Last week the Nigerian financial markets maintain some level of stability. While the stock market sustained a positive outlook, the Naira exchange rate remain stable despite fall in oil prices. At the Nigerian Stock Exchange the equities market sustained a positive performance as the All-Share index gained 0.3 per cent w/w to close at 25,267.82 points. Consequently, market capitalisation advanced ₦32.9 billion to settle at ₦13.2 trillion while YTD loss improved to -5.9 per cent. Activity level improved as average volume and value traded rose 39.3 per cent and 41.6 per cent to 418.5 million units and ₦4.5 billion respectively. The most traded stocks by volume were FBNH (318.6m units), ZENITH (161.7m units) and GUARANTY (160.1m units) while GUARANTY (₦3.9bn), ZENITH (₦2.0bn) and DANGCEM (₦1.8bn) led by value.
Performance across sectors was bullish w/w as 5 of 6 indices under our coverage gained, save the Oil & Gas index which lost 0.3 per cent. The Insurance and Industrial Goods indices topped the gainers, recording respective gains of 3.7 per cent and 3.1 per cent following price appreciation in MANSARD (+18.7%), CUSTODIAN (+7.7%) and BUACEMENT (+7.7%). Similarly, the Consumer Goods (+2.3%), AFR-ICT (+0.5%) and Banking (+0.4%) indices gained, following price upticks in GUINNESS (+12.7%), CADBURY (+10.2%), MTNN (+0.9%), STERLING (+3.0%) and FBNH (+2.9%).
Investor sentiment as measured by market breadth (advance/decline ratio) weakened to 1.6x from 6.8x last week as 32 stocks gained against the 20 that lost. NEIMETH (+31.4%), MANSARD (+18.7%) and CUTIX (+14.7%) recorded the best performance while REGALINS (-13.0%), LEARNAFRICA (-9.6%) and ETI (-8.9%) were the top losers. As a result of a long gaining streak, we see opportunities for bargain hunting next week.
At the foreign exchange Market the Naira remains stable despite marginal decline in oil prices. Crude oil prices bucked its 5-week gain, declining 2.3 per cent w/w to $34.84 due to reports of declining US fuel demand and worsening US-China trade relations. On the domestic front, the external reserves inched slightly higher by 2.1 per cent to $36.5 billion. The CBN spot rate closed flat at ₦361/$1.00. At the parallel market, naira appreciated ₦7.00 to close at ₦453.00/$1.00. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate depreciated 39kobo to settle at ₦386.33/ $1.00. Activity level in the I&E Window remained low, declining 52.5 per cent to $83.4 million from $175.6 million recorded in the previous week.
The total value of open contracts of the naira at the FMDQ Securities Exchange (SE) FX Futures Contract Market declined 9.8 per cent ($1.5bn) to $13.9 billion as the MAY 2020 instrument matured during the week. The JUNE 2020 instrument (contract price: ₦389.49) received the highest subscription of $436.8 million which took total value to $1.6 billion. On the other hand, the AUG 2020 instrument (contract price: ₦395.14) recorded the least subscription of $0.5m with a total value of $1.0bn. We expect exchange rates to remain range-bound across the different segments of the market as investors anticipate the resumption of FX sales by the CBN. Yields Trend lower in the Secondary Treasury Bills Market. Last week, OBB and OVN opened at 15.0% and 15.6% respectively, same as previous week’s close of 15.0% and 15.6% as system liquidity stood at ₦112.4 billion. However, on Thursday, as OMO maturities worth ₦303.3 billion flooded the system, the rates trended lower to 2.7 per cent and 3.4 per cent respectively. By the close of the week, OBB and OVN settled at 2.20 per cent and 3.00 per cent in that order as system liquidity closed at ₦204.3 billion.
At the primary market auction, the CBN issued instruments worth ₦59.4 billion across the term structure. The marginal rates across tenors closed at 2.45 per cent, 2.72 per cent and 4.02 per cent for the 91-day, 182-day and 364-day tenors respectively. Demand was tilted to the 128-day instrument with a bid-to-cover ratio of 2.9x (Offer: ₦19.2bn; Subscription: ₦55.2bn; Sale: ₦19.2bn). Similarly, the 364-day and 91-day were also oversubscribed at 1.9x (Offer: ₦19.8bn; Subscription: ₦37.9bn; Sale: ₦19.8bn) and 1.8x (Offer: ₦20.4bn; Subscription: ₦37.5bn; Sale: ₦20.4bn) respectively.
The CBN also held an OMO auction on Thursday, offering a total of ₦160.0 billion across three instruments to keep liquidity in check in the face of huge maturities. Investors again preferred the long-term instruments as it recorded oversubscription with bid-to-cover ratio of 3.8x (Offer: ₦60.0 billion, Subscription: ₦230.3 billion; Sale: ₦60.0bn) while the short (Offer: ₦50.0bn, Subscription: ₦67.2bn; Sale: ₦4.0bn) and mid-term (Offer: ₦50.0bn, Subscription: ₦57.5bn; Sale: ₦50.0bn) bills were oversubscribed at 1.3x and 1.2x respectively. The 89-day, 194-day and 348-day instruments were issued at stop rates of 7.00%, 8.75% and 9.90% respectively, significantly lower than previous auction rate at 11.50%, 11.54% and 12.71%.
The secondary market returned bullish on 2 of 3 trading sessions, after a 2-day Eid-el-Fitr break, following improved liquidity from OMO maturities. Hence, average yield declined 32bps w/w to 10.1% as demand continued to soar. Across tenors, the short and mid-end of the curve had the most buying interest following a 44bps and 40bps drop in yield w/w respectively while yields at the long-end of the curve dipped 10bps. The bullish performance in the SSA Eurobonds space was persistent as average yield fell 16bps w/w. The Zambia 2022 and 2027 instruments enjoyed the most buying interest, as their yields declined 273bps and 92bps w/w respectively. Meanwhile, yields on Nigerian 2047 and South African 2024 instruments climbed 19bps and 18bps w/w respectively. For African Corporate Eurobonds, the bullish run also continued as average yield dipped 13bps w/w. The SIBANYE GOLD 2023 and ESKOM HOLDINGS 2021 instruments led the laggards with a 150bps and 139bps rise in yields respectively. Conversely, yields on NEERG ENERGY and ZENITH 2022 instruments slipped 160bps and 108bps w/w respectively. In the coming week, we expect yields in both the domestic bond and Eurobond markets to decline on the back of sustained increase in demand.
