SAT, 31 OCT, 2020-theGBJournal-Nigeria’s FX reserves increased by USD16.36 million w/w to USD35.69 billion, as inflows into the reserves offset outflows for CBN’s interventions across the various FX windows.
Across the windows, the naira closed flat against the US dollar at NGN386.00 at the I&E window (YTD: -5.6%), while it strengthened by 0.2% to NGN462.00/USD in the parallel market (YTD: -21.6%).
In the Forwards market, the naira appreciated across the 1-month (+0.1% to NGN386.25/USD), 3-month (+0.2% to NGN386.69/USD), 6-month (+0.2% to NGN388.33/USD) and 1-year (+0.7% to NGN392.74/USD) contracts.
Going forward, we expect CBN’s FX management strategies to continue supporting the naira at its current level at the official and I&E windows.
However, we believe the parallel market rate will remain volatile and continue to trade above the CBN’s Relative Purchasing Power Parity (RPPP) of NGN433.64/USD and our REER fair value estimate of NGN453.67/USD at the current level of intervention in the FX market.
Meanwhile, the bullish momentum in the local bourse switched into a higher gear as investors hunted for bargains following broadly positive corporate earnings released during the week. Activities recovered from the two-week slowdown, as the value and volume of trades grew 20.0% w/w and 26.8% w/w respectively.
Accordingly, the All-Share Index broke through 30,000 psychological mark, a level last seen in June 2019, and closed at 30,530.69 points, the highest level in 15 months. Notably, investors’ interest in NESTLE (+21.0%), BUACEMENT (+11.3%), GUARANTY (+6.7%), DANGCEM (+5.9%) and STANBIC (+5.7%) drove the benchmark index 6.4% higher, its sixth-consecutive weekly gain. The MTD and YTD return for the index grew to 13.8% and 13.7%, respectively.
Performance across sectors was an all-round positive, as the Consumer Goods (+12.2%) index topped the gainers’ chart trailed by the Banking (+8.0%), Industrial (+7.6%), Oil and Gas (+6.2%) and Insurance (+5.6%) indices.
We expect the direction of market performance to be shaped by the ongoing Q3 earnings season as investors look for evidence that the relaxation of lockdown has provided a tailwind for corporate earnings.
With yields on risk-free assets declining to sub 1% levels, we believe it is increasingly compelling for risk-averse investors to rotate their portfolio towards equities. Hence, we expect the bulls to maintain dominance in the week ahead.-With Cordros Research
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