SAT, AUG 08 2020-theG&BJournal-The equities market reacted to better than expected earnings as the All-Share index closed the week 1.4% higher at 25,041.89 points. All other indices also finished higher with the exception of NSE Insurance Index which depreciated by 0.28% while the NSE ASeM Closed flat.
Bargain-buy dominated with investors gobbling relatively cheap stocks. Specifically, GUARANTY (+8.2%), STANBIC (+10.0%), SEPLAT (+12.8%) and ZENITHBANK (3.7%) were the primary drivers of the overall market’s gain and trading in the top three equities namely FBN Holdings Plc, UACN Plc and Access Bank Plc. (measured by volume) accounted for 320.196 million shares worth N1.802 billion in 2,639 deals, contributing 30.06% and 16.69% to the total equity turnover volume and value respectively.
The YTD loss moderated to -6.7%. Performance across sectors within our coverage was broadly positive with the Banking (+4.9%), Oil & Gas (+4.8%), Consumer Goods (+0.7%), and Industrial Goods (+0.1%) indices recordings gains. The Insurance (-0.3%) index was the sole loser.
A total turnover of 1.065 billion shares worth N10.798 billion in 20,482 deals were traded in all on the floor of the Exchange, in contrast to a total of 421.984 million shares valued at N5.337 billion that exchanged hands last week in 11,801 deals.
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
In line with expectations, the overnight (OVN) rate expanded by 507bps to 7.2%, as outflows from CRR debits (between NGN450.00 billion to NGN600.00 billion) and FX auctions pressured the system, in the absence of any significant inflows.
Barring any liquidity mop-ups by the CBN, we expect the OVN to trend southwards in the coming week, as inflows from OMO maturities (NGN29.78 billion) boost system liquidity.
Treasury bills
Trading in the Treasury bills secondary market remained bullish, despite the liquidity pressures witnessed in the system. Thus, average yield across all instruments contracted by 15bps to 3.4%. At the OMO segment of the market, bullish sentiments prevailed, as average yield in the space contracted by 18bps to 4.1%. This is due to the lack of OMO bills supply by the CBN over the last two weeks. Similarly at the NTB segment, average yield contracted by 4bps to 1.7%, as retail demand spurred the activities in the space.
We expected bullish sentiments to persist across the treasury bills space. In the NTB segment, we expect participants focus to shift towards next week’s PMA, where the CBN will be rolling over NGN56.78 billion worth of instruments maturing.
Bonds
The Treasury bonds secondary market traded with weak sentiments, due to profit-taking by investors. Consequently, average yield expanded by 71bps to 7.8%. Across the benchmark curve, average yield expanded at the short (+37bps), mid (+74bps) and long (+110bps) segments, as market participants sold-off the JAN-2026 (+176bps), MAR-2027 (+116bps) and MAR-2036 (+169bps) bonds, respectively.
Considering the relatively attractive yields that Treasury bonds possess, we expect demand to return to the market next week.
Foreign exchange
The CBN’s foreign reserves sustained its descent as FX outflows continue to outpace inflows, thus dipping by USD171.88 million w/w to USD35.71 billion. Nevertheless, the naira appreciated marginally against the US dollar by 0.84% w/w to NGN386.00/USD at the I&E window, and remained flat at NGN475.00/USD at the parallel market. In the forwards market, the naira appreciated against the US dollar across the 1-month (+0.8% to NGN387.38/USD), 3-month (+0.9% to NGN389.99/USD), 6-month (+1.1% to NGN394.35/USD) and 1-year (+1.0% to NGN408.08/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.-With Cordros Research
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