May 20, 2017/Cordros Research
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Nigerian Capital Market
Equities
The market closed lower for the first time in four weeks, following profit taking selloffs in oil & gas and consumer goods names. The All Share Index shed 0.28% w/w to close at 28,113.38 points. That said, fundamentally, the market remains strong, particularly in light of (1) improved stability and liquidity in the currency space, and (2) the government’s recent progress in creating and harnessing growth and stability in the Nigerian economy. Supporting this, the Vice President signed 3 executive orders this week, aimed at (1) increasing the support for local contents in public procurement by the Federal Government, (2) promoting transparency and efficiency in the business environment, and (3) increasing efficiency with regards to budget submission, making particular reference to statutory and non-statutory agencies, including organizations owned by the Federal Government. On economic data, the recently published inflation figure for the month of April (17.24% y/y, previously 17.26% Y/Y) showed that prices appear to be sticky downwards. The ASI closed negative in only one of five session, but the loss was heavy (2.41%), owing to declines in the shares of large-capped companies: SEPLAT (-5.00%), ZENITHBANK (-5.68%) and NESTLE (-4.43%). Comparing the performance of the indices, the Oil & Gas (-3.26% w/w) recorded the largest loss, as traders liquidated their holdings in SEPLAT (-8.13% w/w), TOTAL (-1.45% w/w), and FO (-5.00% w/w). Likewise, the Consumer Goods (-1.48% w/w) and Industrial Goods (-0.12% w/w) closed lower, following selloffs in NB (-3.38% w/w), UNILEVER (-0.03% w/w), DANCEM (-1.22% w/w), and CCNN (-8.18% w/w) respectively. On the flip side, the Banking (+2.58% w/w) and Insurance (+0.38% w/w) indices advanced, following demand for GUARANTY (+5.00%), ACCESS (+1.94% w/w), CUSTODINS (+1.17%), and CONTINSURE (+5.00% w/w).
Market breadth was positive, with 30 gainers (56 last week) — topped by MAYBAKER (+14.84 w/w) — versus 28 losers (11 last week) — led by AIRSERVICE (-13.22% w/w). Total volume traded declined by 30.24% w/w to 2.27 billion shares (3.26 billion last week), with ACCESS, ZENITHBANK, and FBNH accounting for 43.99% of the market volume. The value of trades also increased by 28.13% to N32.65 billion (previously N28.74 billion), with ZENITHBANK, GUARANTY, and SEPLAT accounting for 44.37% of total value.
Fixed Income and Money Market
Interbank
The overnight rate contracted by 342 bps w/w to 26.08%, despite a persistent drag on system liquidity. System liquidity closed with a deficit balance throughout the week. The overnight rate rose to as high as 66.75% this week, before declining on the last day of the week, after the apex bank refunded commercial banks excess naira it offered in an earlier dollar auction. Compared to last week, system liquidity declined to a deficit of N72.03 billion (previously +N91.55 billion). Notable movement of funds includes (1) the debit for FX sales worth USD457 million, (2) OMO sales totaling N74.23 billion, and (3) inflow from maturing OMO bills worth N43.21 billion.
Treasury Bills
Again, selloffs dominated the treasury bills space, with average yield expanding by 70 bps w/w to close at 19.12%. We attribute this week’s bearish proceedings to (1) still tight liquidity conditions amid continued withdrawals in the form of OMO sales and FX sales debits, (2) lower-than-expected drop in April inflation rate, and partly (3) seemingly renewed interest in risky assets — marked by three consecutive weeks of gains (the All Share Index closed positive in four of five sessions this week, despite posting a weekly loss). Selloff was most notable at the short (+117 bps) end of the curve, followed by the intermediate (+83 bps) and long (+31 bps) segments. The apex bank raised N110.94 billion at Wednesday’s auction. The stop rates on the 91-day (13.50%, previously 13.60%), 182- day (17.15%, previously 17.26%), and 364-day (18.70%, previously 18.92%) bills came in lower relative to the last auction. Notably, the 91-day, 182-day, and 364-day bills were oversubscribed by N5.27 billion, N5.98 billion, and N82.51 billion, respectively.
Bonds
Investors were similarly downbeat in the bonds market, with broad-based selloff driving average yield up by 11 bps w/w to 16.93%, from last week’s close of 16.82%. Yield expanded in three of five sessions, save for today’s contraction (less than 1 bp). Clearly, the lower-than-expected fall in April inflation rate spooked appetite. Yield expansion was most notable at the short (+45 bps) segment of the curve.
Foreign Exchange
It was relatively quiet on the policy front this week, asides that the apex bank released a circular to clear the air on items “Valid for Foreign Exchange”. There was no major change in the list, except for the apex bank laying emphasis on specific items. Meanwhile, the apex bank continued to intervene in the currency space, selling USD457 million at the interbank segment of the market, comprising (1) spot and forward contracts worth USD267.3 million, (2) spot delivery for invisibles worth USD 40 million, and (3) sales to SMEs and wholesale users totaling USD50 million and USD100 million respectively. This week’s programme brings the total amount of CBN intervention to approximately N6.26 billion, since January. Meanwhile, a check on the volume of trading on the IEFX showed approximately USD1.075 billion has been sold by both the CBN and autonomous sources between April 28th and May 12thh, 2017. That said, the naira — in the interbank market — weakened against two of the currencies we track. The GBP/NGN (-0.79% w/w) and EUR/NGN (-2.13%) weakened to N412.73 and N351.94 respectively, while the USD/NGN (+0.05% w/w) strengthened to N305.45. In the parallel market, the USD/NGN (+2.56% w/w) and GBP/NGN (+1.01%) strengthened to N380 and N495, while the EUR/NGN closed flat at N420. Meanwhile, the USD/NGN (-0.22% w/w) weakened to N381.61 in the IEFX window.
OUTLOOK
Equities: We expect the bullish trend we’ve seen in the previous weeks to resurface on the domestic bourse, as investors continue to find banking and consumer goods names attractive.
Interbank: We expect the drag on system liquidity to taper in the coming week, owing to inflows from maturing OMO bills worth N131.41 billion and budgetary disbursements to the states and local governments, worth approximately N200 billion. Nonetheless, we expect the activities of the apex bank — via OMO and FX sales — to reduce the impact of the expected inflows on system liquidity.
T-Bills: Next week, N131.41 billion worth of OMO bills will mature into the system. We expect this, in addition to anticipated inflow from monthly fiscal allocation, to improve liquidity position. Notwithstanding, we expect yields to further move southward, as the impact of the boost in liquidity will be muted by continued withdrawals via OMO sales and debits for FX purchases.
Bonds: The CBN’s Monetary Policy Committee (MPC) meets next week. We look for the Committee holding the line on its policy stance. Thus, we expect further uptick in yield, as demand succumbs to tight system liquidity.
Currency: We expect the naira to trade within its current band at the interbank, parallel and I&E markets, as the apex bank continues to support the naira.
