May 12, 2017/Cordros Research

Click here to download full PDF Report

Nigerian Capital Market

Equities

Surprisingly, it was a record breaking week in the market, with the All Share Index posting the largest singular gain of 3.18%, since 15th of June 2016, setting a 9 month-high at 28,423.70 points. We attribute this week’s record gain to demand for blue chip stocks across board, most notably, the banking and consumer goods names. On the back of continued strong demand, the All Share Index (closed 7.46% higher this week) has advanced in the last 10 trading sessions, extending gains to the third straight week close at 28,192.46 points. Judging by market activity in the past three weeks, and more specifically, the spike in the number of deals and volume traded this week, we sense improved investors — both local and foreign — appetite for risk assets on domestic bourse, following the (1) reduced apprehension in the macroeconomic environment, (2) impressive 2016FY and Q1-2017 performance of highly capitalized names, and (3) increased confidence about the stability and liquidity of the FX. The All Share Index gained in four out of the five trading sessions, recording its largest gain on Thursday (3.18%), before declining modestly by 0.81% on Friday. Compared to last week, all indices closed higher, with the Consumer Goods (+13.36% w/w) index recording the largest gain, bolstered by demand for NESTLE (+12.08% w/w), NB (+17.05% w/w), PZ (+20.40% w/w), and CADBURY (+14.52% w/w). Likewise, the Banking (+11.18% w/w) and Oil & Gas (+2.74% w/w) indices extended gains from last week, as investors demanded the shares of ZENITHBANK (+12.05% w/w), GUARANTY (+12.36% w/w), STANBIC (+6.12% w/w), TOTAL (+5.45% w/w), FO (+15.73% w/w), and OANDO (+20.22% w/w) respectively, The Industrial Goods (+0.46% w/w) and Insurance (+2.93% w/w) indices staged a comeback, buoyed by price appreciations in DANGCEM (+3.33% w/w), BETAGLAS (+4.98% w/w), CCNN (+8.91% w/w), MANSARD (+10.81% w/w), CUSTODYINS (+8.25% w/w), and CONTINSURE (+2.56% w/w).

Market breadth was positive, with 56 gainers (42 last week) — topped by MAYBAKER(+36.17%w/w) — versus 11 losers (14 last week) — led by SEPLAT(-5.27% w/w). Total volume traded increased by 128.08% w/w to 3.26 billion shares (1.15 billion last week), with FBNH, FCMB, and ZENITHBANK accounting for 43.59% of the market volume. The value of trades also increased by 175.28% to N28.74 billion (previously N10.44 billion), with ZENITHBANK, GUARANTY, and FBNH accounting for 43.72% of total value.

Fixed Income and Money Market

Interbank

The overnight rate expanded by 10.25% to 29.50%, as system liquidity tightened. We attribute this week’s rate movement to (1) the debit for FX sales worth USD195.20 million, (2) net outflow from OMO sales, totalling N6.16 billion, and (3) the N110 billion withdrawn via bond auction.

Treasury Bills

The treasury bills market continued to reflect tight liquidity condition, as the apex bank remained committed to its mopping up activities. Specifically, this week, system liquidity further dropped following cash withdrawals for treasury bills, bonds, and FX purchases, which overshadowed the impact of N87 billion inflow from maturing OMO bill during the week. Selloff was most sizeable at the short (+55 bps) end of the curve, followed by the mid (+16 bps) and long (+7 bps) segments. Overall, average yield moved northward by 16 bps w/w to 18.42%.

Bonds

At Wednesday’s primary market auction, the DMO raised N110 billion (vs. planned N140 billion) across the JUL 2021 (N10 billion vs. N40 billion offered), MAR 2027 (N35 billion vs. N50 billion offered), and APR 2037 (N65 billion vs. N50 billion offered) maturities. Compared to the last auction, stop rates on the JUL 2021 (16.30%, previously 15.99%), MAR 2027 (16.29%, previously 16.24%), and MAR 2037 (16.30%, previously 16.25%) came in higher. Notably, the APR 2037 and MAR 2027 bonds were oversubscribed by N41.67 billion and N2.94 billion respectively, while the JUL 2021 bond was undersubscribed by N22.71 billion. The secondary market closed bullish, albeit marginally, with average yield dropping 1 bps to close at 16.82%. Week-on-week, the intermediate (-14 bps) end of the curve attracted interest while yield was pressured at the shorter (+29 bps) segment. Trading was mixed at the long end of the curve, wherein average yield fell by less than 1 bp. 

Foreign Exchange

It was relatively quiet on the policy front this week, as the USD/NGN seems to be stabilizing around N389/N391levels in the parallel market, particularly since the commencement of the USD40,000 weekly FX sales to 3,200 BDC operators. In a similar fashion, the apex bank continued to intervene in the currency space, selling USD195.2 million cumulatively at both the interbank and I&E (USD14 million) windows, with the former comprising of (1) forward contracts, worth USD 100 million, (2) spot delivery for invisibles worth USD 44 million, as well as (3) sales to SMEs. This week’s programme brings the total amount of CBN intervention to approximately N5.82 billion, since January. That said, the naira– in the interbank market — strengthened against the basket of currencies we track. The USD/NGN (+0.03% w/w), GBP/NGN (+0.68%), and EUR/NGN (+1.42% w/w) strengthened to N305.60, N409.44, and N344.28 respectively. In the parallel market, the USD/NGN (+0.26% w/w), GBP/NGN (+1.00% w/w), and EUR/NGN (+0.47%% w/w) strengthened to N390, N495, and N420 respectively. Meanwhile, the USD/NGN (-0.07% w/w) weakened to N382.44.

OUTLOOK

Equities: Following three weeks of consecutive gains, we expect the market to close lower in the coming week, as traders exit short term profitable positions (as evident in today’s trade).

Interbank: We expect the overnight rate to move northward in the coming week, driven by (1) sales of T-bills in the primary auction, (2) debit for FX sales, and (3) further OMO auctions targeted at the maturing N41.23 billion worth of OMO bills.

T-Bills: At next week’s NTB auction, the apex bank will offer N110.94 billion across the 91-day (N32.44 billion), 182-day (N22.82 billion), and 364-day (N55.68 billion) bills. In the secondary market, we expect average yield to further rise, owing to expectation of further liquidity mopping by the apex bank.

Bonds: We expect demand to persist in the coming week amid attractive yields.

Currency: We expect the naira to trade within its current band at the interbank and I&E markets, while we foresee modest gains in the parallel market as demand pressure continues to taper.

Kindly find attached the Economic and Market report for this week.