Weekly Market Review and Outlook –Oct. 07, 2016

Global Market Review and Outlook
Mixed sentiments trailed global equities as speculations surrounding Europe’s largest Bank - Deutsche Bank- continue to rattle investors. The news came in late September on allegations that the Bank could be hit with a US$14.0bn penalty for its misdeeds during the US mortgage boom. Accordingly, huge sell offs recorded by the ticker brought its share price to a record low. Meanwhile, the IMF released its outlook for 2016/2017 maintaining global growth forecast for 2016 and 2017 at 3.1% and 3.4% respectively. This growth will be mainly driven by the emerging and developing economies.

In the developed market, the US S&P and NASDAQ dipped 0.3% and 0.1% W-o-W respectively while the UK FTSE rose 1.5% W-o-W driven by gains in mining stocks. All indices in the Euro-Asian region remained positive with the Japanese Nikkei recording the highest W-o-W return (+2.5%) while the Hong Kong HANG-SENG followed closely, up 2.3% W-o-W. Similarly, the German XETRA DAX and the France CAC 40 improved 0.5% and 0.1% W-o-W respectively.

Performance in the BRICS markets was broadly positive but for the South African FTSE/JSE which was down 1.0% W-o-W. The Brazilian IBOVESPA advanced the most, up 3.9% while the Russian RTS and Indian SENS appreciated 1.3% and 0.8% W-o-W respectively.

Indices in the African region also closed positive save for the Nigerian All Share Index which stumbled 1.8% W-o-W unable to sustain recent gaining streak. The Egyptian EGX 30 appreciated 5.3% while the Ghanaian GSE and Kenyan NSE indices rose 3.5% and 0.6% W-o-W respectively.

Equities Market Review and Outlook
The Nigerian equities market pulled back from 4 weeks of positive momentum, depreciating 1.8% W-o-W. The All Share Index (ASI) trended southwards on 3 out of 4 trading sessions declining on Tuesday (-0.2%), Wednesday (-0.9%) and Friday (+0.7%) while gaining 8bps on Thursday. Market capitalization waned by N172.5bn to settle at N9.6tn. However, activity level was mixed during the week as average volume rose 7.0% W-o-W to settle at 233.7m units while value traded fell 12.2% to settle at N1.6bn W-o-W.

Sector performance also weakened with all indices trending southwards. The Industrial Goods index declined the most, down 5.3% W-o-W on account of price depreciation in WAPCO (-13.9%) and ASHAKACEM (-7.6%). The Banking index followed suit, down 2.8% on losses in ZENITH (-6.4%) and GUARANTY (-2.3%). Likewise, the Consumer Goods index depreciated 2.7% W-o-W due to losses in PZ (-10.0%) and GUINNESS (-9.7%) after PZ declared a N1.5bn loss in its recently published Q1:2016 result joining GUINNESS who submitted a similar result few weeks ago. Similarly, the Oil & Gas and Insurance indices fell 12bps and 8bps W-o-W respectively as losses in FORTE (-3.6%), TOTAL (-2.7%) and CONTINSURE (-4.8%) dragged both indices.

In line with market performance, investor sentiment deteriorated, as reflected by market breadth which eased to 0.8x (from 1.0x the previous week) as 27 stocks advanced while 33 declined. The best performers for the week were 7UP (+13.7%), FCMB (+8.4%) and CHAMPION (+8.4%) while WAPCO (-13.9%), WEMA (-12.5%) and CAVERTON (-11.8%) were the worst performers. Sentiment in the coming week may further wane as investors remain cautious ahead of Q3:2016 corporate releases.

Money Market Review and Outlook
Money market rates trended downwards during the week as aggregate system liquidity opened at surplus of N20.4bn on Tuesday.  Open Buy Back (OBB) and Over Night (O/N) rates dropped to single digits for the first time in 4 weeks on Thursday closing at 7.8% and 8.3% respectively as system liquidity was buoyed by T-bills maturity worth N129.7bn. However, OBB and O/N inched 7.9% points higher apiece to close the week at 15.7% and 16.2% respectively on Friday as the Apex mopped up a total of N283.1bn from the system in an OMO auction. As such, OBB and O/N lending rates rose 1.3% and 1.0% W-o-W.

Performance in the treasury bills market were mixed but average T-bills rate trended southwards on most trading sessions. On Tuesday, average T-bills rate rose 8bps to close at 17.7%. This was however reversed on Wednesday as average T-bills rate declined 0.7% to close at 17.0% amidst expectation of a lower stop rate at the Primary Market Auction (PMA) held on the same day. The Apex Bank auctioned N28.0bn of 91-day, N33.5bn of 182-day and N68.2bn of 364-day instruments at stop rates of 13.9%, 17.1% and 18.3% respectively. Much in line with market expectations, the average marginal rate at the auction was 11bps lower than the September auction. Also, the auction was oversubscribed by 2.4x with net subscription amounting to N311.9bn against net offered amount of N129.7bn.  Average T-bills rate closed the week at 17.3% on Friday, up 3.2% W-o-W.

In the week ahead, we expect money market rates to trend northwards as the CBN continue to mop-up excess liquidity in the system in addition to a scheduled bonds auction of about N120.0bn by the DMO next Wednesday.

Foreign Exchange Review and Outlook
Despite the liquidity crunch which continued to strain performance in the currency market, interbank rate appreciated 1.6% W-o-W to N306.75/US$1.00 from N311.62/US$1.00 on Friday this week. On the first trading day of the week, the Naira/Dollar exchange rate crashed to N320.31/US$1.00 on Tuesday from N311.62US$1.00 in the previous session. However, the Naira/Dollar exchange rate appreciated to N310.24/US$1.00 by midweek and N306.71/US$1.00 on Thursday on the back of the daily interventions by the Central Bank where about US$1.5m was sold.

Similarly, parallel market rate appreciated 0.4% W-o-W closing the week at N473.00/US$1.00 against N475.00/US$1.00 in the previous Friday. Contrary to last week when Naira/Dollar exchange rate surged, the exchange rate at the parallel market rate hovered between N473.00/US$1.00 and N476.00/US$1.00 during the week amidst speculations of dollar sales to Bureau-De-Change (BDC) operators by Travelex before the end of the week.

In the futures market, the current total value of the open contracts of the Naira settled OTC futures for the 12 instruments on the calendar stood at US$3.5bn as at Thursday, 6th October, with the APR 26 2017 being the most subscribed at a value of US$794.4m. This was trailed by the JUL 21 2017 instrument, currently trading at N255.5/US$1.00.

In the week ahead, we expect the sale of dollars to the BDCs by Travelex to improve dollar liquidity at the unregulated segment of the FX market. Nevertheless, we do not expect significant appreciation in rate

Bond Market Review and Outlook
The local bond market was largely quiet, but sentiments was mixed across tenors as investor interest was majorly skewed towards the short end of the sovereign yield curve during the week. Accordingly, average yield across benchmark bonds closed flat W-o-W settling at 15.0% on Friday. Average yield rose 3bps at the end of the first trading session of the week closing at 15.0% on sell offs predominantly in long dated instruments. Buy sentiment, however tepid, filtered into the market towards the end of the week as average yield across benchmark bonds dipped 1bp on Thursday to close at 14.9% before settling at 15.0% on Friday.

Similarly, performance across the Sub Saharan Africa Eurobonds instruments was mixed this week. Increased interest was observed in Ghanaian Sovereign Eurobonds  as yields on the Ghana 2017, 2023 and 2026 declined 32bps, 14bps and 15bps W-o-W respectively. The Gabon and Ivory Coast sovereign Eurobonds also enjoyed similar sentiment as average yield on the Gabon and Ivory Coast sovereigns Eurobonds dipped 9bps and 8bps  W-o-W respectively. On the flip side, average yield on the South African, Nigerian and Zambian sovereign Eurobonds rose 16bps, 13bps and 3bps respectively. Nonetheless, the Zambian 2024 Eurobond currently commands the highest Year-to-Date (YTD) return at 23.2% whilst the South African 2017 recorded the most decline amongst the sovereign Eurobonds, with a YTD loss of 4.0%.

In the Nigerian corporate Eurobonds market, sell sentiment persisted on the Fidelity 2018 and Diamond 2019 instruments during the week as yields rose 1.1% and 64bps W-o-W respectively. Contrarily, investors hunted for bargain in the FBN 2020 and 2021 instruments as yields on both instruments dropped 3.6% and 1.8% W-o-W respectively. Yield on the Access 2017 instrument also dipped 1.1% W-o-W as interest improved during the week. This may however be attributed to the recent announcement by the issuer (Access Bank Plc) to issue a new 5 year bonds instrument (Access 2021), with an offer for holders of the Access 2017 instrument to tender it in exchange for the proposed Access 2021 instrument at a premium price of 102.0% of par value. A minimum yield of 9.0% has been announced for the new issue with the exchange deadline set for 4.00pm 11th October 2016.

In the week ahead, we expect activity level at the local bonds market to be broadly driven by primary market auction by the Debt Management Office (DMO) scheduled for next Wednesday.  The DMO is to auction between N90.0bn – N120.0bn of the JULY 2021, JAN 2026 and MAR 2036 bonds at the Monthly PMA. We expect the auction to be oversubscribed in line with recent DMO PMAs.

Afrinvest Research