Last week, interest in the local equities market remained strong. Investors were attracted by the currently low market valuation amidst the continued low yield environment in the fixed income space. The performance also reflects an improvement in risk appetite despite looming uncertainty surrounding the business terrain due to the pandemic. Furthermore, trading opened the week positive on Monday (+2.1%) while Tuesday was met with a whopping 4.9% gain (the highest on record since April 2015), due to buying interest in DANGCEM, MTNN and ZENITH. However, the market shed gains in subsequent sessions as some investors booked profit. Consequently, the All-Share index rose 5.6% w/w to 28,415.31 points, market capitalisation hit ₦14.9tn (+₦777.9bn w/w) while YTD return settled at 5.9%. Capturing the pick-up in activity level, average volume and value traded advanced 87.9% and 82.3% to 376.3m units and ₦3.9bn respectively. The banking stocks were the most active as ZENITH (530.7m units), FBNH (287.9m units) and UBA (273.6m units) led by volume while ZENITH (₦10.5bn), GUARANTY (₦5.3bn) and UBA (₦1.9bn) led by value.
Sector performance was impressive as all sectors under our coverage gained w/w. The AFR-ICT and Banking indices gained the most, up 8.0% and 7.8% respectively due to buy interest in MTNN (+8.1%) and AIRTELAF (+7.9%) as well as FBNH (+19.2%) and ACCESS (+18.4%). Similarly, price appreciation in DANGCEM (+4.2%) and WAPCO (+12.2%) buoyed the Industrial Goods index by 2.8% w/w. Lastly, the Consumer Goods, Oil & Gas and Insurance indices appreciated 2.0% apiece due to price accretion in INTBREW (+21.0%), ETERNA (32.5%) and LINKASSURE (15.8%).
Investor sentiment as measured by market breadth (advance/decline ratio) improved to 4.1x from 2.4x last week as 53 stocks gained against 13 that declined. ETERNA (+32.5%), INTBREW (+21.0%) and AFRIPRUD (+20.6%) led gainers while UACPROP (-12.0%), TRIPPLEG (-10.0%) and DEAPCAP (-10.0%) led the decliners. While we expect the soft gains in the domestic market to be sustained, we note that investors are likely to extend the profit taking activities into the week ahead. Hence, we maintain a bearish outlook.
Foreign Exchange Market: Fresh Optimism Buoys Rebound in Oil Prices
Recently, OPEC and its allies reiterated the need to ensure that proactive and preemptive measures are taken to support the oil market. Consequently, Brent rebounded to $43.21/bbl. from last week’s close of $40.65/bbl. despite rising COVID-19 cases. Locally, the external reserves remained pressured as it decreased 5bps w/w to $35.7bn (10/07/2020).
At the official window, the CBN spot rate remained unchanged at ₦379.00/$1.00 while the parallel market rate strengthened by ₦8.00 w/w to ₦457.00/US$1.00. The NAFEX rate depreciated 83kobo w/w at the Investors & Exporters (I&E) Window to close at ₦385.83/US$1.00. Furthermore, weekly turnover at the I & E window slipped 36.4% w/w to $329.2m from the $517.5m recorded in the previous week. The aggregate value of the open contracts at the FMDQ Securities Exchange FX Futures Contract segment improved by 0.6% ($66.4m) w/w and settled at $11.2bn. The DEC 2020 instrument (contract price: ₦394.55) recorded the strongest demand with an additional subscription worth $20.4m, putting the total value at $2.1bn. Meanwhile, the MAY 2021 (contract price: ₦408.74) and AUG 2021 (contract price: ₦417.25) instruments recorded $1.00m additional subscription apiece, bringing their respective values to $692.84m and $239.63m. In the coming week, we expect the naira to remain relatively stable across the board.
Money Market: Bullish Outing in the Secondary T-bills Segment
OBB and OVN rates opened the week at 0.9% and 1.6% respectively from last week’s close of 1.0% and 1.6% as system liquidity rose to ₦1.4tn. On Wednesday, OBB and OVN rates declined to 0.8% and 1.4% respectively as system liquidity lowered to ₦386.3bn. By the close of the week, OBB and OVN rates surged to 4.0% and 4.9% respectively as system liquidity settled at ₦1.1tn. In the secondary T-bills market, there was a bullish outing as average yield declined 21bps w/w to 1.5%. There was strong demand across the board although, the 182 and 364-day instrument had the most buying interest as yields dipped 30bps apiece. Yield on 91- day instruments also dropped 10bps. Next week, we expect yield to trend lower as OMO and T-bills maturities worth ₦370.0bn and ₦104.9m would hit the system.
Bonds Market: Domestic Bond Market Extended Bullish Run
Last week, the bullish sentiments in the bond market was sustained as average yield continued to dwindle, down 37bps to 6.3%. The trading session kicked-off on Monday with average yield rising 3bps following sell-offs on short tenor bonds. However, the market closed on a positive on the remaining trading days. Across tenors, the medium-term instruments recorded the most buying interest with the average yield down 63bps w/w. Similarly, average yield on the long and short-term instruments declined 18bps apiece w/w.
Across the SSA Eurobonds space, there was a bullish performance as average yield fell 55bps w/w to 9.5%. The Nigeria 2021 and Senegal 2021 instruments recorded the most buy interest as the respective yields fell 182bps and 82bps w/w. Trailing, yield on the Nigerian 2032 and Senegal 2031 instruments declined 81bps and 80bps w/w respectively. Conversely, Ghana 2022 and Zambia 2022 recorded sell-offs with the yields rising 22bps and 13bps w/w respectively.
Performance at the African Corporate Eurobonds market under our coverage was positive as average yield declined 33bps w/w to 5.9% (ex-SIBANYE GOLD 2023 instrument). ESKOM HOLDINGS 2021 and 2025 instruments saw strong demand, driving a 102bps and 83bps drop in yield respectively. Conversely, the FIRSTRAND BANK LTD 2028 and ZENITH BANK PLC 2022 recorded sell-offs, as the respective yields rose 2bps and 1bp. In the coming week, we expect yields to fall in the domestic bond market while we expect sustained interest in the Eurobonds segment.
Afrinvest
