May 10, 2021/Coronation Research

By Guy Czartoryski

Tomorrow we publish our report on the Mutual Fund (Collective Investment Scheme) industry. The total assets under management (AUM) of Nigeria’s Mutual Funds grew by 50% last year to N1.6 trillion. Yet we have found that it is difficult, not to say impossible, to get comparable performance data for the unit prices (UP) of Fixed Income Funds. Surely, this needs to be resolved?

FX
Last week the exchange rate in the Investors and Exporters Window (I&E Window) weakened by 0.08% to close at N410.33/US$1. In the parallel (or street) market, the Naira strengthened by 0.41% to close at N483.00/US$1. The Central Bank of Nigeria’s (CBN) FX reserves fell to US$34.73bn, a loss of 0.42% on the week. In line with our stated expectation, the CBN, on Wednesday, extended its Naira 4 Dollar scheme indefinitely. The CBN did not give reasons for the extension and has not released new data on remittance flows. However, we believe the policy may have started to bear fruit. Nonetheless, persisting FX illiquidity in the NAFEX and I&E Windows, and the parallel market rate’s weakness still suggest that pressure on the I&E rate is likely to continue, in our view.

BONDS & T BILLS

Last week, bearish sentiment persisted in the bond market as the secondary market yield for an FGN Naira denominated bond with 10 years to maturity rose by 65bps to 13.31%, the yield on the 7 year bond rose by 67bps to 13.10%, while the yield on a 3 year bond rose by 110bps to 12.06%. The annualized yield on a 328 day T bill in the secondary market fell by 1bp to 8.04%, while the yield on a 312 day OMO bill fell by 28bps to 9.90%. At the close of the week, the average benchmark yield for T bills rose by 12bps to close at 4.86%, while OMO bill yields rose by 48bps week on week, on average, to close at 8.39%.

The Treasury Bills market remained bearish due to persisting tight system liquidity. We expect the CBN to hold an open market operation (OMO) auction given the OMO maturity of ₦90bn (US$220m) this week. The Debt Management Office (DMO) is scheduled to offer ₦117.6 billion at the Treasury Bill (T bill) primary market auction (PMA) this week. Amidst tight system liquidity, we expect yields to close higher than two weeks ago, with the annualised yield for 364 day paper likely to surpass 11.00% (it was 10.80% at the last PMA on 28 April, with a stop rate of 9.75%).

Oil
The price of Brent crude rose by 1.53% last week, closing at US$68.28/ bbl , meaning a 31.81% increase year to date. The average price year to date is US$62.67/ bbl , 45.00% higher than the average of US$43.22/ bbl in 2020. Oil prices rose after a cyber attack shut down a US pipeline operator that supplies oil to the east coast of the US. The disruption comes as the accelerating COVID 19 vaccine rollout improves the demand outlook. However, we note that fresh outbreaks of the virus have led to extensions of restrictive measures in some countries. India , in particular, continues to deal with a deadly second wave of the virus, which has led to lockdowns in its major cities and led to a US$39.5bn reduction in oil imports in April.

EQUITIES
The Nigerian Stock Exchange All Share Index (NSE ASI) fell by 1 60 last week, bringing the year to date loss to 2 66 Access Bank 11 64 Seplat 8 77 Cadbury Nigeria 7 69 and BUA Cement 7 15 closed positive last week, while MTN Nigeria 7 38 Lafarge Africa 7 22 and Stanbic IBTC 6 00 closed negative Across sectors, performance was mixed as the NSE Oil and Gas index led the gainers for the week with 5 98 followed by the NSE Consumer Goods 0 62 and NSE Banking 0 62 indices, while the NSE Insurance 2 20 NSE 30 1 94 and NSE Industrial Goods 1 60 indices closed negative It is worthy of note that 11 Plc (formerly Mobil Plc) has been voluntarily delisted
from the NSE and is now listed on the National Association of Securities Dealers (NASD) OTC market where its shares will still be tradable Following the end of the Q 1 2021 earnings season, we expect market activity to remain quiet in the absence of catalysts Investors are expected to continue to watch yield movements in the fixed income space and this is likely to affect their appetite for equities, in our view.

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