November 16, 2020/Coronation Report
As of Friday, the Nigerian Stock Exchange was the world’s best-performing equity market in local currency terms and its second-best performer in US dollar terms.
The market was up 30.53% year-to-date in Naira terms and up 24.60% in US dollar terms (translating at the NAFEX rate). Since 6 April it rose by 69.51% in Naira terms. The question is why?
FX
Last week, The Naira appreciated by 0.08% against the US dollar to N385.61/US$1 in the NAFEX market (also known as the I&E Window). In the parallel, or street market, the Naira fell by 1.29% to close at an offer price of N470/US$1. Hopes of convergence between the two rates are waning, although they are within 22% of each other. We see continuing pressure on the parallel exchange rate.
Bonds & T-bills
Last week, the secondary market yield for an FGN Naira bond with 10 years to maturity increased by 39 basis point (bps) to 4.70% from 4.31%, and at 7 years rose by 46bps to 4.15% from 3.69%, while at 3 years the yield dropped by 79 bps to 1.89% from 2.68%. The annualised yield on 307-day T-bill fellby 24bps to 0.15% from 0.39% while the yield on a 298-day OMO bill remained flat at 0.28%. In the bond market demand waned as local pension funds were asked to realign their portfolios with the four-month deadline as directed by a PENCOM circular. The market closed the week on a bullish note, however as average yields on all instrument declined by 5bps with significant participation at the short and mid-end of the curve. The bullish trend is expected to continue. As expected, activity in the T-bill secondary market was quiet as investors focused on the primary market auction (PMA) held on Wednesday. The Central Bank of Nigeria (CBN) offered bills worth N147.82bn (US$378.98M) and the PMA result was strong with stop rates printing at 0.04%, 0.15%, and 0.30% on the 91-day, 182-Day, and 364-day maturities, respectively.
Oil
The price of Brent crude rose by 8.44% last week to US$42.78/bbl. The average price, year-to-date, is US$42.39/bbl, 34% lower than the average of US$64.17/bbl in 2019. Oil prices skyrocketed on Monday 9 November when the US pharmaceutical company, Pfizer announced that its vaccine has an efficacy of 90% against Covid-19. However, the price steadied later in the week on fears that sharp rises in the level of Covid-19 infection in the US would negatively impact economic growth and on fears that the Organization of the Petroleum Exporting Countries (OPEC) would be unable to agree sufficient production cuts going into 2021. We expect oil prices to be range-bound and not to exceed US$50.00/bbl for several weeks ahead.
Equities
The Nigerian Stock Exchange All-Share Index (NSE-ASI) rose by 12.97%last week, with a gain of 30.53%year-to-date. Last week, Oando(+48.15%), Dangote Sugar(+34.55%) and Honeywell Flour Mills (+29.29%) closed positive, while there were no losers. See Model Equity Portfolio on pages 3 and 4.
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