Home Companies&Markets Weekly markets Wrap: All-Share Index closes 25,309.37 points, average bond yield pared...

Weekly markets Wrap: All-Share Index closes 25,309.37 points, average bond yield pared by 2bps to 8.0%, naira trades flat at N477/$

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SAT, AUG 29 2020-theG&BJournal-Nigerian stocks inched higher for the sixth successive week, following bargain buying across large-cap stocks. Specifically, interest in BUACEMENT (+2.8%), STANBIC (+4.5%), GUARANTY (+1.2%) and NB (+2.8%) pushed the ASI  0.3% higher w/w, to 25,309.37 points.
All other indices finished higher with the exception of NSE Premium, NSE Banking, NSE AFR Div Yield and NSE MERI Value Indices which depreciated by 0.45%, 0.23%, 0.77% and 0.9% while the NSE ASeM Closed flat.
Trading in the top three equities namely Transnational Corporation of Nigeria Plc, UACN Plc and United Bank for Africa Plc. accounted for 396.337 million shares worth N1.373 billion in 1,845 deals, contributing 36.99% and 18.59% to the total equity turnover volume and value respectively.
A total turnover of 1.072 billion shares worth N7.384 billion in 16,684 deals were traded this week by investors on the floor of the Exchange, in contrast to a total of 950.414 million shares valued at N10.123 billion that exchanged hands last week in 16,647 deals.
The YTD loss moderated to -5.7%, while the MTD gain increased to 2.5%. Performance across sectors within our coverage was mixed with the Insurance (+2.8%), Consumer Goods (+1.1%), and Industrial Goods (+0.6%) indices recording gains, while the Banking (-0.2%) index declined. The Oil & Gas index was flat.
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 and Fixed income
The overnight (OVN) rate surged by 12.27 ppts w/w to 14.9%, as CRR debits, and OMO (NGN97.27 billion) and FX auctions debits pressured liquidity in the system and outweighed inflows from OMO maturities (NGN283.42 billion), FGN bond coupons (NGN49.89 billion) and FX retail auction refunds.
Barring any liquidity mop-up activity by the CBN, we expect the OVN rate to trend southwards, as inflows from OMO maturities (NGN321.48 billion) come into the system.
Treasury bills
Trading in the Treasury bills secondary market was bullish this week, as a healthy system liquidity sustained demand for instruments in the space. Thus, the average yield across all instruments contracted by 27 bps to 2.7%. The bulk of demand was at the OMO segment, as the average yield in the space contracted by 47bps to 3.1%. Elsewhere, sell-offs witnessed on mid-tenor instruments resulted in the average yield expanding by 4bps to 1.6%. At the NTB PMA on Wednesday, the CBN rolled over maturing bills worth NGN197.60 billion, with allotments of NGN20.37 billion of the 91-day, NGN55.85 billion of the 182-day and NGN121.38 billion of the 364-day – at respective stop rates of 1.15% (previously 1.20%), 1.80% (previously 1.39%), and 3.34% (previously 3.12%).
In the coming week, we expect healthy system liquidity to sustain demand for T-bills.
Bonds
The trading in the Treasury bonds secondary market this week was mixed with bullish sentiments, as average yield pared by 2bps to 8.0%. In our view, this was due to investors’ reinvesting inflows from OMO maturities and bond coupons, as noted earlier. Across the benchmark curve, the average yield at the short (-1bp) end contracted slightly following demand for the JAN-2022 (-49bps) bond, while yields also expanded at the mid (+21bps) and long (+1bp) segments of the curve due to sell-offs of the MAR-2027 (+32bps) and JUL-2034 (+28bps) bonds, respectively.
We expect a pick-up in demand for bonds next week, as maturities are re-invested in the space.
Foreign exchange
The CBN’s foreign reserves bucked the trend of the last three months, as it recorded its first weekly accretion since 29th May, 2020. Thus, the reserves grew by USD53.30 million w/w to USD35.66 billion.
Across the FX windows, the naira strengthened against the US dollar by 0.1% w/w, to NGN385.67/USD at the I&E window but continued to trade flat at NGN477.00/USD in the parallel market.
In the Forwards market, appreciations were recorded across the exchange rates for the 1-month (0.1% to NGN386.50/USD), 3-month (+0.3% to NGN388.23/USD), 6-month (+0.6% to NGN391.00/USD) and 1-year (+1.0% to NGN402.55/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.-With Cordros Research
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