Global Market Review and Outlook
Investor sentiment within the equity markets in our coverage was mixed but broadly bullish this week. Analysis of major stock markets indicated that all indices in the developed market closed in the green. In the US markets, the NASDAQ and S&P 500 indices gained 1.9% and 1.1% W-o-W respectively on account of speculations that President-elect Trump will boost fiscal stimulus and reduce regulations with positive knock-on impacts on industries that are perceived to benefit from economic growth. Also, the dollar extended gains after Federal Reserve Chair Janet Yellen signaled an interest-rate hike could be forthcoming, resulting in further sell-off in the bonds market as investors continued to reprice instruments. The UK FTSE advanced 0.8% W-o-W on the back of stronger dollar underpinned rally in export-oriented stocks such as automakers, though gains were tapered by weaker mining stocks.
In the Eurasian region, the Japan NIKKEI appreciated 3.4% W-o-W as shippers and carmakers led gains. The German DAX also advanced 0.3% on account of a 1.2% rise in automobile stocks after news agencies revealed plans by German group (Volkswagen) to cut jobs as part of a plan to boost profitability and fund a shift to electric and self-driving cars. The France CAC also appreciated 0.3% W-o-W. The Hong Kong HANG SENG emerged lone decliner amongst Eurasian equity indices within coverage, dipping 0.8% W-o-W as losses in the Chinese market affected its performance.
Stocks in the BRICS region closed mixed as the India BSE and the China Shanghai COMPOSITE declined 2.5% and 0.1% W-o-W respectively. On the flip side, the Russian RTS improved the most, advancing 2.8% W-o-W while the Brazil IBOVESPA followed, adding 1.7% W-o-W. Likewise, the South African FTSE gained 0.6% W-o-W.
Contrary to the previous week, all indices in the African Markets closed in the green save for the Nigerian All Share Index which continued on its losing streak, down 2.2% W-o-W as investors continue to react to FX liquidity challenges. On the other hand, the Egyptian EGX extended gains to the 4th consecutive week, gaining 5.0% W-o-W as investors remain excited about recently implemented flexible FX regime; while the Kenyan NSE ASI added 0.8% W-o-W.
Equities Market Review and Outlook
The bearish trend in the local bourse was unrelenting this week in continuation of last week’s performance as the equities market closed in the red on all trading days owing to negative sentiment towards large cap stocks across sectors. Accordingly, the All Share Index (ASI) fell 2.4% W-o-W to settle at 25,537.54 points whilst YTD return worsened to -10.8%. Market capitalization also contracted N218.1bn to close at N8.8tn. The benchmark index was largely dragged by price depreciation in DANGCEM (-1.5%), NIGERIAN BREWERIES (-0.7%), ZENITH (-6.3%), NESTLE (-1.8%) and FORTE (-20.9%). Similarly, activity level softened as average volume and value traded waned significantly by 71.7% and 26.6% to 164.7m units and N1.1bn respectively.
Performance across sectors mirrored the broader index as all indices closed in the red. The Industrial Goods index (-7.7%) waned the most on the back of losses in DANGCEM (-1.5%) and WAPCO (-8.1%). The Oil & Gas index trailed with a 4.3% depreciation as sell-offs continued in FORTE (-20.9%) and OANDO (-7.9%). FORTE successfully closed its N9.0bn series 1 debt issue during the week, the first in the series of 5 year Fixed Rate Unsecured Bonds (due 2021) issuance. The funds raised will be utilized in financing short-term loan obligations and retail expansion. The decline in 7UP (-9.7%), CADBURY (-9.6%) and FLOURMILL (-14.4%) dragged the Consumer Goods index (-0.6%) lower whilst the Banking index shed 2.1% as investor appetite remained weak in Tier-1 lenders - ZENITH (-6.3%) and GUARANTY (-2.2%). The Insurance index (-2.5%) was pulled into the red zone by profit taking in AIICO (-5.0%) and NEM (-4.0%).
Investor sentiment remained shaky against the backdrop of weak macroeconomic fundamentals as reflected in the market breadth (advancers/decliners ratio) which settled at 0.2x (from 0.5x the previous week) owing to 10 advancing stocks against 45 declining stocks. The best performers for the week were MAYBAKER (+12.9%), ACCESS (+3.8%) and DANGSUGAR (+3.7%) while FORTE (-20.9%), TRANSCORP (-18.6%) and FLOURMILL (-14.4%) led the laggards. We believe that pronouncements from the MPC meeting scheduled for next week Monday and Tuesday will be major drivers of the equities market in the week ahead. We expect the performance of the Bourse to remain soft at the start of the week but strengthen towards the end as the attractive prices of some value counters spur bargain hunting.
Money Market Review and Outlook
On the back of improved system liquidity, money market rates eased this week as Open Buy Back (OBB) and Overnight (O/N) rates declined 13.2 percentage points W-o-W apiece to close at 12.5% and 13.2% respectively on Friday. The CBN rolled over maturing Treasury Bills mid-week at slightly higher rates while the DMO also conducted a bonds auction which drained liquidity on Wednesday. However, two OMO maturities on Thursday (N140.0bn) eased liquidity shortage in the system to offset the NTB and Bond auctions debits, hence OBB and O/N rates dipped 12.8 and 13.1 percentage points on Thursday. No OMO auction was floated this week.
Sentiment in the Treasury Bills market was largely bullish as rates closed the week lower on 3 out of 5 sessions. At the start of the week, average T-bills rate opened 18bps higher but sentiment was bullish on subsequent sessions, save for Wednesday, as investors continue to pile into short term debt securities. Average T-bills rate consequently trimmed 25bps W-o-W to close at 17.6% on Friday. The CBN conducted a T-bills Primary Market Auction (PMA) on Wednesday, allotting N32.4bn of the 91-day, N22.8bn of the 182-day and N64.7bn of the 364-day instruments at stop rates of 14.0%, 17.4% and 18.7% respectively. The 182-day and 364-day stop rates were 31bps and 20bps higher than previous issuance of similar tenors whilst the 91-day paper issuance rate was flat.
In the week ahead, MPC’s policy decision at Tuesday’s sitting will influence market pricing of T-bills. Barring any OMO auction, money market rates are expected to hover around current levels.
Foreign Exchange Review and Outlook
The Naira/Dollar exchange rate was largely stable at all segments of the FX market during the week. Earlier in the week, the FMDQ OTC exchange announced the suspension of the FMDQ interbank spot rate, replacing it with the CBN spot rate until the general market structure becomes more credible and transparent. Consequently, the FMDQ published the last executed trades (usually CBN interventions) as the CBN spot rates this week. Expectedly, the CBN spot rate was stable on all trading days of the week, closing at N305.25/US$1.00 on Monday, before depreciating marginally to N305.50/US$1.00 towards the end of the week.
Our expectations of further fragmentation of the FX market and a liquidity constraint at the parallel market materialized this week as black market operators refused to sell dollars at the regulatory mandated rate of N400.00/US$1.00 but willing to buy at N395.00/US$1.00, most likely to hoard. However, Naira/Dollar rate at the underground parallel market for operators willing to defy regulatory directives on rate traded between N455.00/US$1.00 and N465.00/US$1.00 during the week without liquidity constraints.
In the futures market, total value of open contracts stood at US$3.8bn as at Friday 18th November. We observed that investors are subscribing more to the longer dated Naira settled OTC futures contracts which are attractively priced. We expect the CBN to fulfil its obligation on the maturing NGUS NOV 23 2016 futures contract and also replace it with a NOV 2017 instrument in line with recent trend.
In the interim, we expect that developments in the FX market will be at the vanguard of discussions at next week’s MPC meeting. We opine that the issues in the market will continue to intensify peradventure status quo remains on the management process of the FX market.
Bond Market Review and Outlook
Sentiment remained bearish in the local bonds market this week as average yield across benchmark bonds trended higher on all sessions. As with recent trend, investors continued to show preference for dealing at the shorter end of the yield curve (NTB and OMO), culminating in under-subscription of instruments offered at this month’s bond auction. The week opened on a bearish note and sentiment remained negative till the close of the week. Thus, average yield across benchmarks closed the week at 15.9%, up 65bps W-o-W. The bearish sentiment can be attributed to high inflation levels and investors’ preference for short term debt securities which witnessed increased participation as the primary market NTB issuance conducted midweek was oversubscribed. On Wednesday, the DMO offered N35.0bn, N25.0bn and N35.0bn of the JUL 2021, JAN 2026 and MAR 2036 instruments. However, only N5.0bn, N14.0bn and N20.0bn were allotted at marginal rates of 15.5%, 16.0% and 15.9% as subscription rate fell to 0.5x, 0.7x and 0.8x for the three instruments on offer respectively. We expect activities to remain soft in the local bonds market in sessions ahead with yields trending higher.
Contrary to bearish sentiment across Sub-Saharan African sovereign Eurobonds in previous week, performance was broadly positive this week as the instruments pared previous week’s losses following improved buying interest in high yield Eurobond debt securities. Yields fell on all SSA Eurobonds within our coverage but for South African Eurobond instruments which remained under selling pressure due to speculations that the Country’s credit rating would be downgraded to junk status by S&P Ratings. Average yield on all South African Sovereign debts rose 32bps W-o-W on average. Earlier in the week, Federal Reserve Chair Janet Yellen signaled an interest rate hike which puts a halt to speculations surrounding interest rate outlook. With the anticipation of a rate hike by the US Fed by December, we expect this bullish trend to be short-lived.
It was a bearish week for Nigerian corporate Eurobonds as yields rose on all instruments save for the FIDELITY 2018 (down 0.1% W-o-W) and the DIAMOND 2019 (down 1.1% W-o-W) bonds. The GUARANTY 2018 still has the highest YTD return of +7.5% with the ZENITH 2019 lagging behind with YTD return of +6.6%. DIAMOND 2019 Eurobond remains the worst performing instrument with YTD loss of 6.1%.