March 3, 2025/United Capital Research

Global Market: February Saw Market Volatility as AI Rally Cooled, Driven by Economic Uncertainty
February was a turbulent month for U.S. financial markets, with the S&P 500 ending down by 1.40%. This decline aligns with historical trends, as February has often been rocky in post-election years, with the S&P typically down by 1.20% since 1970. The month saw significant volatility, with markets struggling under the weight of concerns about AI and tech stocks, escalating tariff tensions, and Washington policy uncertainty. Despite these challenges, the S&P 500 managed to bounce back, closing near its 50-day moving average and hitting new all-time highs earlier in the month. However, beneath the surface, investors shifted towards larger-cap, defensive stocks, causing smaller and mid-cap indices to fall between 4.0 – 6.0%. As a result, investors began unwinding momentum trades, driven by weak economic data and growing uncertainty about the policy outlook.

A major focus last week was the unwinding of the AI-driven rally that fueled market growth in 2023. Reports about potential cuts in capital expenditure, particularly after comments from Microsoft’s CEO about cancelled office leases, raised doubts about continued tech spending. However, companies like Meta and Amazon reaffirmed their commitment to large investments, and Nvidia reported strong earnings despite slightly missing market expectations on its margins. Even so, stocks tied to AI infrastructure saw a decline, with the industrial sector most affected. This impact was particularly noticeable in the S&P 400 Mid-Cap index, where industrials make up about 20.00% of the weighting. While concerns about a slowdown in capital spending are rising, most analysts agree that the pace of investment is unlikely to halt anytime soon, though there may be a shift in where the money flows.

European markets have outperformed U.S. indices this year, driven by a combination of factors. After years of underperformance, European stocks appear undervalued relative to their U.S. counterparts, with a heavier focus on the value factor. The potential resolution of the Ukraine conflict has also bolstered investor sentiment, alongside rising defense spending in the region, encouraged by U.S. calls for more investment.

Chinese tech stocks have seen notable gains, buoyed by the positive momentum surrounding DeepSeek news, with the Hang Seng up ~10.00% for the month. The upcoming National People’s Congress has market participants on alert for further stimulus measures. However, escalating trade tensions with the U.S. are clouding the outlook, with the administration considering tougher technology export restrictions and a new 10.00% tariff scheduled to take effect this week.

Oil prices were down for the week and month unable to hold above the 200-day moving average, as investors’ worries revolve around demand concerns amid underwhelming economic data over the period. Brent was down by 1.70% w/w, 3.30% m/m and 2.00% YTD.

This week promises a pivotal mix of geopolitical developments, key economic data, and late-cycle earnings. Investors will closely monitor tariff deadlines on Tuesday, ahead of President Trump’s State of the Union address, with added focus on China’s People’s Congress kicking off (March 5 -11). U.S. economic data highlights include the ISM surveys and labor market statistics, while Europe’s inflation report and expected ECB rate cut on Thursday will also capture attention. The week will see a range of earnings, particularly in tech and retail, with names such as Target, Home Depot, and Best Buy reporting. Additionally, Central Bank activity remains in focus, with the ECB expected to act and U.S. Fed speakers weighing in, keeping market participants alert to shifts in monetary policy.

Macroeconomic Highlights
Nigeria’s economy grew by 3.84% y/y in real terms in Q4-2024, marking an improvement from 3.46% recorded in both the same period of 2023 and the preceding quarter. The growth was largely driven by the Services sector, which expanded by 5.37% and contributed 57.38% to the country’s total GDP.
The Central Bank of Nigeria (CBN) has projected a 4.17% Gross Domestic Product (GDP) growth for 2025, attributing this positive outlook to fiscal and monetary reforms aimed at stabilizing the economy.

The Federal Government is set to secure six new loans totalling $2.23bn from the World Bank in 2025. The planned loans cover key sectors such as digital infrastructure, healthcare, education, nutrition, and community resilience. This will bring Nigeria’s total approved loans to $9.25bn over three years.

The Securities and Exchange Commission (SEC) has announced a significant reduction in the time it takes for companies to obtain approval for offers, bringing the timeframe from over a year down to just two weeks once all necessary documents are complete.

Nigeria’s net domestic credit declined to N99.41tn in Jan-2025, reflecting a significant contraction from N115.58tn recorded in Nov-2024. The data further revealed that net domestic credit in Jan-2024 stood at N99.99tn, while in Nov-2023, it was N85.35tn, underscoring the fluctuations in domestic lending within the past year.

Nigeria’s foreign reserves are down by $2.34bn since hitting a $40.92bn high on Jan-06. As of Monday 24 Feb-2025, the reserves stood at $38.58bn despite the naira strengthening by 2.60% since the beginning of the year.

The Federal Government, states, and Local Government councils have shared a total of N1.703tn in Federation Account revenue for January 2025. This amount represents an increase of 19.60% or N279.00bn from the N1.424tn shared from Dec-2024 revenue. The N1.703tn total distributable revenue comprises N749.727bn in statutory revenue, N718.781bn in Value Added Tax revenue, N20.548bn from the Electronic Money Transfer Levy, and N214bn in augmentation.

This week, we expect the macroeconomic environment to be relatively quiet in the absence of any major economic data releases.
 
Domestic Equities: The Bears Gained Momentum…NGX-ASI Down by 0.62% w/w
Last week, the domestic equities market closed on a negative note as the bears dominated the market. Investors’ appetites in the market have been sustained by the mid-long-term opportunities present in the market. Notably, share price depreciation in TRANSCOR (-3.31% w/w) dragged the main index lower. Also worthy of mention are losses in Banking stocks ETI (-12.39% w/w) and GTCO (-2.93% w/w). As a result, the benchmark NGX-ASI declined by 62bps to close at 107,821.39 points, bringing the YTD return to a steady 4.76% and raising market capitalization to N67.19tn. In terms of trading, market activity was mixed as the average value of stocks traded climbed by 3.34% to print at N10.28bn. Meanwhile, the total volume of stocks traded declined by 7.63% to print at 369.59mn, respectively. As measured by the market breadth, investors’ sentiments declined to 0.45x (previously, 0.48x) as 27 stocks appreciated while 60 depreciated.

Meanwhile, on a sectorial level, performance was mainly bearish as Four (4) sectors under our coverage closed in the red territory. The Insurance sector (-4.56% w/w) led the laggards due to sell offs in SUNUIASSU (-19.55% w/w) and CORNERST (-7.80% w/w). Following was the Banking sector (-3.08% w/w) on account of losses in ETI (-12.39% w/w) and ZENITHBA (-2.13% w/w). The Industrial Goods sector (-0.51% w/w) declined owing to share price depreciation in WAPCO (-3.85% w/w) and BERGER (-0.48% w/w). Lastly was the Consumer Goods sector declining by (-0.36% w/w) owing to losses in DANGSUGA (-3.38% w/w) and INTBREW (-7.02% w/w). On the other side of the coin, the Oil and Gas sector (+0.60% w/w) was the sole gainer on the back of buy interests in ETERNA (+3.45% w/w).

On corporate actions, Lafarge Africa Plc released their audited financial statement for the year ended 31-Dec-2024, announcing a Profit before Tax (PBT) of N152.26bn and a Profit after Tax (PAT) of N100.15bn.

Lafarge Africa Plc has announced a final dividend of 120 kobo with a qualification date of 28-Mar-2025 and a payment date of 25-Apr-2025.

Transcorp Hotels Plc has announced a final dividend of 64 kobo with a qualification date of 25-Mar-2025 and a payment date of 16-Apr-2025.

Looking forward, the equities market is expected to maintain its positive momentum as investors continue to position themselves ahead of the FY-2024 earnings season and possible corporate action declarations. Nevertheless, given the elevated interest rate environment in the fixed-income market, we still expect bearish sentiments to linger in the background.

Money Market: System Liquidity Operated Mostly in the Deficit Terrain
Last week, the financial system began with a deficit balance of N844.17bn, particularly sponsored by elevated activities at the CBN Standing Lending Facility (SLF) window. The liquidity situation of the financial system remained in the deficit terrain for most of the week. Inflows from OMO maturities to the turn of N1.30trn managed to help the system’s illiquidity. Consequently, the financial system wrapped up with a positive balance of N130.94bn. Given the fact the financial system was mostly in deficit, funding rates between banks remained above 30.00% mark. For context, the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) tapered by 170bps w/w and 161bps w/w to record at 30.64% and 31.15% (previously, 32.33% and 32.77%), respectively.

In the same vein, the secondary market for NT-bills saw bullish sentiments, as the dovish outlook for yields in H1-2025 looked to keep investors’ appetite for short-dated instruments above surface level. That said, the average yield on NT-bills tapered by 31bps w/w to close the week at 19.89% (previously, 20.20%). Similarly, we saw buy interests at the secondary OMO segment with the average yield on OMO bills tapering by 245bps w/w to settle at 22.52% (previously, 24.97%).

This week, we expect FAAC payments to reflect in the financial system, further alleviating the illiquidity situation of the financial system. Hence, we expect the anticipated liquid financial system to support the prevailing downward trend of rates, or at least (worst case) keep rates suppressed around current levels. Additionally, we expect CBN to conduct an NT-bill auction, to roll over maturing bills to the tune of N1.30trn. At the auction, we expect rates to taper, albeit slightly.

Bond Market: Marginal Rates Tapered at PMA

The DMO conducted February’s bond auction with total offer of N350.00bn across the 2029s and 2031s. The auction was met with overwhelming demand to the tune of N1.63trn, despite the prevailing system illiquidity at the time of the auction. This indicates a bid-to-cover ratio of 4.66x. That said, the DMO oversold the auction by 2.60x, selling papers to the tune of N910.38bn. Consequently, marginal rates across the bills tapered by 259bps and 317bps to settle at 19.20% and 19.33%, respectively (previously, 21.79% and 22.50%).

In the same vein, investors’ sentiment was bullish in the secondary bonds market, as bid spillovers from the PMA sought fulfilment. Consequently, the average bonds yield in the secondary market fell by 94bps to close at 18.53% (previously, 19.47%). Similarly, activities were bullish in the corporate bonds market, as the average yield on corporate bonds tapered by 156bps to settle at 21.24% (previously, 21.80%).

At the Nigerian secondary Eurobonds market, we observed a mixed sentiment, as investors looked to manage interests between high quality assets and high-premium yielding. That said, average yields on Eurobonds in the secondary market tapered by 38bps w/w to settle at 8.95% (previously 8.93%).

Looking forward, we expect the bullish sentiments to prevail in the bonds market, however, there is a chance that bond yields will likely remain around current levels for the rest of Q1-2025. Meanwhile, we expect mixed sentiments in the Nigerian Eurobonds market as investors look to create a balance between high quality assets and high-premium yielding assets.

Currency Market: Naira Appreciated at the Official Market
Last week, the Naira appreciated by 6bps w/w at the official market to close at N1,500.15/$, from its previous close of N1,501.08/$. Similarly, the Naira appreciated by 33bps w/w at the parallel market to settle at N1,500.0/$ from its previous close of N1,505.0/$. Lastly, Nigeria’s external reserves fell by 62bps to settle at $38.498bn (previously, $38.738bn).

This week, we expect the recent stability of the Naira to be sustained in the short term, following improved FX supply and weaker FX demand. The successful $2.20bn Eurobond issuance signals a positive improvement in investors’ confidence in the Nigerian economy, particularly helped by recent economic reforms. Also, the ongoing normalization of monetary policy in key advanced economies which signals that borrowing costs in the International Capital Markets (ICM) will continue to taper into 2025, provides additional support for FX supply via increased external borrowings in 2025. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve Naira’s strength around the current level. However, the country’s crude oil production output must improve significantly (to at least 2.06mbpd, which is FG’s 2025 budget assumption) to provide the required buffer for the Naira’s value to remain strong below FG’s 2025 budget projection range of N1,500/$ – N1,700/$. Overall, in the long-run, the stability and consistent growth of the country’s crude oil output will play a key role in Naira’s sustained appreciation below the N1,500/$ mark.