Weekly Market Review and Outlook – Week Ended Feb. 17, 2017

Global Market Review and Outlook
Sentiment for equities in the US as well as other markets in the developed world stayed bullish this week. The US NASDAQ and S &P 500 extended the bullish streak to the third consecutive week, appreciating 1.4% and 1.3% W-o-W as investors continue to bet on President Trump’s planned tax cut. Similarly, the UK FTSE advanced 0.4% W-o-W. The European markets also benefitted from the overall positive sentiments as the France CAC and the German DAX advanced 0.5% and 0.4% W-o-W respectively against the backdrop of increased interest in banking stocks. In the Asian markets under our coverage, the Japanese NIKKEI was the lone decliner, losing 0.7% W-o-W as the Yen strengthened. On the flipside, the Hong Kong HANG-SENG (+1.9%) and the Shanghai Composite (+0.2%) indices closed higher W-o-W following improved corporate earnings releases.

Across other markets in the BRICS classification, the South African FTSE was the lone decliner, down 0.8% W-o-W. The Brazilian IBOVESPA appreciated the most, up 1.7% W-o-W. The Indian BSE also followed suit, adding 0.5%W-o-W as investors took position in Healthcare and Oil & Gas counters. The Russian RTS also improved 0.2% W-o-W during the week.

In the African markets, the Ghana GSE was the only gainer, appreciating 0.2% W-o-W. On the flipside, the Egyptian EGX lost 3.5% W-o-W followed by the Nigerian All Share Index which declined 0.7% W-o-W on while the Kenyan NSE slid 0.1% W-o-W.

Equities Market Review and Outlook
The Nigerian Bourse sustained its bearish trend this week as the All Share index recorded declines on 2 of 5 trading days (Wednesday and Friday, up 0.4% apiece)of the week. The index slid 0.7% W-o-W while YTD loss worsened to -6.4%. Market capitalization decreased N60.6bn to close at N8.7tn. As observed in the previous week, investor apathy for Consumer Goods stocks - NIGERIAN BREWERIES (-8.0%) and NESTLE (-3.9%) remained the major drag to market performance. However, activity level improved as average volume and value increased 2.7% and 7.7% W-o-W to settle at 214.4m units and 1.7bn respectively.

Sector performance remained mixed but largely bearish. Similar to the preceding week, investors continue to dump Consumer Goods stocks as the index tumbled 4.6% W-o-W on losses in VITAFOAM(-13.0%), NIGERIAN BREWERIES (-8.0%) and NESTLE (-3.9%). The Insurance index trailed, losing 1.8% W-o-W as MANSARD (-6.2%) and CONTINSURE (-4.5%) shed points. The Banking index also lost 0.4% W-o-W as a result of negative sentiment towards STANBIC (-5.9%) and DIAMOND (-5.7%). On the contrary, the Oil & Gas index appreciated 1.6% W-o-W as gains in FORTE (+9.9%) and SEPLAT (+1.3%) drove the index higher. Likewise, the Industrial Goods index advanced 0.7% W-o-W as the share prices of DANGCEM (+1.1%) improved during the week.

Investor sentiment however strengthened W-o-W with market breadth closing at 1.0x (from 0.5x in the previous week) as 26 stocks advanced against 25 decliners. PZ (+21.3%), JBERGER (+10.2%) and BETAGLASS (+10.2%) topped gainers’ list while VITAFOAM (-13.0%), FIDSON (-11.4%) and NIGERIAN BREWRIES (-8.0%) led losers.  Sentiments on equities remain driven by low expectations on corporate earnings, most especially in the Consumer Goods space. Despite cheap valuation, a near term rebound is not expected until FY: 2016 earnings start trickling in.
Money Market Review and Outlook
Money market indicators - OBB and OVN rates opened the week higher at 14.83% and 15.6% respectively. Rates fell on 2 of 5 trading sessions in line with movement of system liquidity. Liquidity balance was largely driven by CBN’s Treasury Bills Auction (PMA) worth N202.4bn as well as the DMO’s February Bond Auction, resulting in a N160.0bn debit from the system. These more than offset the impact of c. N200.00bn FAAC inflow which hit the system on Wednesday. In the end, OBB and OVN rates closed the week at 17.8% and 18.7% as CBN conducted an OMO auction which squeezed N197.6bn from the system, hence rates increased 57.4% and 53.4% W-o-W respectively.

At the Treasury bills market, performance was broadly bearish this week as investors sold off on a range of instruments in order to partake in the Primary market auction noted above. Average yield trended higher from Monday to Wednesday but eased 15bps on Thursday after the CBN conducted an NTB auction which was largely successful on Wednesday. Investors continue to show preference for the longer dated instrument, - 364-day tenor (oversubscribed by N253.8bn), as against the 91-day and 182-day instruments (oversubscribed by N6.5bn and N12.3bn respectively). The Apex bank allotted N32.4bn of the 91-Day, N30.0bn of the 182-Day and N140.0bn of the 364-Day at 13.6%, 17.1% and 18.4% respectively. Eventually, average yield settled at 16.4% on Friday, indicating a 1.9% increase W-o-W.

Next week, we expect money market rates to remain at current levels while interest in longer dated T-bills is anticipated to persist.

Foreign Exchange Review and Outlook
The protracted scarcity of dollar supplies in the Nigerian foreign exchange market continued this week as FX rate remained tightly held at the official market due to CBN’s daily intervention while Parallel market rate depreciated further. Official rate opened at N305.50/US$1.00 and traded around this level throughout the week. At the parallel market, rate opened the week higher at N506.00/US$1.00 recording depreciations on all 5 trading sessions and eventually closed at N516.00/US$1.00. The spread between the Official and Parallel market widened to N210.50/US$1.00 this week.
At the FMDQ Naira Settled OTC FX Futures market, the value of opened contract closed the week higher at US$3.93bn from the previous week’s close of US$3.87bn relative to the US$12.00bn on offer. Interest in these contracts remained constrained by dollar supply. Next week, the NGUS FEB 22 2017 contract will be maturing, we expect this to be replaced with an equivalent instrument for FEB 2018.

All variables unchanged, we expect official market rate to steady at N305.50/US$1.00 as observed lately while parallel market rate will remain pressured.

Bond Market Review and Outlook
Sentiment in the Nigerian Bonds market improved this week as weaker appetite for equities as well as attractive yield environment continues to drive demand for fixed income instruments. Consequently, average yield across benchmark instruments declined 5bps on Monday from the preceding Friday’s close. Positive sentiment persisted all through the week as average yield declined 39bps W-o-W to settle at 16.0%. On Wednesday, the DMO conducted the second bond auction for the year, reopening the JUL 2021 (N45.0bn), JAN 2026 (N20.0bn) and MAR 2036 (N45.0bn). Given the higher liquidity levels in the system, the auction was 2.3x subscribed on average. As a result, the DMO over allotted each of the instruments as follows: JUL 2021 (N60.0bn), JAN 2026 (N30.0bn) and MAR 2036 (N70.0bn) issued at marginal rates of 16.6%, 16.6% and 16.8% in that order. This is not surprising, given the need to finance the fiscal deficit in the Budget. In the week ahead, we expect yields to marginally decline on account of higher liquidity levels in the system.

Performance across SSA sovereign Eurobond instruments was broadly mixed with buy sentiment majorly centered on Nigerian and South African instruments. Average yield across the Nigerian sovereign Eurobonds declined 15bps during the week while yields on the South African instruments fell 42bps on average. The South African 2041 instrument still remains the best performer under our coverage with a YTD appreciation of 4.7%.

Performance of Nigerian Corporate Eurobonds was also broadly bullish as instruments enjoyed some positive sentiments on the domino effect of the successful issuance of the US$1.00bn Nigerian Eurobond last week. The FIDELITY 2018 received the most interest as yield slid 55bp followed by the GUARANTY 2018 (-33bps) and FIRST BANK 2021 (-32bps) instruments. Nevertheless, the DIAMOND 2019 remains the best performing with YTD return of 13.1%.