The downtrend in the Nigerian Stock market persisted during the outgoing week, as sustained sell-offs in LAWUNION (-36.5%), MANSARD (-10.0%) and FORTE (-10.0%) weighed on overall performance. Consequently, the NSE All-Share Index closed in the red on 4 of the 5 trading sessions in the week, falling 1.3% w/w to settle at 27,388.62 points. Similarly, YTD return moderated to 2.0% and market capitalisation shed ₦187.7bn w/w to close at ₦14.3tn. Activity level strengthened as average volume and value rose 64.4% and 47.7% to 421.3m units and ₦5.6bn respectively. The top traded stocks by volume were SOVRENINS (200.3m units), GUARANTY (165.4m units) and ZENITH (148.2m units) while GUARANTY (₦4.7bn), ZENITH (₦2.9bn) and NESTLE (₦807.6m) led by value.
Performance across sectors was bearish as 4 of 6 indices under our coverage trended southward w/w. The Consumer Goods index led laggards, down 6.8% on the back of sustained sell pressures in CHAMPION (-9.3%), INTBREW (-9.0%) and NESTLE (-9.0%). Trailing, the Banking index shed 2.6% on account of losses in ETI (-8.6%) and GUARANTY (-6.5%). Similarly, the Insurance and Oil & Gas indices lost 2.1% and 1.3% respectively as investors exited positions in LAWUNION (-36.5%), MANSARD (-10.0%), FORTE (-10.0%) and OANDO (-4.3%). Conversely, the Industrial Goods index emerged the lone gainer, up 1.0% as CUTIX (+2.9%) and BUACEMENT (+1.8%) buoyed performance. Finally, the AFR-ICT closed flat.
Investor sentiment as measured by market breadth (advance/decline ratio) strengthened to 0.9x from 0.6x as 23 stocks advanced against 25 that declined. The top performing stocks for the week were CILEASING (+26.9%), AIICO (+26.3%) and UCAP (+17.3%) while LAWUNION (-36.5%), MANSARD (-10.0%) and FORTE (-10.0%) were the laggards. Following four weeks of consecutive losses, we expect to see some bargain hunting in early trades next week. However, we maintain a bearish outlook in the near term as overall investor sentiment remains weak.
Foreign Exchange Market: Naira Remains Stable Across Board
During the week, we saw a slight increase in oil prices after the U.S. government reported a slower-than-anticipated rise in crude stocks. However, at the close of the week, brent crude price declined 0.9% to $58.45 per barrel amid concerns over sluggish China demand and decision of OPEC+ not to deepen output cut before its next meeting. In Nigeria, the foreign reserve balance sustained its downward trend, depreciating 1.4% w/w ($523.8m) to settle at $36.7bn (19/02/2020). The Naira traded within similar bands all week. The CBN Spot rate opened the week at ₦306.95/US$1.00 but closed at ₦307.00/US$1.00, depreciating 10 kobo w/w. At the parallel market, the exchange rate traded flat all week to close at ₦360.00/$1.00. At the Investors’ & Exporters’ (I&E) FX Window, the NAFEX rate closed at ₦364.26/US$1.00, depreciating 50 kobo w/w. Activity level in the I&E Window declined as total turnover fell 35.1% w/w to $1.4bn from $2.1bn recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the naira increased 6.2% (US$711.5m) w/w to US$11.6bn. The DEC 2020 instrument (contract price: ₦365.10) saw the most buying interest with an additional subscription of US$169.3m taking the total value to US$1.4bn. On the other hand, the JAN 2021 instrument (contract price: N365.40) was the least subscribed, with marginal subscription of US$2.7m to gross US$844.8m. In the coming week, we expect the CBN to maintain its foreign exchange stability drive by sustaining interventions.
Money Market: Yields Trend Higher in the Secondary Market due to OMO Auction The interbank rates, OBB and OVN opened the week at 2.9% and 3.6% respectively, higher than the 2.6% and 3.3% at the close of the previous week as system liquidity tightened to ₦482.2bn from ₦1.3tn. On Thursday, the OBB and OVN rates rose to 3.3% and 4.1% respectively despite an increase in liquidity levels to ₦890.6bn due to the inflow of ₦627.2bn from OMO maturities. Finally, on Friday, the OBB and OVN rate moderated to close at 3.0% and 3.8% respectively while system liquidity settled at ₦778.5bn.
On Thursday, the apex maintained its liquidity management exercise through an OMO auction, offering instruments worth N300.0bn across three maturities. In contrast to the experience over the last few weeks, investors subscribed to the short-term instrument (Offer: ₦10.0bn; Subscription: ₦10.0bn; Sale: ₦10.0bn) and subscription matched offer at 1.0x bid-to-cover ratio and marginal rate of 11.45%. The 180-day (Offer: ₦20.0bn; Subscription: ₦44.78bn; Sale: ₦44.78bn) and 362-day (Offer: ₦270bn; Subscription: ₦280.51bn; Sale: ₦245.21bn) instruments were oversubscribed at 2.2x and 1.0x respectively at marginal rates of 11.59% and 13.02%. In the treasury bills secondary market, the performance was bearish as average yield across benchmark tenors trended higher by 38bps w/w to close at 3.8%. Sell-offs were highest at the long-end of the curve with yields up 95bps to 5.1%. The short-term instruments also recorded sell-offs as yields rose 30bps to 2.9% while the medium-term yields declined 12bps to close at 3.6%. In the coming week, we expect inflows of ₦927.8bn from OMO maturities and we believe the CBN to conduct OMO auction. we believed increased liquidity resulting from the huge inflows from OMO maturities will pressure yields in the secondary Treasury Bills market.
Bonds Market: Bullish Momentum Sustained in the Bonds Market
The Debt Management Office (DMO) offered a total of ₦140.0bn (Total sales: ₦100.0bn) across 3-tenors in Wednesday’s bond auction. The APRIL 2023 (₦45.0bn at 8.8%), APRIL 2029 (₦45.0bn at10.7%) and APRIL 2049 (₦50.0bn at 12.2%) instruments were reopened at lower rates compared to January’s auction (5-year: 9.9%, 10-year: 11.1% and 30-year: 12.6%). Consequent on elevated system liquidity, all instruments were oversubscribed as bid-to-cover ratio stood at 1.7x (5-year), 2.1x (10-year) and 4.5x (30-year). In the secondary market, average yield declined 30bps w/w to 9.9% as demand continued to soar. Hence, the market returned bullish on all trading sessions save Tuesday (+7bps) following sell pressures ahead of the bond auction. Across tenors, the medium dated bonds had the most buying interest following a 29bps drop in yield w/w while yields on the short and long-term bonds fell 19bps apiece due to high demand. The bullish performance in the SSA Eurobonds space was persistent as average yield plunged 16bps w/w. The Ghana 2029 and 2049 instruments enjoyed most buying interest, shedding 40bps and 36bps w/w respectively. Meanwhile, yields on Gabon 2024 and Senegalese 2024 instruments rose 1bps apiece w/w. For African Corporate Eurobonds, the bullish run continued as average yield dipped 30bps w/w. The ESKOM HOLDINGS 2021 and 2025 instruments led the laggards with a 32bps and 7bps rise in yields respectively as current operational crisis in the company remain unresolved. Conversely, as investors sought to take advantage of a higher stock price (2.0x) relative to its equity conversion price, the SIBANYE GOLD convertible 2023 instrument saw strong demand as yields declined 440bps. Trailing, yields on NEERG ENERGY 2022 instrument slipped 58bps. In the coming week, we expect yields in both the domestic bond and Eurobond markets to decline on the back of sustained demand.
