SAT, AUG 15 2020-theG&BJournal– For the first time since January, the domestic bourse closed higher for the third successive week, primarily driven by foreign investors taking positions in fungible stocks. Specifically, AIRTEL (+9.2%), NB (+12.5%), and SEPLAT (+10.0%) were the major drivers of the overall market’s gain, with the All-Share index closing the week 0.6% higher at 25,199.84 points. The YTD loss moderated to -6.1%, while the MTD gain increased to 2.0%. Performance across sectors within our coverage was broadly positive with the Oil & Gas (+5.9%), Consumer Goods (+2.2%), and Insurance (+1.1%) indices recording gains. The Banking index was flat while the Industrial Goods (-2.7%) index was the sole loser.
Trading in the top three equities namely Guaranty Trust Bank Plc, Transnational Corporation of Nigeria Plc and Zenith Bank Plc. (measured by volume) accounted for 419.455 million shares worth N6.079 billion in 3,854 deals, contributing 31.60% and 43.63% to the total equity turnover volume and value respectively.
Our view continues to favour cautious trading as risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions.
Thus, we continue to advise investors to seek trading opportunities in only fundamentally justified stocks.
Money market
The overnight (OVN) rate surged by 12.63ppts w/w to 19.8% as outflows for OMO (NGN45.36 billion) and FX auction debits outweighed inflows from OMO maturities (NGN87.97 billion) and FX retail refunds (NGN320.00 billion).
In the coming week, we expect a contraction in the OVN, as inflows from OMO maturities (NGN181.36 billion) come into the system.
Treasury bills
The Treasury bills secondary market traded with bullish sentiments, as market players looked to reinvest inflows from OMO maturities and FX retail refunds, and as they looked to the secondary market to fill unmet demand from the NTB PMA. Thus, average yield across all instruments contracted by 9bps to 3.3%. Across the segments, average yield contracted by 4bps and 13bps to 4.0% and 1.6%, at the OMO and NTB markets, respectively. At the PMA, the CBN rolled over maturing bills worth NGN56.78 billion with allotments of NGN19.78 billion of the 91-day, NGN10.00 billion of the 182-day and NGN27.00 billion of the 364-day – at respective stop rates of 1.20% (previously 1.20%), 1.39% (previously 1.50%), and 3.12% (previously 3.40%).
We expect the downward trend in yields to be sustained, with incoming inflows likely to support demand.
Bonds
The Treasury bonds secondary market ended the week bearish, as investors anticipate renewed supply from next week’s PMA. Consequently, average yield expanded by 5bps to 7.9%. Across the benchmark curve, average yield expanded at the short (+92bps) end following a sell-off of the JAN-2022 (+206bps) bond. Conversely, yield at the mid (-1bp) and long (-79bps) segments contracted due to demand for the JUL-2030 (-60bps) and MAR-2036 (-117bps) bonds, respectively.
Next week, we expect investors’ focus to be shifted to the PMA on Wednesday, as the DMO is set to offer instruments worth NGN150.00 billion through re-openings of the 12.50% JAN 2026, 12.50% MAR 2035, 9.80% JUL 2045 and 12.98% MAR 2050 bonds. Nonetheless, we still expect increased activity at the secondary market as investors cover lost bids at the auction which is likely to be oversubscribed.
Foreign exchange
The CBN’s foreign reserves sustained its descent, dipping by USD32.03 million w/w to USD35.62 billion, as FX outflows continue to outpace inflows. Nevertheless, the naira was flat against the US dollar at NGN386.00/USD and NGN475/USD at the I&E window and parallel market, respectively. In the forwards market, the naira depreciated against the US dollar in the 1-month (-0.03% to NGN387.51/USD), and 1-year (-0.3% to NGN409.32/USD) contracts but appreciated against the dollar in the 3-month (+0.05% to NGN389.81/USD), and 6-month (+0.1% to NGN393.79/USD) contracts.
Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further, at least towards its REER derived fair value. Our prognosis is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.
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