April 3, 2023/United Capital

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Macro Highlight and Outlook

On Tuesday, 28 March 2023, the House of Representatives approved the Federal Government’s proposal to borrow $973.5mn from the China Development Bank. This came after the China-Exim Bank denied Nigeria’s request for a loan of $22.8bn that the National Assembly had previously approved.

The Central Bank of Nigeria (CBN) stated that total bank credit to the government increased from N24.7trn in December 2022 to N28.4trn in February 2023.

The CBN has instructed banks and other financial organisations applying for conversion licenses not to increase or decrease their current banking network.

Deposit Money Banks (DMBs) have increased customers’ cash withdrawal limits from N20,000–N50,000 range to around N80,000–N100,000. This action was aimed at reducing extended wait times at ATMs and banking halls caused by the recent cash crunch issues.

National Bureau of Statistics’ (NBS) recent data on air fare revealed that the average fare paid by air passengers for specified routes and single journeys decreased marginally by 0.2% m/m, from N74,702.70 in January 2023 to N74,571.62 in February 2023. However, air fares have soared by 66.4% y/y, from N44,825.04 in February 2022.

All Farmers Association of Nigeria (AFAN, or the Association) indicated that agricultural sector was negatively affected by the recent Naira scarcity crisis, hence, the sector lost about N30bn. The Association also highlighted that many farmers, particularly those in remote villages, switched to trade by barter system during the Naira scarcity period.

According to the Debt Management Office (DMO), Nigeria’s total public debt stock increased to N46.3tn ($103.1bn) in  December 2022. This represents a 5.0% q/q increase from N44.1tn in September 2022 and a 16.9% y/y increase from N39.6tn in December 2021. The increase was due to the new borrowings by the Federal Government and Sub-National Governments.

African Export-Import Bank (Afreximbank) has provided Nigeria’s Parallex Bank Limited with a trade finance facility worth $10mn, in line with its strategy to assist African banks in enhancing and complementing existing trade finance lines. The financing was deployed under the umbrella of Afreximbank’s Trade Facilitation Programme.

The Federal Government has inaugurated the Board of agencies under the Federal Ministry of Environment. The Board is expected to support environmental protection and conservation of natural resources for sustainable development in Nigeria.

This week, we expect the National Bureau of Statistics (NBS) to release the Nigerian Gross Domestic Product report (GDP) for Q3 & Q4-2022(using expenditure and income approach).

Global: Last Week’s Market Indicators

Last week, US equity indexes closed bullish amid economic releases. Thus, increase in oil prices drove energy stocks up by 6.2% w/w. Value stocks rose modestly more than growth stocks (4.0% w/w as against 3.2% w/w for large caps, and 3.4% w/w against 3.2% w/w for Mega Cap).  Therefore, the S&P 500 rose by 3.5% w/w, the DJIA by 3.2% w/w, and the Nasdaq Composite by 3.4% w/w.

Interestingly, banking stocks, which have been in focus since the collapse of Silicon Valley Bank (SVB) and Signature Bank, advanced last week as the KBW Bank Index rose 4.7% w/w. The increase may be attributed to the US Government new regulations (released on 30 March 2023) that imposed more stringent capital and liquidity requirements for banks with assets between $100.0bn and $250.0bn.

In Europe, equity indexes rallied as deep concerns of financial instability waned. According to a preliminary estimate, Eurozone Consumer Price Index (CPI) slowed to 6.9% y/y in Mar-23 compared to 8.5% y/y in Feb-23. This is well below the 7.1% estimate in a FactSet poll. Conversely, the core inflation marginally hinged to 5.7% y/y relative to 5.6% y/y in the prior month. It was also announced that, the unemployment rate remained unchanged at 6.6% y/y in Feb-23 from last month. In the UK, Q4-2022 GDP figures from the Office of National Statistics (ONS) showed that the economy avoided a recession. GDP grew sluggishly by 0.1% in the period as against -0.1% y/y in Q3-22. Nevertheless, the UK economy remains 0.6% smaller than what it was before the pandemic. This data release improves the outlook of the country. Thus, the pan-European STOXX Europe 600 index rose by 4.0% w/w, France’s CAC 40 index increased by 4.4% w/w, Germany’s DAX upsurge by 4.5% w/w, Italy’s FTSE MIB accelerated by4.7% w/w, and the UK’s FTSE 100 index climbed by 3.1% w/w.

Chinese equity indexes advanced last week, supported by positive economic data. The International Monetary Fund (IMF) projected that China’s economy will grow by 5.2% this year compared to 3.0% of last year, accounting for one-third of global growth. The IMF asl estimated that global growth will slow to 3.0% in 2023. Separately, Li Quang, the Premier of the State Council of China, in a 4-day business summit for business leaders, reinforced the country’s commitment to open its economy and deliver reforms to stimulate consumption and international business. Thus, the Shanghai Stock Exchange Index rose 0.2% w/w, and the Hang Seng Index rose 2.4% w/w. Similarly, Japan’s Nikkei 225 Index rose 2.4% w/w, and the broader TOPIX index appreciated by 2.5% w/w. These increases emanated as investors’ sentiments were bolstered by diminished concerns on recent uncertainty in the global banking sector. Moreso, Tokyo’s Mar-23 core CPI rose by 3.2% y/y compared to 3.3% y/y in Feb. The slowdown was largely attributed to the government’s steps to curb utility costs.

Oil markets closed bullish for a second straight week. Brent futures accelerated by 6.5% w/w to $79.89/bbl. Also, US National Gas went up by 8.3% w/w. According to the Energy Information Administration (EIA), last week’s gains show that oil prices are gradually recovering, supported by bullish demand data.

This week, we expect the US ISM manufacturing index will be released today, Monday, 03 April 2023, whilst the job openings and labor turnover survey (JOLTS) will be released on Tuesday, 04 April 2023. We note that the week is holiday-shortened, as global markets will be closed in observance of Good Friday. However, the US Bureau of Labor Statistics (BLS) will release its employment report on Friday, 07 April 2023 despite the holiday. Additionally, we note that there will be OPEC and non-OPEC ministerial meeting today, 03 April 2023.

Domestic Equities: The Bears Prevailed …ASI Down 6bps w/w

Last week, the domestic equities market closed on the red zone. The bears prevailed in the first two (2) trading days of last week. Bearish sentiments across AIRTELAFRI (-4.5% w/w), SEPLAT (-4.2% w/w), NB (-2.6% w/w), UCAP (-6.7% w/w), and UNILEVER (-3.6% w/w), weighed down the index’s overall week-on-week performance. However, the last three trading days of the week closed green as investors sought to take advantage of lower prices recorded in the first two trading days of the week. Consequently, bargain hunting activities were observed across MTNN (+6.3% w/w), BUAFOODS (+3.0% w/w), DANGCEM (+0.7% w/w), ZENITH (+3.6% w/w) and OANDO (+34.2% w/w), among others. The benchmark All Share Index (NGX-ASI) closed lower, declining by 6bps w/w to print at 54,857.96 points. Thus, YTD return weakened slightly to 7.0% from 7.1% in the previous week, while market capitalisation lost N35.8bn to print at N29.7tn. The average volume and value of stocks traded rose by 22.6% w/w and 58.3% w/w to print at 413.8mn units and N3.5bn respectively. Investors’ sentiments strengthened to 1.2x from 1.0x recorded last week, as 37 tickers appreciated during the week while 30 depreciated.

The return of risk-on sentiments was mirrored in the overall w/w performance across sectors. Overall performance across sectors was mainly bullish, as four (4) of the five (5) sectors we covered closed in the green zone. The sole loser was the Oil and Gas (-2.0% w/w) sector, owing to share price depreciation in SEPLAT (-4.2% w/w). The Banking sector led the gainers, driven by solid gains across tier-1 banks UBA (+4.4% w/w), ETI (+4.2% w/w), ACCESSCO (+4.1% w/w), and ZENITHBA (+3.6% w/w). Trailing was the Insurance sector (+1.6% w/w), Consumer goods (+0.9% w/w), and Industrial goods (+0.4% w/w) sectors, owing to revived bargain hunting across NEM (+6.3% w/w), CHIPLC (+9.7% w/w), BUAFOODS (+3.0% w/w), CHAMPION (+13.3% w/w), INTBREW (+3.5% w/w), DANGCEM (+0.7% w/w), and WAPCO (+0.2% w/w).

On corporate disclosures, top tier 1 banks finally released their audited financial statement for FY-2022. Zenith Bank grew its revenue for the period by 23.5% y/y. The blend of a 105.7% y/y climb in impairment charges and a 69.6% y/y climb in taxes shrunk the top-tier bank’s PAT for the period, as it dipped by 8.4% y/y. UBA recorded an impressive 43.5% y/y growth in its PAT for the period under review after growing its revenue by 29.2% y/y, despite a 226.3% y/y climb in loan impairment charges. ETI recorded a 12.9% y/y improvement in revenue generated for the period, with the bank’s PAT climbing by 7.0% y/y.

Transnational Corporation Plc released its audited FY-2022 result. Despite the conglomerate growing its revenue by 21.1% y/y, it recorded a 29.4% y/y loss for the period. The loss incurred came from the 219.1% y/y climb in taxes paid for the period. Total Energies realized a 41.4% growth in its revenue for the period. The downstream oil firm’s PAT for the period shrunk by 4.4% y/y, weighed by a 204.7% y/y increase in finance cost. International Breweries grew its revenue for the period by 19.9% y/y. However, a 122.9% y/y climb in finance costs expanded the brewer’s loss by 22.7% y/y. BUA Foods increased its revenue in FY-2022 by 25.6% y/y, with the firm’s PAT climbing by 30.8% y/y in the same period.

On dividends announced, Zenith Bank, UBA, and ETI announced final dividends of N2.90k, N0.90k, and $0.11cents, respectively. Cadbury Nigeria Plc, Total Energies, Transnational Corporation Plc, UACN, Okomu, Julius Berger, and Eterna announced final dividends of 0.40k, N21.0k, N0.05k, N0.50k, N12.0k, N2.50k, and N0.15k, respectively. 

Looking ahead, we expect risk-on sentiments to be sustained in the equities markets. The choice strategy is to take positions in stocks with attractive pricings, solid valuations and dividend yields ahead of the dividend-paying season.

Money Market Review: System Illiquidity Drove Rates Higher in the Primary Market Auction

Last week, the financial system opened illiquid with a deficit of N588.7bn. The system remained depressed throughout the week despite a total inflow of N171.2bn from coupon payments and OMO maturities. The financial system closed the week tight, with a deficit of N345.7bn. Consequently, the average Open Repo Rate (OPR) and Overnight Rate (OVN) climbed by 98bps w/w and 107bps w/w to close the week at 17.9% and 18.5%, respectively.

The CBN conducted a NT-bills Primary Market Auction (PMA) rolling over N145.5bn worth of bills across the 91-day, 182-day and 364-day papers. At the auction, investors’ demand was mildly strong, particularly skewed towards the tail-end of the curve. Thus, the auction was oversubscribed, with total subscriptions printing at N168.6bn, implying a bid-to-cover ratio of 1.2x. Notably, the apex bank opted to sell just the amount on offer as investors were aggressive with their rates bids given the depressed system liquidity. Consequently, the stop rate on the 91-day, 182-day and 364-day bills climbed by 345bp, 300bps and 525bps to settle at 6.00%, 8.00% and 14.74%.

In the secondary NT-bills market, we observed selloffs across the curve buoyed by the tight system liquidity. As a result, the average yield on NT-bills climbed significantly by 193bps w/w to close at 7.7% (previously 5.8%). On the other hand, the average yield on OMO bills fell marginally by 1bp w/w to print at 4.0%.

This week, we expect the financial system to remain tight in the absence of any maturities. That said, we project that FTDs, inter-bank and money market rates will remain elevated at their current levels in the double-digit region.

Bond Market: Bearish Sentiments Resume in Sovereign Bonds Market

Last week, we observed bearish sentiments across the secondary bonds markets supported by the illiquidity in the system. Overall, the average yield across sovereign bonds climbed by 37bps w/w to close at 13.6% (previously 13.2%). In tandem, corporate bonds traded on a bearish note, albeit steeper, as the average yield on corporate bonds rose by 58bps w/w to 14.0% (previously 13.4%).

However, we observed significant buy interests in the Nigerian Eurobonds market as investors sought to reinvest the $138.6mn coupon payments that hit the system. Thus, the bullish sentiment drove average yields lower by 124bps w/w to close at 12.39% (previously 13.63%).

Looking forward, we expect the bearish sentiments in the secondary bonds market to persist due to system’s illiquidity. Conversely, in the Eurobonds market, we expect bearish sentiments to resume, driven by risk-on investors sentiments.

Currency Market: Naira Appreciated at the I&E Window

Last week, Naira depreciated by 1bp w/w at the Investors & Exporters (I&E) window to close at N461.38/$, from its previous close of N461.33/$. At the parallel market, we continue to find offer quotes in the N750.0/$- N770.0/$ range. Activities in the I&E window weakened, with average FX turnover declining by 41.0% w/w to settle at $111.2mn. Similarly, Nigeria’s external reserves fell by 0.7% w/w to close at $35.5bn as of 30-Mar-2023.

This week, we expect continued pressure on the Naira across all market segments, given that FX pressures will continue as dollar earnings remain weak and demand outweighs supply.