The incidence of “Coronavirus” continued to accelerate this week, reaching a total of 50 countries. This has caused panic across markets and the global economy. We suspect this is because investors now have a clearer view of the impact of the virus on global economic performance. Also, the IMF hinted that the virus would likely reduce global growth by 0.1% in 2020 while China’s growth was reviewed downwards to 5.6% from 6.0%. Elsewhere, US GDP results for 2019 revealed that the economy grew slower at 2.3% (2018: 2.9%) due to weaker consumer spending and private investment. This represents the slowest growth in three years and was below President Trump’s 3.0% target. In the coming week, we expect sustained concerns on the spread of the virus to shape investor sentiments in the markets.
Against this backdrop, performance in the developed markets was lacklustre with all indices that we track recording losses. In the US, the S&P 500 and NASDAQ declined 12.0% and 12.3% w/w as investors also reacted negatively to weak economic data. In Europe, Germany’s XETRA DAX, France’s CAC 40 and UK’s FTSE All Share depreciated w/w by 12.4%, 11.9% and 11.1% respectively as investors sold off due to the virus and earnings warnings from bellwethers. Similarly, Japan’s Nikkei 225 and Hong Kong’s Hang Seng Indices lost 10.0% and 4.3% w/w respectively. Performance across the BRICS markets mirrored the developed markets as all indices lost w/w. Russia’s RTS lost the most, declining 15.4% on concerns reflecting the country’s proximity to China Brazil’s Ibovespa trailed, losing 11.9% as the country reported its first case of the virus. Similarly, South African FTSE/JSE All-Share index depreciated 11.0% due to fears of a rating downgrade by Moody’s. India’s BSE Sens and China’s Shanghai Composite indices also ebbed lower by 7.0% and 5.2% w/w respectively.
In Africa, the story is similar as the region reeled from the effect of the outbreak. Only the Ghana GSE Composite index gained, appreciating 0.3% w/w. Kenya’s NSE 20 reported the highest sell-offs, declining 6.5%. Egypt’s EGX 30 and Nigeria’s All-Share indices trailed, down 5.2% and 4.3% w/w respectively. In the same vein, the Mauritius’ SEMDEX and Morocco’s Casablanca MASI indices trended south, losing 2.2% and 2.0% w/w respectively. The Asian and Middle East markets were not spared as all indices closed in the red. Thailand’s SET index led the pack with a 10.3% loss w/w, making it the world’s worst performing equities market currently. Turkey’s BIST 100 trailed, losing 9.3% w/w despite higher-than-expected economic growth. Saudi Arabia’s Tadawul ASI declined 4.7% w/w due to falling oil prices. Similarly, Qatar’s DSM 220 and UAE’s ADX General indices fell 4.5% and 2.6% w/w respectively.
Domestic Equities Market: “Coronavirus” Instigates Sharper Sell-offs… ASI Lost 4.3% w/w
The local bourse sustained its bearish streak on all trading sessions, worsening on Friday as investors exited positions after the first incidence of “Coronavirus” was announced in Lagos. Also, we saw several earnings releases that were unimpressive, although some corporates announced attractive dividends. Consequently, the All-Share index lost 4.3% w-o-w to 26,216.46 points, due to sell-offs in AIICO (-22.2%), NIGERIAN BREWERIES (-21.4%) and FBNH (-18.3%). Similarly, YTD return worsened to -2.3% and market capitalisation declined ₦610.6bn to ₦13.7tn. Activity level was up as average volume and value traded rose 3.2% and 35.5% to 309.4m units and ₦4.9bn respectively. The most traded stocks by volume were GUARANTY (354.3m units), UBA (224.2m units) and ZENITH (221.6m units) while GUARANTY (₦9.3bn), ZENITH (₦4.2bn) and NIGERIAN BREWERIES (₦1.9bn) led by value.
Performance across sectors was unimpressive w/w. The Industrial Goods index (+1.1%) was the lone gainer due to price accretion in BUACEMENT (+3.1%). On the flip side, sell pressures in FBNH (-18.3%), WEMABANK (-18.2%) and ETI (-15.6%) compelled the sharpest loss in the Banking index (-11.8%). Trailing, the Insurance and Consumer Goods indices dipped 8.2% and 3.8% respectively owing to price declines in AIICO (-22.2%) and NIGERIAN BREWERIES (-21.4%). Finally, the loss in OANDO (-17.2%) dragged the Oil & Gas index (-2.1%) down. Investor sentiment as measured by market breadth (advance/decline ratio) waned to 0.1x as 5 tickers gained against 61 that declined. LAWUNION (+11.1%), EKOCORP (+5.8%) and BUACEMENT (+3.1%) led the top gainers while REDSTAR (-27.0%), SKYAVN (-26.8%) and NPFMCRFB (-23.4%) led the decliners. We anticipate a sustained downtrend in the coming week, although there are bargain hunting opportunities.
Foreign Exchange Market: Naira Remains Stable despite Coronavirus Outbreak
After the conclusion of its Article IV consultation to Nigeria, the IMF highlighted the need for a uniform and flexible exchange rate regime. Meanwhile, external reserves further declined, down 1.1% ($393.9m) to $36.4bn from $36.8bn last week. The prospect for accretion to reserves remains weak as oil price (currently trading at $50.42/bbl.) fell amid the downturn in global markets.
The CBN spot rate traded flat all week to close at ₦306.95/$1.00, appreciating 5kobo w/w from ₦307.00/$1.00 in the prior week. Similarly, at the parallel market, rates traded flat to settle at ₦360.00/$1.00. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened at ₦364.75/$1.00 and closed at ₦365.25/ $1.00 on Friday, depreciating ₦1.01kobo w/w from ₦364.26/$1.00. The activity level in I&E Window rose 91.0% to $2.6bn from $1.4bn recorded in the previous week. At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $10.9bn, down $1.3bn (-6.4%) from $11.6bn in the prior week due to the maturity of the FEB 2020 instrument. The FEB 2021 instrument (contract price: ₦367.00) received the most buying interest in the week with additional subscription of $414.1m which took total value to $835.4m. On the other hand, the SEP 2020 instrument (contract price: ₦365.79) was the least subscribed, with an additional subscription of $5.0m for a total value of $446.4m. Next week, we expect rates to continue to trade within a tight band across the different segments of the market.
Money Market: Bearish Sentiment Persists in the Secondary Market
The Open Buy Back (OBB) and Overnight (OVN) rates opened the week at 2.4% and 3.3% respectively, lower than last week’s close of 3.0% and 3.8% due to improved system liquidity. Despite Thursday’s OMO auctions, OBB and OVN rates closed lower at 2.0% and 2.5% respectively with the market still awash with liquidity at N1.7tn following an inflow of c.₦930.0bn from maturing OMO instruments. By the end of the week, OBB and OVN rates both surged 13.2ppts and 11.2ppts W-o-W higher at 15.5% and 16.42% respectively as system liquidity settled at ₦1.1tn. In line with its schedule, the CBN conducted Primary Market Auction (PMA) on Wednesday, offering instruments worth ₦104.1bn, receiving total subscription of ₦261.5bn and selling ₦104.1bn across all tenors. The sale was at stop rates of 3.00%, 4.00% and 5.70% for the 91, 182 and 364-day instruments respectively. The 91-day (Offer: ₦20.4bn; Subscription: ₦41.3bn; Sale: ₦20.4bn), 182-day (Offer: ₦31.8bn; Subscription: ₦44.2bn; Sale: ₦31.8bn) and 364-day (Offer: ₦52.0bn; Subscription: ₦175.1bn; Sale: ₦52.0bn) instruments were oversubscribed at 2.0x, 1.4x and 3.4x respectively.
The CBN also conducted an OMO auction worth ₦500.0bn on Thursday. As a result of the relatively attractive yields at the auctions, there was strong investor interest in the 362-day instrument (Offer: ₦350.0bn; Subscription: ₦534.9bn; Sale: ₦476.4bn) which was oversubscribed at 1.5x. Conversely, the 89-day (Offer: ₦20.0bn; Subscription: ₦8.9bn; Sale: ₦3.1bn) and 180-day (Offer: ₦30.0bn; Subscription: ₦1.4bn; Sale: ₦0.5bn) instruments were grossly undersubscribed at 0.4x and 0.1x respectively. The OMO instruments were issued at marginal rates of 11.44% (89-day), 11.56% (180-day) and 13.00% (362-day). In the secondary market, there was a mildly bearish performance as average yield rose 1bps W-o-W higher to 3.9%. The 182-day instrument enjoyed the most buying interest as yields declined 3bps to 3.3% while the 91- day instrument closed flat at 2.9%. Sell-offs were recorded in the 364-day instruments as yields advanced 4bps to 5.6%. In the coming week, we expect OMO maturities worth ₦232.3bn to hit the system. As such, we see treasury bill rates trending lower in the week ahead. Meanwhile, we expect the CBN to continue its liquidity mop-up via OMO sales.
Bonds Market: Bulls Dominate Bears in the Domestic Market
This week, the Bulls sustained dominance in the local bonds secondary market as average yield fell 74bps w/w to 9.16% on the back of increased demand. Also, the market observed a bullish streak on all trading days. Across tenors, buy interest was strongest for the medium term instrument as yields plunged 76bps w/w while the short and long term bonds also recorded yield moderation of 71bps and 46bps w/w respectively. In the SSA Eurobonds segment, there was a bearish performance with average yield climbing 43bps w/w. The ZAMBIAN 2022 and 2024 instruments saw the most sell-offs as their respective yields rose 2.30% and 1.47% w/w. Conversely, the South African 2020 and 2022 assets were the lone gainers, as yields dived 33bps and 3bps w/w respectively. At the Corporate Eurobonds segment, the performance was quite surprising. Although 14 of 20 instruments under our coverage recorded gains, market closed bearish on account of strong sell-offs in the SIBANYE GOLD 2023 (+4.07% w/w) which drove average yield higher by 22bps w/w. On the flip side, the strongest gains were recorded in ACCESS 2021 and UBA 2024, as yields on both instruments dived 14bps and 13bps w/w respectively. In the coming week, we expect a sustained bullish performance in the local bonds market. In the Eurobonds market, we expect soft demand due to risk-off sentiment in the global market.
Source: Afrinvest
