Weekly Markets Update: COVID-19 Resurgence Compels Wide-Spread Sell-offs

Global Equities Market
Globally, COVID-19 cases sustained an uptrend this week, rising 6.6% to 32.5 million while total death increased 3.8% to 988,942. The US (7.2 million), India (5.8 million) and Brazil (4.7 million) continue to lead in the number of cases globally. Meanwhile, countries continue to impose fresh lockdowns and stricter measures following a resurgence in COVID-19 cases. Amid the ongoing debate on further stimulus in the US, the Fed Chair Jerome Powell, shared insights about the economy’s COVID-19 response and recent economic recovery to a sub-committee of Congress in the week. While Powell hinted that the US economy continues to reel from COVID-19 and requires more support, there is little optimism that legislators would reach a consensus on a deal soon.

The developed markets under our coverage recorded a poor performance as all 7 indices dipped. In the US, the S&P 500 and NASDAQ indices lost 1.7% and 0.2% w/w respectively, extending the previous week’s losses given weak optimism about additional economic stimulus. In the UK, rising COVID-19 numbers and stricter lockdown measures drove a 3.0% w/w contraction in the FTSE All-Share index. Similarly, France’s CAC 40 and Germany’s XETRA DAX indices fell 5.2% and 5.0% w/w respectively due to the resurgence of COVID-19 in the region. Hong Kong’s Hang Seng index lost 5.0% w/w as members of the Hong Kong commission failed to reach a consensus on the new minimum wage. Lastly, Japan’s Nikkei 225 index closed the week lower by 0.7% w/w.

In the BRICS region all 5 indices that we track lost w/w. Russia’s RTS index slipped 5.0% w/w to top the losers due to COVID-19 concerns. Trailing, India’s BSE Sens and China’s Shanghai Composite indices fell 3.8% and 3.6% w/w respectively. Brazil’s Ibovespa index shed 2.3% as COVID-19 related death toll continues to mount. Lastly, South Africa’s FTSE/JSE All-Share index lost 2.1% w/w.

The African markets under our coverage recorded a bearish performance as 4 of 6 indices closed in the red while Kenya’s NSE 20 index remained flat. Nigeria’s All-Share index was the lone gainer, up 2.9% w/w. Conversely, Egypt’s EGX 30 and Morocco’s Casablanca MASI indices extended the bearish run, falling 1.3% w/w apiece. Likewise, Mauritius' SEMDEX and Ghana’s GSE Composite indices declined 1.1% and 0.4% w/w respectively.

Performance across the Asian and Middle East markets under our coverage was unimpressive as 4 of 5 indices tracked closed negative. Turkey’s BIST 100 index was the only gainer, up 1.6% w/w despite an upward review of the policy rate to 10.25% from 8.25%. On the flip side, Thailand’s SET index led the decliners, dropping 3.4% w/w following concerns about the delayed amendment of the nation’s constitution. In the same vein, Qatar’s DSM 220 and UAE’s ADX General indices shed 1.5% and 1.0% w/w respectively. Lastly, Saudi Arabia’s Tadawul All Share index lost 0.9% w/w.
Domestic Equities Market: Strong Demand Buoys Performance… ASI Gain 2.9% w/w
The equities market reversed last week’s negative return as the All-Share index increased 2.9% w/w to 26,319.34 points due to buying interest in NIGERIAN BREWERIES (+25.1%), MTNN (+3.3%) and DANGCEM (+3.0%). Similarly, market capitalisation rose by ₦390.4bn to ₦13.8tn while YTD return settled at -1.9%. Activity level advanced as average volume and value traded rose 37.6% and 62.0% to 313.5m units and ₦4.1bn respectively. The most traded stocks by volume were STERLNBANK (161.8m units), FBNH (155.9m units) and ZENITH (130.5m units) while MTNN (₦5.7bn), GUARANTY (₦2.5bn) and ZENITH (₦2.2bn) led by value.

Performance across sectors was impressive w/w as all indices under our coverage gained. The Consumer Goods index led the pack, up 6.0% following strong demand for NIGERIAN BREWERIES (+25.1%) and INTBREW (+9.1%). Trailing, the Banking and Industrial Goods indices gained 3.6% and 2.4% respectively, following price accretion in FIDELITY (+6.7%), GUARANTY (+6.5%), WAPCO (+15.8%) and DANGCEM (+3.0%). Similarly, buying interest in MTNN (+3.3%) and SEPLAT (+3.9%) buoyed positive performance in the AFR-ICT (+1.7%) and Oil & Gas (+1.2%) indices. Finally, the Insurance index inched 1.1% higher following price appreciation in CORNERSTONE (+16.4%) and LASACO (+8.0%).

Investor sentiment as measured by market breadth (advance/decline ratio) improved to 1.3x from 0.9x last week as 34 stocks gained against the 27 that declined. NIGERIAN BREWERIES (+25.1%), CORNERSTONE (+16.4%) and WAPCO (+15.8%) led the top gainers while REDSTAREX (-16.9%), OANDO (-11.7%) and CHAMPION (-10.0%) led the decliners. In the coming week, we anticipate a sustained positive performance as investors renew interest due to low yield in the fixed income space.

Foreign Exchange Market: Naira Stable across FX Markets
The CBN sold $100.0m through the Secondary Market Intervention Sales (SMIS) Wholesale Window on September 22, 2020 to boost liquidity levels and maintain stability in all segments of the market. Likewise, in the BDC segment, the CBN has offered over $200.0m since the resumption of FX sales in the retail end of the market. Meanwhile, oil prices fell 4.4% w/w to US$41.74bbl from US$43.68bbl last week following the second wave of COVID-19 cases in Europe. Locally, the external reserves decreased by 0.1% w/w to US$35.8bn (9/23/2020).

In the FX market, the CBN spot rate traded flat all week at ₦379.00/US$1.00 while the rate at the parallel market depreciated ₦2.00 w/w to settle at ₦467.00.00/US$1.00. At the Investors & Exporters (I&E) Window, the NAFEX rate closed flat at ₦386.00/US$1.00. In the I&E Window, turnover fell 57.1% to $348.8m from the $812.8m recorded in the previous week.

At the FMDQ Securities Exchange FX Futures Contract Market, the total value of open contracts settled at $12.5bn, down 0.3% ($31.5m) from the prior week. The August 2021 instrument (contract price: ₦420.81) had the most demand with an additional subscription of $28.0m putting the total value at $191.3m. Meanwhile, the December 2022 (contract price: ₦471.39), December 2023 (contract price: ₦512.97) and August 2025 (contract price: ₦590.10) instruments saw sell-offs worth $2.0m, $9.0m and $50.0m respectively. In the coming week, we expect naira to remain within a similar band across the different FX segments

Money Market: Bearish Performance in the T-bills Market
This week, the OBB and OVN rates opened the week lower at 1.0% and 2.0% respectively from last week’s close of 2.0% and 3.0% as system liquidity improved to c.₦440.0bn. On Thursday, the OBB and OVN rates remained slightly unchanged at 1.0% and 1.8% respectively despite the OMO auction (₦70.0bn) which dragged system liquidity lower to ₦375.0bn. However, the OBB and OVN rate spiked to 10.3% and 11.5% respectively even as system liquidity surged to ₦684.1bn at the close of the week.

The CBN conducted an OMO auction worth ₦70.0bn on Thursday. The auction was oversubscribed at a bid to offer of 3.5x. The 131-day instrument (Offer: ₦10.0bn; Subscription: ₦58.0bn; Sale: ₦10.0bn) recorded the most demand as bid to offer stood at 5.8x while the 348-day (Offer: ₦50.0bn; Subscription: ₦150.6bn; Sale: ₦50.0bn) and 166-day (Offer: ₦10.0bn; Subscription: ₦38.1bn; Sale: ₦10.0bn) instruments recorded excess subscription with bid to offer at 3.0x and 3.8x respectively. The instruments were issued at marginal rates of 4.77%, 7.60% and 8.70% respectively, lower than previous auction's rates at 138 days - 4.86%, 173 days - 7.68% and 355 days - 8.88%.

Performance in the secondary T-bills segment was bearish as average yield rose 18bps to 1.9%. Across tenors, the 364-day instrument traded flat as yield remain unchanged at 2.7%. The 91-day instrument recorded buying interest as yield fell 7bps to 1.1%. On the other hand, average yield on the 182-day asset rose 62bps to close the week at 2.0%. In the coming week, we expect money market rates to remain relatively stable as the apex bank continues to keep liquidity in check.

Bonds Market: The Bulls Maintain Grip of the Domestic Market
Performance in the secondary market remained bullish this week as average yield declined 29bps w/w to 7.1%. Although the market recorded losses on the first 2 trading days, a 3-day consecutive gaining streak beginning from Wednesday buoyed performance this week. Across tenors, the mid and long-term bonds recorded the highest buying interest with the average yields falling 35bps apiece w/w. The short-tenor instruments also recorded gains as the average yield declined 11bps w/w.

At the primary market, the DMO re-opened the JANUARY 2026, MARCH 2035, JULY 2045 and MARCH 2050 instruments, offering ₦25.0bn, ₦40.0bn, ₦40.0bn and ₦40.0bn in that order. All instruments were oversubscribed at 3.4x, 1.8x, 1.0x and 4.1x bid-to-cover ratios respectively. The 2026 instrument was over-allotted while the remaining instruments were under-allotted. The marginal rates on the instruments were lower at 6.0%, 8.52%, 8.9% and 8.94% respectively (vs 6.70%, 9.35%, 9.75% and 9.90% at the previous month’s auction). On aggregate, ₦145.0bn was offered with subscription and allotment at ₦360.2bn and ₦103.8bn respectively.

Across the SSA Eurobond instruments under our coverage, the bearish performance was sustained as only the Ghanaian and South African 2022 instruments gained w/w as the respective yields declined 6bps and 3bps w/w respectively. Average yield across all instruments rose 72bps to 9.0%. The bearish momentum was majorly due to sell-offs in the ZAMBIAN instruments as yields across the 2022, 2024 and 2027 instruments rose 3.8ppts, 2.9ppts and 1.5ppts respectively. This lacklustre performance was triggered by the country's request for debt service suspension.

For the African Corporate Eurobonds that we track, performance was mixed although negatively skewed as average yield (excluding SINBAYE GOLD 2023) rose 24bps w/w to 6.1%. ESKOM HOLDINGS 2021 instrument led the pack as the yield rose 2.3ppts w/w. FIDELITY BANK 2022 also recorded a loss as the yield increased 85bps w/w. On the flip side, ZENITH BANK 2022 and ACCESS BANK 2021 recorded gains as the respective yields declined 19bps and 10bps w/w respectively. For the SIBANYE GOLD 2023 instrument, yield fell 654.4% this week as investors continued to relish the exercise of the conversion option embedded in the instruments. In the domestic market, we expect a slightly bullish performance in the coming week due to expected coupon payments of ₦31.5bn. We are not optimistic of a rebound in the Eurobonds market and we expect continued sell-offs in the ZAMBIAN instruments due to the default in interest payments.