Global Market Review and Outlook
Global equities within our coverage closed mixed. Some of the key highlights of the week included statement by the Russian President, Vladimir Putin at an energy congress in Istanbul that Russia is ready to join OPEC in its measures to cap production calling other oil exporters to do the same. Meanwhile, China trade data published during week which indicated that Chinese exports fell 10.0% Y-o-Y worsened concerns about the health of the Global economy despite recent rebound seen in oil prices.
Accordingly, all indices in the developed market closed bearish W-o-W as the market await the US Federal Reserve Chair, Janet Yellen’s speech today (14th October 2016). The US S&P and NASDAQ indices slid 0.2% and 1.0% W-o-W respectively while the UK FTSE index shed 0.2% W-o-W. In the Euro-Asian region, the France CAC 40 index and German XETRA DAX rose 0.8% and 0.9% W-o-W respectively. Conversely, the Hong Kong HANG-SENG slumped 2.6% W-o-W while the Japanese Nikkei closed the week flattish.
Performance in the BRICS markets also closed broadly bearish with the China SHANGHAI index being the only gainer, up 2.0% W-o-W despite weak trade data. Contrariwise, the South African FTSE/JSE index declined 1.2% as socio-political tensions in the country worsen. In the same vein, the Indian BSE SENS index closed 1.4% lower while the Russian RTS and Brazilian IBOVESPA closed the week flattish.
Positive sentiments persisted across the African space, but for the Kenyan NSE index which remained the sole loser, down 0.6% while the Egyptian EGX 30 index recorded the highest gain, up 1.6% W-o-W. Similarly, the Nigerian All Share Index and Ghanaian GSE index marginally improved 0.1% W-o-W apiece.
Equities Market Review and Outlook
Mixed sentiments trailed the Nigerian equities market this week amid expectations for weak Q3:2016 earnings results. The All Share Index (ASI) gained marginally on 3 trading sessions while declining on 2. Thus, the ASI inched 9bps higher W-o-W. YTD loss pared to 2.7% while market capitalization improved by N8.9bn to settle at N9.6tn. Activity level also improved as average volume and value rose 24.4% and 45.5% to 232.5m units and N1.8bn W-o-W respectively.
Overall performance across sectors remained mixed. The Banking index led sector gainers, advancing 1.9% on account of gains in ZENITH (+5.4%), ACCESS (+4.6%) and UBA (+1.9%). This may be linked to an impressive earnings scorecard submitted by UBA, which reported a nine month Gross Earnings and PAT growth of 8.2% (N265.5bn from N245.5bn) and 7.6% (N52.3bn from N48.6bn) Y-o-Y respectively. In the same vein, the Consumer Goods index closed 0.6% higher on account of NIGERIAN BREWERIES (+2.0%), DANGSUGAR (+1.9%) and NESTLE (+0.7%). Likewise, the Oil & Gas index added 2bps despite negative reactions to FORTE (-9.2%), which submitted an unimpressive 9 month result, with Revenue expanding 32.2% Y-o-Y (N121.1bn from N91.6bn) while PAT tumbled 34.7% (N2.8bn from N4.3bn) due to a surge (663.1%) in Finance cost. Conversely, the Industrial Goods index dived 3.6% W-o-W on account of persistent sell-offs in WAPCO (-9.9%), while the Insurance index lost 5bps on the back of AIICO (-6.2%) and NEM (-5.9%).
Investor sentiment remained weak as market breadth – advancers/decliners ratio – retreated to the negative region at 0.5x (from 1.0x in the previous week) as 20 stocks advanced while 42 stocks declined. Top performers for the week were CAVERTON (+13.4%), SEPLAT (+10.3%) and TRANSEXPR (+9.8%) while UAC-PROP (-13.6%), WAPCO (-9.9%) and ETRANZACT (-9.6%) topped the losers chart. With the anticipation of more Q3:2016 earnings yet to be submitted, we expect performance to be broadly driven by further influx of Q3:2016 earnings.
Money Market Review and Outlook
Contrary to last week when the system liquidity opened in surplus and remained relatively liquid on all trading days, aggregate system liquidity waned this week on the back increased primary market activities. Money market rates moderated at the start of the week but rose sharply by Friday. Open Buy Back (OBB) and Overnight (O/N) rates spiked from 15.3% and 16.3% on Monday to 103.3% and 111.8% on Friday, up 95.6% points and 87.6% points W-o-W respectively. This was driven system liquidity opening balance, which opened at a surplus of N21.4bn but closed at N8.5bn on Friday. The impact of N236.8bn OMO which matured into the system during the week on liquidity level was offset by Wednesday’s bonds auction where the Debt Management Office (DMO) auctioned FGN bonds worth N95.0bn at the primary market as well as OMO mop up worth N152.6bn by the Apex Bank on Thursday.
Despite weaker system liquidity as well as lower rates at last week’s Primary Market Auction (PMA), the Treasury Bills market enjoyed increased buy sentiment as average T-bills rate dropped 03% W-o-W to close the week at 17.6% on Friday. Average T-bills rate opened the week at 17.2% and declined on all trading days of the week save for Wednesday when it rose 33bps to 17.1%.
In the week ahead, we expect money market rates to moderate as T-bills maturity worth N138.2bn is expected to hit the system next Thursday. This may however be offset by a rollover of the same amount.
Foreign Exchange Review and Outlook
The local unit weakened against the greenback this week as the interbank market spot rate depreciated 0.3% W-o-W closing N307.77/US$1.00 against N306.75/US$1.00 in the previous week. This occurred despite further intervention by the Apex Bank during the week. The drag in dollar supply at the official market was further highlighted by statements made the MD of the FMDQ OTC exchange - in an interview earlier this week-, where he confirmed that daily FX market turnover has declined to about US1.0bn to circa US$100.0m as unmet demands continue to surge. Accordingly, investor sentiment remained depressed by currency risk as liquidity crunch lingers. Performance at the parallel market also improved as the Naira firmed against the US dollar on all trading days of the week amidst reports of dollar sales to Bureau De Change operators by Travelex. Parallel market rates closed at N460.00/US$1.00/US$1.00 on Friday.
In the futures market, none of the 12 instruments on the Naira Settled OTC futures calendar has been fully subscribed despite the attractive prices of these instruments. The April 26 2017 instrument remains the most subscribed with open contracts valued at US$794.4m as at 14th October. It is worthy of note however that a large amount of the open contracts of the instrument were subscribed before the contract price was adjusted to N265.50/US$1.00. Nonetheless, the attractive prices of these futures contract presents a hedging opportunity for foreign investors against currency risk and suggests a bullish outlook in the performance of the Naira by the CBN.
In the interim, we expect spot rates at the interbank to trade within a tight band whilst the Apex Bank continues to intervene. However, reports that the CBN has suspended a number of banks from selling dollars to Bureau De Change operators may pressure rates at the unregulated segment of the FX market.
Bond Market Review and Outlook
As expected, performance in the domestic bonds market was largely dictated by the primary market auction by the DMO. Average yield across benchmark bonds trended upwards marginally on the trading sessions leading to the DMO’s bonds auction but however declined in the sessions succeeding the auction. Accordingly, average yield eventually closed at 15.1%, up 0.1% W-o-W. On Wednesday, the DMO offered N35.0bn each of the JUL 2021, JAN 2026 and MAR 2036 instruments but allotted N10.0bn, N45.0bn and N40.0bn at marginal rates of 15.3%, 15.5% and 15.5% respectively. The auction was oversubscribed by 0.6x, with total subscription worth N173.3bn.
Performance in the Nigerian Corporate Eurobonds market mirrored last week’s as sell sentiment persisted in the Fidelity 2018 (+1.0%) and Diamond 2019 (+66bps) instruments. Similarly, bargain hunting in both FBN 2020 and 2021 Eurobonds continued this week as yields on both instruments fell 3.8% and 2.2% respectively. Zenith 2019 (-1.0%) and Access 2017 (-84bps) instruments also enjoyed buy interests this week. Access Bank issued its new 5yr Eurobond (Access 2021) during the week at 10.75% yield. The Bank also extended the issuance period of the instrument from October 13th to October 18th. The issuer proposed to swap the outstanding July 2017 instrument at 102.0% premium to par for the Senior Access 2021 bond.
Performance across the Sub-Saharan Africa Sovereign Eurobond instruments was largely bearish as sell sentiments persisted. The sell sentiments in emerging market instruments is traceable to the publication of the FOMC September meeting statement which indicated that some members advocated for a rate hike. Yield on all sub-Saharan instruments rose save for the Ghana 2017, 2023 and 2026 Sovereign Eurobonds which declined 11bps, 3bps and 1bp respectively.
In the week ahead, we expect bargain hunting in the FBN Corporate Eurobonds to continue even as buy interest in the Access 2017 instrument persists. The local bonds market is expected to stay soft as investors concentrate their attention at the shorter end of the curve ahead of the T-bills primary market auction.