWERIES (-0.8%) and FLOURMILL. (-4.1%).

Investor sentiment weakened this week but remained positive at 1.0x (from 1.3x last week) as 29 stocks advanced against 28 decliners. The top performers this week were CAVERTON (+30.2%), CADBURY (+22.1%) and FORTE OIL (+10.3%) while CHAMPION (-14.3%), LINKASSURE (-12.8%) and LAWUNION (-9.9%) were the biggest losers. As noted in the prior week, we expect the sustained rally in oil prices to continue to buoy investors’ appetite for Nigerian equities, hence the positive performance is anticipated to be maintained in the coming week.

Foreign Exchange Market Review and Outlook
In an effort to maintain stability across all segments in the Foreign exchange market, the Apex bank injected US$100.0m via the wholesale SMIS intervention window into the system, at the start of the week. Consequently, the interbank market rate depreciated 30bps W-o-W to N358.10/US$1.00 from last Friday’s close of N357.15/US$1.00. Similarly, the CBN FX rate traded within a tight band all through the week, starting at N305.90/US$1.00 on Monday to close at N305.95/US$1.00 on Friday. At the I&E window, the Naira depreciated at the start of the week, settling at N360.57/US$1.00 on Monday from N360.05/IUS$1.00 on the previous Friday, but appreciated to N360.46/US$1.00 on Tuesday, before marginally declining 4bps to N360.33/US$1.00 by mid-week. However on Thursday, the NAFEX rate improved to N360.55/US$1.00 but declined to N360.00/US$1.00 at the close of the week, indicating a 5 kobo W-o-W /depreciation. The parallel market traded flat all through the week to close flat at N363.00/US$1.00

Following the CBN intervention at the start of the week, activity level in the I&E Window strengthened relative to previous week as total volume of transactions jumped 19.2% W-o-W to US$682.9m from US$527.8m in the prior 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 as at Friday 10th November, with the APR 25 2018 retaining the highest level of subscription at a value of US$593.0m whilst the recently issued OCT 31 2018 instrument was the least subscribed with a total value of US$44.5m.

With the sustained rally in global oil prices and stable production due to relative calm in the Niger Delta regions, we anticipate steady increases in the levels of our external reserves in the near term. As such, we expect to see sustained interventions by the CBN in the foreign exchange Markets, in a bid to maintain relative stability for the Naira.
Money Market Review and Outlook
In the money market this week, interbank rates trended lower despite OMO mop ups by the CBN on all trading days of the week. At the start of the week, Open Buy Back (OBB) and Overnight (OVN) rates closed at 37.5% and 38.9% respectively, from 36.3% and 39.4% recorded on the previous Friday as system liquidity deficit worsened from N27.0bn to N86.9bn. The decline in liquidity was due to OMO auctions on Friday and Monday which mopped up N11.7bn and N25.5bn respectively from the system. However, on Tuesday, OBB and OVN declined to 26.5% and 26.3% despite a larger liquidity deficit of N109.5bn while the Apex bank mopped up a total of N48.2bn via OMO auction. Likewise, on Wednesday, OBB and OVN rates further fell to 20.8% and 22.3% respectively even as N35.7bn was cleared by OMO sales by the CBN. The slight decline in liquidity can be attributed to the under subscription to the instruments auctioned on Wednesday which saw total offering to sales stand at N20.0bn/ N2.2bn for the 99-days instrument and N40.0bn/ N33.5bn for the 183-days instrument.

However on Thursday, OMO maturity of N233.8bn offset the impact of OMO sales worth N83.2bn, hence, OBB and OVN dropped to 7.8% and 7.2% respectively. OBB and OVN rates closed at 7.2% and 7.8% at the close of the week, down 29.1% and 31.6% W-o-W respectively.

In the treasury bills market, sentiment was broadly bullish this week despite sustained pressure on liquidity levels. On the first two trading sessions, average T-bills rate closed at 16.7% apiece lower than 16.8% recorded the previous Friday. However, average yields advanced 1bp to 16.7% on Wednesday and a further 30bps on Thursday to close at 17.0%. Notwithstanding, the trend was reversed on Friday as rates declined 2bps to 16.9% implying a 0.1% increase W-o-W.

In the coming week, we expect to see sustained improvement in trading activities on account of the expected improvement in liquidity levels following N141.1bn inflow from OMO maturity.

Bonds Market Review and Outlook
Performance in the local bonds market remained quiet during the week. Average yield opened the week slightly bullish, declining 25bps to close at 15.1%. However, performance upturned on Tuesday (average yield rose 5bps) to settle at 15.2% consequent on sell offs on longer dated instruments - MAR 2036 and APR 2037 (up 9bps and 8bps respectively). The bearish turn was sustained in subsequent sessions as average yields across instruments climbed 4bps on Wednesday and a further 2bps on Thursday to close at 15.2% apiece - owing to sell-offs in APR 2037 and JULY 2034 instruments respectively. Average yields across benchmark bonds eventually closed the week at 15.2%, up 8bps W-o-W.

Performance of Sub-Saharan African sovereign Eurobonds this week was bearish across board, as average yield across instruments under our coverage rose W-o-W. Average yields on the Nigerian, Ghana, Gabonese, Ivory Coast, Kenyan, Zambian, Senegalese and South African instruments rose 24bps, 33bps, 24bps, 20bps, 40bps, 22bps, and 16bps respectively W-o-W. During the week, Moody's Investor Service downgraded Nigerian Government’s long- term issuer and senior unsecured debt rating to B2 from B1 while keeping rating outlook stable. The agency cited unsuccessful efforts in diversifying its revenue base, thus exposing the government’s balance sheet to further shocks. Notwithstanding, we do not expect the negative trend to be sustained in the near term as improving commodity prices would retain investor appetite for SSA instruments.

The bearish performance across Nigerian Corporate Eurobonds continued this week as yields across all instruments rose on a W-o-W basis save for the FIDELITY 2018 (down 10bps W-o-W). The FBNH 2020 witnessed the most sell-offs, up 1.8% W-o-W trailed by the DIAMOND 2019, up 0.5% W-o-W. Notwithstanding, all Corporate Eurobonds have enjoyed positive YTD returns, indicating investors positive assessment of Nigerian corporate issuers.