Weekly Market Recap –Week Ended Mar 8, 2019

Global Equities Market: Weak Growth Concerns Across Developed Economies Drag Equities Performance
Last week, the downward revision of growth forecast by the European Central Bank (ECB), a 21.0% slump in China’s exports and weaker economic sentiments ahead of the expected US Job reports dragged the global equities market. In Europe, markets had underperformed largely due to weak economic and financial performance, particularly in Germany thus leading to the ECB signaling an interest rate hike. Also, the Chinese export data released over the week showed a weak trade activity which furthered fueled concerns for investors over the lingering trade dispute between China and the U.S.

Consequently, performance across the developed market was largely bearish. In the U.S markets, the S&P 500 and the NASDAQ closed the week lower, down 2.0% and 2.3% W-o-W respectively while the UK FTSE declined 0.7% W-o-W. In Europe, Germany's XETRA DAX shed 1.6% W-o-W while France's CAC 40 declined (0.8% W-o- W).  In the same vein, Hong Kong’s Hang Seng (2.0% W-o-W) and Japan’s Nikkei 225 (2.7% W-o-W) declined during the week.

Across the BRICS markets, performance was largely bearish as 4 of 5 indices trended Southwards. India's BSE Sens was the lone gainer, up 1.7% W-o-W. On the flip side, South Africa FTSE/JSE All Share declined the most, down 1.2% W-o-W, followed by Brazil’s Ibovespa at -1.0% W-o-W. In the same manner, China’s Shanghai Composite and Russia’s RTS closed the week with losses of 0.8% and 0.7% W-o-W respectively.

In Africa, performance was also largely bearish as 4 out of 6 markets under our coverage recorded losses. The Egypt’s EGX30 maintained its positive streak, up 0.7% W-o-W, followed by Nigeria’s All-Share Index (0.3% W-o-W). On the flip side, Mauritius’ SEMDEX index shed the most, down 0.5% W-o-W followed by Morocco’s MASI (0.3% W-o-W). Ghana’s GSE Composite lost 0.1%W-o-W while Kenya’s NSE-20 stay flattish.

However, in Asia and the Middle East, there was a bullish performance as all 5 markets posted gains W-o-W. UAE's ADX General Index appreciated the most (4.5% W-o-W) followed by Qatar's DSM 20 index (3.4% W-o-W). In the same vein, Turkey's BIST 100 rose 2.2% W-o-W while Thailand’s SET index (1.2% W-o-W) and Saudi Arabia's Tadawul ASI (0.2% W-o-W) also trended northwards.

Domestic Equities Market: Market Sentiment Remains Weak
Last week, activities in the domestic equities market responded to several factors including abating political risks, positive earnings releases and dividend declarations. Despite these positives, market sentiments have remained weak with unimpressive dividend yields dampening sentiments further.

At the start of the week, the benchmark index posted gains of 95bps and 14bps on Monday and Tuesday respectively, due to bargain hunting in GUARANTY, ZENITH, UBN and INTBREW. However, by midweek the market maintained a downtrend till week close, shedding 80bps cumulatively due to profit-taking in ZENITH, DANGCEM and GUARANTY as well as sell pressures on ETI, SEPLAT and NIGERIAN BREWERIES.

As a result, the All Share Index (ASI) closed the week at 31,924.51 points, up 0.3% W-o-W while YTD return settled at 1.6%. Activity level however strengthened as average volume traded climbed by 1.6% to N355.7m units, while average value traded rose 21.0% to N4.8bn. Top trades by volume for the week were DIAMOND (158.m units), ZENITH (133.5m units) and FBNH (92.3m units) while the top trades by value were GUARANTY (N3.3bn), ZENITH (N3.3bn) and DANGCEM (N0.8bn).

Investor sentiment, as measured by market breadth (advance/decline ratio), declined to 0.6x from 0.7x posted the prior week. The outperforming stocks by the close of the week were WEMA (+11.7%), CUTIX (+9.8%) and SOVRENIN (+8.7%), while MBENEFIT (-14.8%), LIVESTOCK (-11.9%) and ACADEMY (-10.0%) declined the most. In the coming week, we expect market participants to react to earnings releases, but we believe that W-o-W the market will rebound as investors position in cheap and fundamentally sound stocks.

Foreign Exchange Market Review and Outlook: Reserves Level Rises as Capital Inflows Increase
The naira traded within tight bands (N360.00 – N361.00/US$1.00) during the week as the Central Bank of Nigeria (CBN) sustained its weekly intervention to ensure liquidity and stability of the exchange rate across all segments of the market. Although the Apex bank’s intervention put pressure on the reserves pre- presidential election, we observed a c.US$0.2bn uptick in the foreign reserves to US$42.5bn which has largely been driven by foreign portfolio inflows into the fixed income market.

Based on capital inflows and sustained CBN interventions, the naira traded flat at the parallel market and appreciated on the I&E window by N1.22 to close the week at N360.46/US$1.00 (previous week close: N360.80/US$1.00). On the other hand, the CBN spot rate depreciated 15kobo to close at N306.90/US$1.00.

In the near term, we expect the naira to remain at current bands and any pressures muted as the CBN continues its weekly interventions. We also anticipate the pace of capital inflows to be sustained in the short term provided polity risk subsides and rate hikes in systemically important central banks remain on hold.

Money Market: Rates Trend Lower on Improved System Liquidity
The CBN has maintained the pace of OMOs in recent times, holding three auctions this week for instruments worth a total sum of N645.8bn across tenors between 91-days to 192-days at marginal rates between 11.9% (on the shorter tenor instruments) to 13.48% (on the longer tenor instruments). Given the overriding aim of the CBN to keep price levels moderate, we expect OMOs to continue apace with recent trends to limit the possibility of speculative attacks on the naira, as system liquidity is expected to be buoyed by OMO maturities worth N88.4bn.

In the secondary Treasury bills market, the average yield increased significantly by 0.8%to settle at 13.9%, as investors sold off instruments in the week to partake in the OMO auctions given the more attractive discount rates on instruments auctioned. We expect that if the CBN maintains the pace of auctions, as is expected, that market activities will mirror this week in the next week.

Consequent on the improved system liquidity in the week, money market rates - Open Buy Back (OBB) and Overnight (OVN) rates –pared to 9.2% and 10.1% respectively from 16.3% and 17.4% recorded in the prior week. We expect the rates to remain moderate in the next week.

Bond Market: Bearish Sentiment Characterises Market Activities
After weeks of rally in the bond market, sentiment turned bearish as the market seems to have settled. The average yield on sovereign bonds settled at 14.3% at the end of the week, up 23bps from the preceding week, as most bonds recoded relatively higher yields week-on-week. We expect yields to further moderate in the coming months in line with long term expectations that investors would return to the market post-elections, while the performance of the equities market should remain pressured till the polity risk subsides.

The buying activities in the SSA sovereign Eurobonds market picked up in the week, as the average yield on the instruments pared by 13bps to 8.24%. Similarly, the yields on the Nigeria Sovereign Eurobonds declined, paring by 7bps to settle the average yield to 8.22%. The largest increase in yields was recorded on the Tanzania Eurobond, which recorded an increase of 1.5% to settle at 5.3%, while the largest decline was recorded on the Mozambique Eurobond which pared by 1.7% to settle at 12.7%. Also, Nigeria Sovereign Eurobonds recorded a moderate increase in Ask-yield, which settled 2bps higher than the previous week at 6.9%. We expect activities in the SSA Eurobonds market to remain in line with the current trend in the coming week.

The direction of activities in the corporate Eurobonds market mirrored the SSA market, as the average yield pared by 2bps to settle at 7.4%. The yield on the Diamond Bank 2019 bond continued to pare, declining by 45bps to settle at an Ask-yield of 13.7%, as the bond approaches its maturity on the 21st of May 2019. On the other hand, the largest increase in yield was witnessed on the 9.25 Access 2021 bond, which is similarly approaching it’s Call date on the 24th of June 2019. We expect activities to mirror this trend in the coming weeks as polity risk subsides, and investors focus on growth prospects for the country and companies.