August 25, 2017/Cordros Research
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Nigerian Capital Market
Equities
The Nigerian equities market closed negative for the second consecutive week, as losses prevailed across most sectors, with the ASI shedding 0.74% w/w to 36,646.46 points. As a result, the Month-to-Date and Year-to-Date returns moderated to 2.24% and 36.36%, respectively. The market opened the week negative, as investors took profit in the shares of DANGCEM (-4.17%), and ZENITHBANK was (-0.48%). The bull resurfaced on Tuesday, with gains extending till Wednesday, as investors bought shares across the banking, industrial, and consumer goods sectors. However, the upbeat momentum waned Thursday (as investors booked profit on the two consecutive days of gains), before rebounding today – solely due to bargain hunting in the consumer goods sector (specifically demand for the shares of NB, DANGSUGAR and INTBREW). Notable developments during the week were (1) the off-market deal in GUARANTY, wherein 71 million units were crossed (at an average price of N40.80) between some offshore funds and local investors on Thursday, in a deal worth N2.89 billion (USD9.2 million), following the impressive half-year results and (2) impressive H1 results released by UBA and ACCESS, with both declaring interim dividends of 20 kobo and 25 kobo, respectively.
Performance across sectors was broadly bearish, with the Oil & Gas (-3.71% w/w) index recording the largest loss, following selloffs in TOTAL (-4.96%), MOBIL (-14.45%), MRS (-5.02%), and CONOIL (-14.22%) as margin pressure clouds earnings outlook for the sector. Similarly, the Insurance (-5.35% w/w), and Industrial Goods (-2.89% w/w) indices recorded negative returns, driven by profit-taking in the shares of MANSARD (-7.32%), CUSTODYINS (-5.26%), DANGCEM (-4.00%), and WAPCO (-3.39%), respectively. On the other hand, the Consumer Goods (+2.38%) index recorded the largest gain, as investors bought the shares of NB (+4.96%) and NESTLE (+0.83%). The Banking (+0.31% w/w) index followed suit, with snippets of demand for bellwethers – led by gains recorded in UBA (+3.74%), STANBIC (+2.96%), and ACCESS (+2.94%).
Market breadth remained repressed, closing negative with 38 losers (previously 48) – led by MOBIL (-14.45%) – and 29 gainers (previously 19) – led by CAVERTON (+16.00%). However, total volume traded increased by 10.28%, with UNITYKAP, GUARANTY, and AIICO accounting for 37.66% of total market volume. Total value of trades declined by 3.28%, with GUARANTY, NESTLE, and ZENITHBANK accounting for 55.87% of total value.
Global Equities
Stock indices across our universe of coverage posted positive returns, with the exception of the Nikkei, driven largely by monetary policy speeches and snippets of impressive quarterly earnings, as investors ignored major negatives from continued geopolitical tension and political turmoil.
In the U.S., investors started the week feeling reluctant to take positions in risky assets amid still-elevated geopolitical tensions, in addition to political turmoil in Washington – after President Donald Trump threatened to shut down the U.S. government if Congress doesn’t fund his campaign pledge to build a wall on the Mexican border. While markets oscillated between modest gains and losses for most of the week, risky assets appreciated today, as Federal Reserve Chairwoman Janet Yellen gave a speech at Jackson Hole symposium, defending post-crisis banking regulations, although with no clues to the central bank’s monetary policy path. In corporate news, retailers had a strong early showing on better-than-expected quarterly results, buoying investor appetite, and further supported by a relatively strong durable goods report. At the time of writing, the DJIA and S&P 500 had appreciated by 0.80% w/w and 0.55% w/w respectively. In Europe, similar to the U.S., stocks pulled back early in the week, on the back of lingering tensions between the U.S. and North Korea, despite the shares of Maersk and Fiat Chrysler Automobiles riding on deal developments. While maintaining a cautious stance, investor optimism gained modest momentum ahead of the closely watched gathering of central bankers in Jackson Hole, Wyo., particularly speeches from U.S. Fed Chairwoman Janet Yellen and ECB President Mario Draghi. Both the FTSE 100 (+1.44% w/w) and Euro Stoxx 50 (+0.13% w/w) advanced.
In Asia, investors were upbeat early in the week, despite (1) soft trading on Wall Street, (2) continued geopolitical tension, and (3) uncertainties about what could emerge from a central banking conclave in Jackson Hole, Wyo. Specifically bolstering Japanese stocks was the yen pulling back after inflation ticked higher, but in the end, the Nikkei 225 closed the week lower (-0.09%). On the other hand, the Chinese CSI 300 (+1.91% w/w) remained resilient w/w.
Fixed Income
Money Market
The overnight money market rate contracted by 30 bps to 12.58%, from last week’s 12.88%, following sizable inflows from the disbursement of monthly budgetary allocations (N228.70 billion) to state and local governments, and repayment of matured OMO bills worth N95.66 billion. Noteworthy, the rate trended northward for most of the week, rising as high as 96.00% on Wednesday (before moderating to 10.08% yesterday), as the apex bank kept liquidity position tight via persistent OMO issuances, in addition to payments for bond (amounting to N56.05 billion) and FX purchases. We estimate total withdrawal through open market treasury bills sales during the week at N219.98 billion (vs. N225 billion offered), comprising N28.37 billion of the shorter-dated bills and N191.61 billion of the longer-dated bills at respective stop rates of 17.95% and 18.55%.
Treasury Bills
The treasury bills market closed on a bullish note, with average yield contracting by 3 bps to 18.55%, from 18.58% last week. The upbeat momentum was driven by relative improvement in system liquidity, which spurred renewed interest at the short (-17 bps) and mid (-5 bps) ends of the curve, as investors demanded for the 7-SEPT-2017(-169 bps), 28-SEPT-2017(-111 bps), 7-DEC-2017(-27 bps), and 18-JAN-2018(-20 bps) bills respectively. Conversely, yield at the long (+6 bps) segment expanded as investors sold off the 5-JULY-2018 (+58 bps) and 12-JULY-2018 (+57 bps) bills respectively.
Bond
During the week, the DMO, on behalf of the FGN, allotted bonds valued at N56.05 billion (vs. 135 billion offered) – comprising N9.18 billion (vs. N35 billion offered), N17.51 billion (vs. N50 billion offered), and N29.36 billion (vs. 50 billion offered) of the JUL-2021, MAR-2027, and APR-2037 bonds, respectively – all in reopening. The 5-year, 10-year, and 20-year bonds, although undersubscribed, were issued at stop rates of 16.80% (previously 16.24%), 16.80% (previously 16.25%) and 16.90% (previously 16.25%) respectively, the highest since January. Proceedings were bearish in the secondary market, as average yield expanded by 17 bps to 16.66% against last week’s 16.49%. Investors sold off at the short (+22 bps), mid (+27 bps), and long (+16 bps) ends of the curve, wherein yields expanded to 16.89%, 16.66%, and 16.63% respectively – with the 29-JUNE-2019 (+9 bps), 13-FEB-2020 (+26 bps), and 18-APRIL-2037 (+32 bps) bonds in the spotlight.
Foreign Exchange
During the week, the apex bank, in its persistent stride to improve FX liquidity, sold USD195 million, comprising USD100 million, USD50 million, and USD45 million through the wholesale, SMEs, and invisibles windows respectively. That brings the CBN’s total intervention Month-to-Date to USD949 million, while foreign exchange reserves, according to CBN reports, stands at a 2-year high of USD31.60 billion (as at 18th August, 2017), reflecting healthy accretion to the nation’s reserve since the turn of the month. Meanwhile, at the time of writing, the CBN’s referenced USD/NGN (-0.07%) had weakened to N305.80. In the interbank market, the NGN weakened against all the Bloomberg-referenced NAFEX rates – USD (-1.64%), GBP (-0.04%), and EUR (-0.80%) – closing at N367.99, N466.91, and N429.74, respectively. In the parallel market, the LCY weakened against the GBP (-0.63%) and EUR (-0.47%) to N478 and N432, respectively, while it closed flat against the USD at N370. The FMDQ referenced USD/NGN (+0.12%) appreciated to N359.56 in the I&E FX window.
OUTLOOK
Equities: Following two weeks of consecutive sell-offs, we believe the market presents opportunity for bargain hunting. Broadly, we expect some volatility in the market (as witnessed this week) as activities in the interim will be driven by developments in the local economy. Overall, we look for a mixed performance in the coming week, albeit with a bullish bias.
Money market: Despite expected inflows from maturing OMO bills valued at N101.23 billion next week, we expect the overnight money market rate to close higher, as the apex bank issues more OMO bills to mop up liquidity from the system.
T-bills: At next week’s NTB auction, the apex bank will issue bills valued at N193.14 billion – comprising of N26.14 billion, N62 billion and N105 billion of the 91-day, 182-day and 364 day bills respectively. We expect demand in the auction to mirror liquidity position while investors – in the secondary market – take a cue from the auction stop rates.
Bonds: We expect a mixed trading session in the coming week, with selloffs outweighing demand on expected tight system liquidity.
Currency: We expect the naira to strengthen modestly in the interbank market, while trading within its current band in the parallel market and the I&E window, as the CBN sustains its interventions in the various segments of the market.
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