SAT, 26 SEPT, 2020-theGBJournal-In sharp contrast to the record sell-offs across global markets, Nigerian equities recorded their best weekly performance in four months, crossing 26,000 points for the first time since March 2020.
Amidst a sharp drop in fixed income yields following further monetary easing by the MPC, the stock market recorded a significant increase in activity with total volumes and value traded surging by 46.3% and 68.9% w/w, respectively.
Notably, investors interest in large caps NB (+25.1%), MTNN (+3.3%) and DANGCEM (+3.0%) drove the benchmark ASI 2.9% higher, w/w, to 26,319.47 points. The MTD and YTD returns for the index currently stand at 3.9% and -1.9% respectively. Accordingly, the Consumer Goods (+6.0%) index topped the sectoral charts, followed by the Banking (+3.6%), Industrial Goods (+2.4%), Oil & Gas (+1.2%) and Insurance (+1.1%) indices.
We expect the market might continue to benefit as domestic investors seek alpha-yielding opportunities in the face of increasingly negative real returns in the fixed income market. However, we advise investors to trade in only fundamentally justified stocks as the weak macro environment remains a significant headwind for listed companies.
Money market and Fixed income
The overnight (OVN) rate jumped by 8.50ppts to 11.5%, as system liquidity was pressured by funding for FGN bond (NGN106.15 billion) and OMO (NGN70.00 billion) auction debits, and the FX retail auction held during the week, despite the inflows from OMO maturities (NGN300.00 billion), FGN bond coupon payments (NGN18.12 billion) and FX retail refunds.
Next week, we expect the OVN to trend southwards, as system liquidity is further supported by inflows from FGN bond coupon payments (NGN40.77 billion) and OMO maturities (NGN18.77 billion).
Treasury bills
Due to the sustained and elevated level of liquidity in the system, the overall Treasury bills secondary market remained bullish, as the average yield across all instruments contracted by 24bps to 1.8%. Demand remained significant at the OMO segment (contracted by 43bps to 1.9%) of the market, despite renewed supply from the CBN, as market participants continued to play in the short and mid segments of the market. Conversely, the average yield expanded by 8bps to 1.7% at the NTB segment, as investors paid little attention to the market. At the OMO auction, the CBN fully allotted NGN70.00 billion worth of bills – NGN10.00 billion of the 131-day, NGN10.00 billion of the 166-day and NGN50.00 billion of the 348-day – at respective stop rates of 4.77% (previously 4.86%), 7.60% (previously 7.68%), and 8.70% (previously 8.88%).
We expect trading activity in the T-bills market to remain bullish next week, due to the healthy liquidity in the system. At the NTB segment, we expect the focus to be shifted to the primary market, where the CBN will be rolling over NGN113.97 billion worth of instruments.
Bonds
Trading in the FGN bonds secondary market was bullish, as investors covered for lost bids at the primary market auction (PMA). Consequently, the average yield across instruments contracted by 48bps to close at 7.1%. At the PMA, the DMO offered instruments worth NGN145.00 billion to investors through re-openings of the 12.50% JAN 2026 (Bid-to-offer: 3.4x; Stop rate: 6.00%), 12.50% MAR 2035 (Bid-to-offer: 1.8x; Stop rate: 8.52%), 9.80% JUL 2045 (Bid-to-offer: 1.0x; Stop rate: 8.90%) and 12.98% MAR 2050 (Bid-to-offer: 4.1x; Stop rate: 8.94%) bonds. Despite a total subscription of NGN360.22 billion, the DMO eventually allotted instruments worth NGN103.81 billion, resulting in a bid-cover ratio of 3.5x.
We expect trading in the Treasury bonds secondary market to also be impacted by the ample liquidity in the system. Thus, we should see sustained demand, as investors cherry-pick across relatively attractive yields in the space.-With Cordros Research
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