Weekly Market Report –Week Ended Mar. 29, 2019

Global Equities Market: Market Rise on Hopes of Progress in US–China Trade Talks
On Thursday, the Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer visited the Chinese capital, Beijing, for the first face-to-face meeting between the two sides, weeks after the initial summit between U.S. President Donald Trump and Chinese President Xi Jinping to sign a deal at the end of March was cancelled. However, the outcome of the meeting was considered productive in moving towards a resolution to the trade dispute between the world’s two largest economies.

Following this, performances across the developed market were bullish. In the US markets, the S&P 500 and NASDAQ rose 1.0% and 0.9% W-o-W respectively, while the UK FTSE All-Share index gained 0.8% W-o-W. Furthermore, France's CAC 40 and Germany's XETRA DAX inched higher by 1.5% W-o-W apiece. Conversely, Hong Kong’s Hang Seng (-0.2% W-o-W) and Japan’s Nikkei 225 (-1.9% W-o-W) declined at the close the week.

Across BRICS countries, market performances were largely bullish as 4 of 5 indices under our coverage trended northwards, save for the China Shanghai Composite which dipped by 0.4% despite progress in the US-China trade talks. The Brazil’s Ibovespa recorded the largest gain of 1.7% W-o-W as the country’s president Jair Bolsonaro, reassured investors that the pension reform bill is moving ahead as planned and conflict between Economy Monster Paulo Guedes, House Speaker Rodrigo Maia and himself was settled. Furthermore, India’s BSE Sens trailed, inching higher by 1.3%, riding on gains from the stocks of Metals companies, similarly buoyed by the progress in US-China trade talks. Finally, South Africa’s FTSE/JSE All Share index gained 0.7% W-o-W, while the Russia RTS closed flat at the end the week.

In Africa, performances were bearish as 4 out of 6 markets under our coverage recorded losses W-o-W. The Kenya’s NSE 20 recorded the largest loss of 1.4% W-o-W, followed by Egypt’s EGX30 (-0.8% W-o-W), Nigeria’s All-Share Index (-0.3% W-o-W) and Mauritius’ SEMDEX (-0.3% W-o-W). On the flip side, Ghana’s GSE Composite and Morocco’s Casablanca MASI gained 0.4% apiece W-o-W as Morocco maintained its bullish performance from the previous week following the meeting between King Mohammed VI and King Abdullah II of Jordan to strengthen Moroccan-Jordanian diplomatic ties and make collaborative efforts to face some of the most high-priority issues in the region.

Domestic Equities Market: Market Extends Bearish Run… ASI Down 0.3% W-o-W
Despite bargain-hunting activities on some fundamentally sound and cheap stocks at the close of trading session on Friday the 29th of March, the local bourse failed to recoup losses during the week. Consequently, the NSE All-Share Index closed in the red on 3 of the 5 trading sessions in the week, falling 0.3% W-o-W to settle at 31,041.42 points while YTD return worsened to -1.2%. However, the market capitalisation increased by N59.7bn W-o-W to close at N11.7tn. Trading activity improved as the average volume and value traded advanced by 119.8% and 4.3% W-o-W to 525.7m units and N2.6bn respectively. The top traded stocks by volume were WEMABANK (1.7bn units), CHAMS (99.6m units) and ZENITH (72.4m units), while GUARANTY (N2.3bn), ZENITH (N1.6bn) and WEMABANK (N1.3bn) topped trades by value.

The domestic equities market opened the week on a bearish note as the benchmark index declined by 31bps following sell pressures in DANGCEM, ZENITH and ACCESS. The bearish performance was sustained on Tuesday and Wednesday as the ASI dipped 67bps and 1bp respectively due to sell pressures in bellwether stocks – GUARANTY, ZENITH, DANCEM and NIGERIAN BREWERIES. However, in subsequent trading days, price appreciations in GUARANTY, PRESCO and NASCON reversed the bearish run and upturned market performance slightly by 1bp. On Friday, the market picked up from the previous trading session gaining 67bps as a result of bargain hunting in NESTLE, SEPLAT and DANGCEM.

Performance across sectors was mixed as 3 of 5 indices under our coverage trended southward W-o-W. The Banking index declined the most, down 2.8% due to price declines in FIDELITY (-13.1%) and ACCESS (-5.8%). The Industrial Goods and Insurance indices followed suit, shedding 2.4% and 2.0% respectively W-o-W on the back of sell pressures in WAPCO (-5.8%), SOVRENINS (-9.1%) and MBENEFIT (-8.3%). On the flip side, the Oil & Gas index recorded the largest increase, after advancing by 3.6% as ETERNA (+10.4%) and SEPLAT (+7.3%) recorded gains. Finally, buying interest in NESTLE (+5.3%) and DANGSUGAR (+1.4%) drove the Consumer Goods index upwards by 1.1% W-o-W.

Investor sentiment worsened this week, as market breadth (advance/decline ratio) weakened to 0.5x from 0.9x in the previous week, following 19 stocks advancing against 34 that declined. The top performers for the week were ETERNA (+10.4%), REDSTAREX (+10.0%) and IKEJAHOTEL (+9.9%) while FIDELITY (-13.1%), DANGFLOUR (-12.1%) and SOVRENINS (-9.1%) recorded the largest declines. In the coming week, we expect to see profit taking activities earlier in the week in response to today’s market performance and release of positive earnings. Nonetheless, we maintain a bearish outlook for the market.

Money Market: Yields Moderately Down Across Instruments
The CBN held no OMO auction this week, which impacted the direction of trading through the week given the substantial liquidity which closed the previous week at N274.3bn and was buoyed by OMO maturities of N0.4bn in this week. Consequently, there were yield declines recorded across money market instruments.

There was a moderate reaction in the Treasury bills secondary market this week, after the MPC cut the MPR, with the average yield paring by 5bps to settle at 13.6%. This is line with our view that the cut in the benchmark interest rate was not substantial enough to cause market repricing. Rather we view market movements through the week to be due to substantial liquidity levels and investors taking position so as not keep idle funds fallow after the primary market bond auction in the week.

Also, given the buoyant liquidity levels, money market rates – Open Buy Back (OBB) and Overnight (OVN) declined precipitously during the week, settling 4.4% and 4.2% lower by the end of the week to settle at 9.9% and 10.7% respectively. This represents one of the lowest points on both rates in the year, and we see this further paring in the coming week, if liquidity levels remain buoyant given the cessation of OMO auctions post MPC meeting. Given the long position of the market, we expect demand levels to remain buoyant, especially with OMO maturities of N68.1bn expected next week. However, if the CBN were to commence OMO auctions in the coming week after this week’s pause, we could see market activities turn as the liquidity level shrinks.

Foreign Exchange Market: FX Remains Steady Across Markets as Reserves Level Rises
The naira continued to remain broadly stable across all segments of the market following a c.US$413.3m increase in the foreign reserves to US$44.1bn (26/03/19) driven primarily by foreign portfolio inflows to the fixed income market. Consequently, the Naira in the parallel market and CBN spot rate stood flat at N360.00/US$1.00 and N306.95/US$1.00.

Also, at the Investors and Exporters Window (I&E), the NAFEX rate depreciated by 48 kobo W-o-W to N360.68/US$1.00 from N360.46/US$1.00 in the prior week. Activity level in the market declined as total turnover fell to US$1.1bn, down 34.9% W-o-W from US$1.7bn in the prior week. However, total subscriptions in the FMDQ OTC futures market increased by 6.5% W-o-W to US$7.4bn from US$7.0bn based on investor buying interest in the February 2020 instrument. Also, the February 2020 contract received the most buying interest, up 24.2% to US$757.7m from US$610.0m the prior week.

Although, the CBN has temporarily halted its weekly intervention owing to the surge in foreign capital inflows, we expect the Apex bank to continue to employ a “managed float foreign exchange system” in ensuring naira stability.

Bonds Market: Investors Resist Calculated Yield Compression Move by the DMO
The unexpected reduction in MPR by the Monetary Policy Committee on Tuesday was the most important development in the week that shaped the direction of market. Pre-reduction of MPR, average yield was at 14.2% while post decision, it closed at 14.1%. Pre-2014 oil price shock, MPR adjustments always shift trading dynamics in the bonds market before the unconventional monetary policy measures, deployed by the CBN most prominently between 2014 and 2016, changed the narrative. As it is currently, bond yields will keep responding to demand and supply dynamics until the policy rate regains its potency through consistent alignment with market rates.

On Wednesday, the Debt Management Office (DMO) conducted its March 2019 Bond auction with a total of N100.0bn on offer. APRIL 2023 (N40.0bn), MARCH 2025 (N40.0bn) and FEBRUARY 2028 (N20.0bn) instruments were re-opened at the auction. However, all instruments on offer surprisingly closed at marginal rate of 13.5% in a move we suspect is deliberately calculated to align with the current MPR level of 13.5% based on the range of market bids (13.0% to 15.3%). This was despite the undersubscription of APRIL 2023 and MARCH 2025 at 0.54x and 0.65x of amount on offer; the two instruments were only 9.5% and 13.9% allotted respectively. FEBRUARY 2028 instrument remained 5.03x oversubscribed and was fully allotted. At the close of the week, average bond yields settled at 14.04%, shedding 14bps W-o-W. We expect the current attraction of the market to gradually compress yield in the short term.

The Eurobonds market was largely bearish in the week across the securities we track with average sovereign yield closing 2bps higher W-o-W to settle at 6.1%. Average yield on Zambian sovereign bonds closed 95bps higher W-o-W followed by Ghanaian (+7bps), Nigerian (+4bps), Senegalese (+4bps), Ivorian (+4bps) and Gabonese (+4bps) while yields on Kenyan (-2bps) and South African (-43bps) instruments declined. Zambia 2022 instruments experienced the most sell-offs, with average yield rising 114bps W-o-W, while South Africa 2019 received the most buying interest with 208bps decline in yield. On the Corporate Eurobonds end however, activities were mostly bullish with average yield moderating by 16bps W-o-W with most buying interest witnessed on First Bank 2019 (-44bps) as the instrument nears its maturity. We think the recent slowdown in policy normalization, particularly in the US and Eurozone, will support attraction of SSA bonds in the short term.