The total capital importation for the year 2020 contracted by 59.7 per cent y/y to $9.7 billion from $23.9 billion in 2019. The disaggregated full year data shows that Foreign Portfolio Investment (FPI) was the largest source of capital import at $5.1 billion in 2020. Notwithstanding, FPI declined 68.6% y/y to reach the weakest level since 2017. We attribute the weakness in FPI inflows to the bleak external conditions and Nigeria’s currency crisis which reduced investors’ participation. Also, capital import from Other Investments declined 47.5% y/y to $3.5 billion from $6.7 billion, weakened by the 49.2% y/y contraction in capital import from Loans. Foreign Direct Investment (FDI) inflows was the only bright spot as it increased 10.1% y/y, though still below 2014 level. We believe FDI weakness reflects the volatile macroeconomic environment and weak medium to long-term economic prospects. Going forward, we expect foreign investment to remain weak due to the weak prospects of an improvement in the external environment and the currency challenges.
For Q4:2020, total capital imported into Nigeria dropped 71.9% y/y and 26.8% q/q to $1.0bn, same level as recorded in Q2:2016. The q/q decline was across all the key components of the total imported capital excluding Other Investments which rose 22.5% q/q to $783.3m (-52.9% y/y). FPI recorded the worst contraction on record, down 91.4% q/q and 98.1% y/y to $35.2m. FDI was down 39.4% q/q and 2.3% y/y, with equity flows accounting for 99.0%. The decline in capital importation is mainly attributed to the heightened risks brought by the COVID-19 which resulted in weak sentiment in emerging markets and foreign capital outflows.
Similar to the case in 2016, the introduction of capital controls amid FX illiquidity has left foreign investors stuck in the market and made Nigeria less attractive as an investment destination. The wide premium between exchange rates at the parallel market and the I&E window also suggests a mispricing of the currency, which makes investors and businesses reluctant to bring in capital. Global Equities Market: Renewed Optimism Anchored on Increased Vaccine Distribution. At the end of the week, the number of COVID-19 cases rose 3.0% to 104.2 million while total death toll increased by 3.7% to 2.3 million globally. The US (26.2 million), India (10.8 million) and Brazil (9.3 million) remain the major epicenter of the virus. However, there is renewed optimism in the global economy due to an increase in vaccine distribution. According to Bloomberg tracker, over 119 million doses have been administered across 67 countries with the US leading with 36.7 million doses, 11.2 doses administered for every 100 people. Meanwhile, the US $1.9tn pandemic relief package received the support of the house leaders and the Senate after a meeting with the president on Friday.
The developed markets under our coverage recorded a positive performance as all indices closed northward. The US S&P 500 and NASDAQ indices rose 4.7% and 5.4% w/w respectively following progress in vaccine distribution and optimism regarding relief package. In the Euro Area, UK’s FTSE All-Share, France’s CAC 40 and Germany’s XETRA DAX indices gained 1.9%, 4.9% and 4.7% w/w respectively following a gradual administration of vaccines. Likewise, Hong Kong’s Hang Seng and Japan’s Nikkei 225 indices rose 3.6% and 4.0% w/w respectively to close the week. Similar to developed markets, markets across the BRICS region posted a bullish performance as all indices closed in the green. India’s BSE Sens led gainers, advancing 9.6% w/w due to enthusiasm about economic recovery. Trailing, Brazil’s Ibovespa and Russia’s RTS rose 4.7% and 4.4% w/w respectively. Likewise, South Africa’s FTSE/JSE All Share index rose 3.1% w/w following the early procurement of vaccines. Lastly, China’s Shanghai Composite index closed higher by 0.4%.
In the African region, performance was mixed as 3 of the 6 indices under our coverage closed in the red. The Nigeria All-Share index led laggards, down 1.7% w/w. Similarly, Kenya’s NSE 20 and Mauritius’ SEMDEX indices lost 0.8% and 0.3% w/w respectively. Conversely, Ghana’s Composite index led gainers, up 1.4% w/w following a £1.2bn trade deal with UK worth. Likewise, Morocco’s Casablanca MASI and Egypt’s EGX 30 indices rose 0.7% and 0.2% w/w respectively. Performance across the Asian and Middle East markets under our coverage was mixed albeit positively skewed as 3 of 5 indices closed northward. Turkey’s BIST 100 index gained the most, up 4.0% w/w. Similarly, Thailand’s SET and UAE’s ADX General indices rose 2.0% and 0.4% w/w respectively. On the flip side, Saudi Arabia’s Tadawul All Share and Qatar’s DSM 220 indices fell 2.1% and 1.1% w/w respectively.
Domestic Equities Market: The Bears Had It All… ASI down 1.7% w/w
The equities market reversed last week’s bullish momentum with sell-offs dominating trades all week. As a result, the All-Share index fell 1.7% w/w to 41,709.09 points. Market capitalisation fell by ₦368.0bn to ₦21.8tn while YTD return declined to 3.6%. Activity level improved as average volume and value traded rose 7.4% and 6.4% to 551.9m units and ₦5.9bn respectively. The most traded stocks by volume were UBN (313.1m units), FBNH (219.6m units) and TRANSCORP (199.7m units) while GUARANTY (₦6.1bn), ZENITH (₦3.5bn) and UBN (₦1.8bn) led by value. Performance across sectors was lacklustre as all indices under our coverage declined w/w. The Insurance index lost the most, down 6.0% w/w due to price declines in LINKASSURE (-33.3%) and AIICO (-13.6%). Similarly, the Consumer Goods and Banking indices recorded losses of 3.2% and 2.3% w/w respectively due to sell-offs in NNFM (-10.6%), FLOURMILL (-9.4%), FIDELITY (-8.1%), and ACCESS (-8.1%). The Industrial Goods and AFR-ICT indices also declined 2.1% and 0.3% w/w respectively as DANGCEM (-2.5%), WAPCO (-11.2%), and CHAMS (-7.7%) ticked lower. Lastly, sell-offs in OANDO (-9.1%) drove the Oil & Gas index lower by 0.2%.
Investor sentiment as measured by market breadth (advance/decline ratio) weakened to 0.2x from 1.4x last week as 17 stocks gained against the 59 that declined. ETERNA (+10.6%), NCR (+9.9%) and MULTIVERSE (+9.1%) led the top gainers while LINKASSURE (-33.3%), AIICO (-13.6%) and JBERGER (-13.0%) led the decliners. We expect trading sessions to be a mix of bargain hunting and sustained profit-taking activities. The direction of yields in the fixed income market would also influence trades especially given the increase in marginal rates at the OMO auction this week.
Foreign Exchange Market: Oil Prices Improve as OPEC+ Maintains Production Cut
Oil prices inched higher by 8.2% w/w to $59.55/bbl this week, the highest since February 2020 as OPEC+ maintained its stance on production cuts at its February meeting. On the domestic front, the external reserves declined marginally by 0.9% w/w to $36.2bn (01/02/2021) as the FG repaid the maturing Eurobond instrument. The domestic currency traded flat at the CBN spot market and the parallel market at ₦379/$1.00 and ₦480/$1.00 respectively. At the Investors’ & Exporters’ (I&E) Window, naira depreciated ₦2.04 to ₦394.17/$1.00. Activity level in I&E Window declined by 20.4% to $224.5m from $281.9m recorded in the previous week. The total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures Contract Market increased 2.1% ($150.1m) to $7.3bn. The FEB 2022 instrument (contract price: ₦452.82) received the highest subscription of $6.4m which took total value to $13.9m. On the other hand, the MARCH 2021 instrument (contract price: ₦418.15) recorded the least subscription worth $2.0m with a total value of $1.7bn. We expect the exchange rates to remain range-bound at the various markets in the coming week.
Money Market: Secondary T-bills Market Records a Weak Performance
OBB and OVN rates opened the week at 10.0% and 10.3% respectively from last week’s close of 10.5% and 11.0% despite a decline in system liquidity to ₦107.0bn. On Tuesday, OBB and OVN rates lowered to 9.5% and 9.7% respectively as system liquidity rose to ₦214.0bn following inflows from OMO maturities worth ₦147.6bn. By the close of the week, OBB and OVN rates printed at 17.5% and 18.0% respectively as system liquidity settled at ₦504.2bn. The CBN conducted OMO sales worth ₦71.7bn on Thursday, ₦28.3bn lower than amount on offer. Demand was strong across broad with bid-to-cover ratios of 1.7x, 1.1x and 1.0x for the 89, 180 and 364-day instruments respectively. Surprisingly, we saw an increase in stop rates to 7.0%, 8.5% and 10.1% (vs 1.5%, 4.3% and 5.7% in the previous auction) for the 89-day, 180-day and 362-day instruments respectively. In the secondary T-bills market, performance was weak as average yield climbed 29bps w/w to 1.2%. Yield on the 91 and 182-day instruments was flat w/w while the 364- day instrument saw sell-offs as yield rose 87bps w/w. In the coming week, we expect maturities worth ₦213.9bn and ₦169.8bn from the OMO and T-bills markets. As such, we expect liquidity mop-up.
Bonds Market: Bullish Outing across Bond Markets
The domestic bond market ended the week positive as average yield declined 5bps w/w to 8.0%. Yield declined on all trading sessions save on Friday (up 9bps). Across tenors, the short-term bond saw sell-offs as yield rose 5bps while the medium and long-term bonds saw strong demand following an 11bps and 6bps drop in yield w/w respectively. In the SSA Eurobonds market, there was a bullish outing resulting in a 51bps decline in average yield w/w to 8.3%. The Kenyan 2028 and Nigerian 2023 instruments saw the most demand as yield fell 37bps and 30bps w/w respectively. On the flip side, the yield on the Ghanaian and Zambian 2022 instruments rose 285bps and 105bps w/w respectively.
Across the African Corporate Eurobonds market under our coverage, there was an uptick in performance as average yield dipped 8bps w/w to 4.0%. The UBA 2022 instrument saw high demand which pushed yield lower by 32bps w/w. Conversely, there were sell-offs in ECOBANK 2024 and SEPLAT 2023 instruments as yields climbed 22bps and 18bps w/w respectively. In the coming week, we expect to see a sustained bullish outing in the bond markets as investors seek higher yield.