Weekly Market Report –Week Ended Nov. 24, 2017

Global Equity Market Review and Outlook
Performance across Global equity markets was largely bullish as oil prices rebounded from previous week’s loss, gaining 0.7%W-o-W to close the week at US$63.15/b. The renewed bullish sentiment in the global oil market is on the back of continued geopolitical tensions in the Middle East between two of the World’s biggest Oil producers - Saudi Arabia & Iran, as well as anticipated extension of oil production cuts beyond the initial agreement which ends in March 2018. The OPEC/Non-OPEC meeting would be the single most important oil price driver till the end of the year. In the developed equity markets, performance was bullish with all indices trending northwards. The US NASDAQ appreciated the most, up 1.4% W-o-W as Tech stocks recorded impressive gains during the week. Similarly, the S&P 500 rose 0.9%W-o-W while the UK FTSE All Share closed the week with a 0.5%W-o-W gain.

Across the BRICS, market performance was largely positive with all indices closing in the green save the China Shanghai Composite which declined 0.9% W-o-W against the backdrop of tightening liquidity conditions and tightening rules on lending. The Russia RTS led gainers across the region, up 1.8% W-o-W. Brazil’s Ibovespa trailed, up 1.2% W-o-W while the South Africa FTSE/JSE All share gained 0.3% W-o-W.

In the Eurasia region, all indices appreciated W-o-W. The Hong Kong Hang Seng led gainers, up 2.3% W-o-W. In turn, France CAC 40 appreciated 1.5% W-o-W, while the Germany XETRA DAX rose 0.6% W-o-W and the Japan Nikkei 225 closed the week 0.6% higher. In African markets, performance was positive as all indices under our coverage closed in the green. The Kenya NSE 20 reversed its negative performance from previous weeks to emerge the top gainer, appreciating 2.6% W-o-W. Likewise, the Egypt EGX 30 gained 1.9% W-o-W and the Ghana GSE Composite increased 1.4% W-o-W. The Nigeria All Share Index inched higher by 1.8% W-o-W. 

Domestic Equity Market Review and Outlook
Performance in the Local Bourse this week was bullish as the benchmark All Share Index gained 1.8% W-o-W to settle at 37,365.91 points while YTD return expanded to 39.0%. Accordingly, investors gained N234.9bn as market capitalization rose to N13.0tn. However, activity level softened, reflected in average volume and value traded which fell 52.4% and 20.1% W-o-W to close at 870.6m units and N5.0bn respectively. The top traded stocks by volume are UBA (151.8m), ZENITH (142.3m) and ACCESS (133.4m) while the top traded by value are ZENITH (N3.5bn), GUARANTY (N1.6bn) and NESTLE (N1.6bn).

Sector performance was largely positive as all indices closed the week in the Green save the Oil & Gas index which shed 1.5% W-o-W - majorly on the back of selloffs in FORTE OIL (-17.7%). On the flip side, the Industrial Goods index emerged the top gainer, up 2.3% W-o-W, buoyed by gains in DANGCEM (+4.3%). Likewise, the Insurance index appreciated 0.8% W-o-W on upticks in LINKASSURE (+14.3%) and NEIMETH (+7.0%) while the Consumer Goods index inched 0.5% higher W-o-W due to buying interest in DANGSUGAR (+10.3%), NASCON (+9.0%) and CADBURY (+4.7%). The Banking index climbed 0.3% W-o-W as investors took positions in ZENITH (+3.6%) ACCESS (+3.1%) and DIAMOND (+7.0%).

Investor sentiment as measured by market breadth significantly improved to 1.4x (from 0.5x recorded the previous Friday) as 34 stocks advanced against 24 decliners. The top performers for the week were LINKASSURE (+14.3%), DANGSUGAR (+10.3%) and NASCON (+9.0%) while FORTE OIL (-17.7%), GLAXOSMITH (-9.7%) and FLOURMILL (-8.0%) led laggards. Our near term outlook remains positive as investors’ position ahead of anticipated year-end rally.

Money Market Review and Outlook
Financial system liquidity remained in negative territory all week save for Thursday when an OMO maturity buoyed liquidity balance to the positive. As such, at the start of the week, Money Market rates – OBB and OVN - opened in double digits, up 9.1 and 10.8 percentage points to 38.3%and 41.7% respectively. In its drive to further tighten liquidity, the CBN conducted OMO auctions on all trading sessions; notwithstanding, money market rates trended lower –albeit at a range of 27.0% -31.0% on Tuesday and Wednesday. By Thursday, OBB and OVN rates had significantly moderated to 11.9% apiece owing to OMO maturity of N200.0bn. The CBN responded by floating an OMO auction worth N100.0bn, but was only able to mop up N54.0bn. As a result, liquidity balance stood in excess of N36.3bn. Rates eventually inched back higher – due to an OMO auction - to 30.8% and 32.6% on Friday, down 4.2 and 4.9 ppt W-o-W respectively.

Performance in the Treasury Bills market was mixed this week as rates trended northward at the start of the week due to tight liquidity. Sentiment turned bullish by midweek as rates moderated on Wednesday, down 25bps to 16.6%, and extended till the end of the week. Average T-bills rate across maturities settled at 16.4% on Friday, down 29bps W-o-W.

In the coming week, the CBN will be conducting a T-Bills auction of N117.2bn for all indicative tenors (91, 181 and 364-Days). We expect the impact on liquidity balance to be neutral given the scheduled maturity of the same amount. However, an OMO maturity of N53.4bn is expected buoy liquidity levels while we expect the CBN to mop up via OMO sales.

Foreign Exchange Market Review and Outlook
Following the decision to maintain status quo on key rates, the MPC noted the improvements witnessed in the FX market over the past 7 months – particularly the convergence of rates across segments and high turnover in the I&E Window. Against this backdrop, the CBN continued its efforts in maintaining stability in Naira’s exchange value with a US$210.0m injection into the inter-bank foreign exchange market on Tuesday. Despite the intervention, the NIFEX rate depreciated from N362.80/US$1.00 on Monday to N364.20/US$1.00 by midweek. On Thursday, the downward momentum briefly reversed as the interbank rate appreciated to N360.18/US$1.00 before closing Friday at N364.4/US$1.00. Similarly, the official rate marginally appreciated 10 kobo to N305.85/US$1.00 from last week’s N305.95/US$1.00 while in the parallel market, the Naira traded flat at N364.00/US$1.00 all through the week.

At the I&E Window, the NAFEX rate slightly recovered from a 15 kobo depreciation on Tuesday (from N359.91/US$1.00 on Monday to N360.06/US$1.00) to close the week at N359.98/US$1.00 - indicating a 7 kobo gain W-o-W. However, activity level strengthened relative to previous week as offshore investors continue to position in Naira assets. Weekly turnover improved to US$727.9m (as at Thursday 24th November) against US$674.3m recorded the same prior week.

In the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures for the 12 instruments on the calendar stood at US$3.4bn from US$3.3bn the previous week. The JUNE 2018 contract received the most subscription (US$40.0m) bringing total value to US$185.8m while the rest of the contracts received minimal participation. Next week, the NGUS NOV 2017 contract with total value at US$543.1m will be maturing. We expect this to be replaced by an equivalent NGUS NOV 2018 contract. With external reserves at a 30-month high of US$34.9bn coupled with the US$3.0bn raised via Eurobond issuances, we expect the CBN to sustain frequency of interventions and the Naira to remain stable at all segments of the FX market in the near term.

Bonds Market Review and Outlook
The local bond market was bullish this week as average FGN bond yield across maturities declined 1.8% W-o-W to 14.9% against the backdrop of FGN successful Eurobond issuance and near term expectation of monetary easing. The market opened the week on a positive note with average yield closing at 15.0% (16bps lower than previous Friday’s close of 15.2%). The bullish sentiment was extended to Tuesday’s session as average bond yield fell 10bps lower to 14.9% on the back of buying interest across tenors. By mid-week, sentiment turned bearish due to the DMO’s monthly Bond auction. The DMO re-opened the JULY 2021 and MARCH 2027 instruments with N50.0bn each on offer. Given the high demand for long duration instruments, the JULY 2021 instrument had minimal participation while the MARCH 2027 instrument was oversubscribed. Consequently, N14.6bn and N73.2bn were allotted each at stop rates of 14.8% apiece, 20bps higher than October Bond auction marginal rates. Market stayed bearish on subsequent trading sessions.

Nigeria’s roadshow proved to be largely successful as the FGN raised $3.0bn (oversubscribed by about $11bn) via Eurobond issuance – split across 10-Year and 30-Year tranches at issuance yield of 6.5% and 7.625% respectively. Typical of new bond issuances, yields on the bonds have since moderated to 6.1% and 7.3% respectively. In the same vein, performance across Sub-Saharan African sovereign Eurobonds remained largely positive this week with majority of instruments under our coverage closing the week in the green. Average yield on the Gabon (-1.3bps), Zambian (-24bps) and Kenyan (-22bps) sovereign bonds performed the best W-o-W, whereas Kenya 2024 (+12.0%), Zambia 2024 (+10.7%) and Ghana 2026 (+10.5%) have appreciated in value the most YTD.

Performance of Nigerian Corporate Eurobonds was mixed this week as yields fell on 5 out of 10 instruments we track.  The gainers this week were led by UBA 2022 (-16bps W-o-W to 7.1%) while the FBNH 2020 (+91bps to 10.5%) led the losers this week. The top gainers in price YTD are DIAMOND 2019 and FBNH 2021, up 26.4% and 22.0% respectively.