SAT, APRIL 25 2020-theG&BJournal- Profit-taking across DANGCEM (-4.4%), NESTLE (-5.9%) and Tier One banks stocks caused a retrace in market performance, after last week’s whopping gain. Consequently, the All-Share Index declined by 1.4% w/w, to settle at 22,921.59 points. Accordingly, the MTD return decreased to +7.1%, while the YTD loss increased to -15.8%. Analysing by sectors, this week’s performance was negative as declines in the Banking (-5.2%), Consumer Goods (-2.6%), and Oil & Gas (-1.7%) indices masked the gains recorded in the Insurance (+1.2%) and Industrial Goods (+0.7%) indices.
As risks remain on the horizon following the increasing number of COVID-19 cases in Nigeria and as economic fortunes remain wary, we continue to advise investors to trade cautiously and seek only fundamentally justified stocks.
Money market
The overnight (OVN) rate expanded by 18.83ppts, w/w, to 21.1%. During the week, the OVN remained depressed as system liquidity remained healthy against the backdrop of the significant inflows from CBN’s CRR refunds from the prior week, and inflows this week from OMO maturities (NGN267.67 billion) and FGN bond coupon payments (NGN32.67 billion). However, the rate expanded at the end of the week following outflows from CRR debits and debits for OMO (NGN112.65 billion) and FGN bond (NGN156.06 billion) auctions.
In the coming week, inflows worth a combined NGN179.80 billion are expected in the system from OMO maturities (NGN30.66 billion) and FGN bond coupon payments (NGN149.14 billion). Barring any significant mop-up by the CBN, we expect the OVN to remain depressed.
Treasury bills
The Treasury bills market remained bullish as the average yield across all instruments contracted by 94bps to 7.7%. This was driven by the OMO segment (average yield: -135bps w/w to 9.9%) of the market given the still buoyant system liquidity. Similarly, the average yield at the NTB segment contracted by 36bps to 2.7%, as trading activities remained quiet in the segment. There was an OMO auction held during the week, during which the CBN fully allotted instruments worth NGN112.65 billion – NGN20.37 billion of the 89DTM, NGN11.50 billion of the 180DTM and NGN80.78 billion of the 341DTM instruments at respective stop rates of 11.5% (previously 11.5%), 11.5% (previously 11.5%), and 12.7% (previously 12.8%).
We expect the bullish trend to continue in the Treasury bills market, supported by relatively healthy liquidity. In the NTB segment, we expect the focus to be shifted to this week’s PMA, where the CBN will be rolling over NGN131.53 billion worth of maturities.
Bonds
Trading in the FGN bonds secondary market was bullish, as yields readjusted to the lower PMA stop rates. Consequently, the average yield across instruments contracted by 35bps to close at 10.5%. At the auction, instruments worth NGN60.00 billion were offered to investors through re-openings – 12.75% APR 2023 (Bid-to-offer: 2.5x; Stop rate: 9.0%), 12.50% MAR 2035 (Bid-to-offer: 5.4x; Stop rate: 12.0%), and 12.98% MAR 2050 (Bid-to-offer: 5.9x; Stop rate: 12.5%). Despite subscriptions across instruments settling at NGN275.67 billion, the DMO eventually allotted instruments worth NGN156.06 billion, resulting in a bid-cover ratio of 4.6x.
We expect sustained demand next week across the bond yield curve as investors bargain hunt for investible instruments.
Foreign Exchange
This week, Nigeria’s FX reserves remained under pressure, dipping by another USD282.67 million WTD to USD33.66 billion (24th of April 2020), as offshore outflows intensified in the face of weak inflows. Nonetheless, the Naira appreciated by 0.82% w/w to NGN383.00/USD at the I&E window but depreciated significantly by 7.56% w/w to NGN450.00/USD in the parallel market. As with the I&E spot market, the exchange rate appreciated against the greenback across all contracts in the Forward market. Precisely, the 1-month (+1.2% to NGN384.99/USD), 3-month (+1.8% to NGN389.20/USD), 6-month (+2.7% to NGN396.73/USD), and 1-year (+5.1% to NGN415.20/USD) contracts recorded increases in naira value.
Cordros Research comments: ‘’For us, the CBN will have to grapple with a sizeable FX demand post-COVID-19 pandemic. In the meantime, we expect the Naira to maintain stability at current levels as the CBN continues to intervene across all FX windows. Assuming the planned USD6.9 billion foreign borrowing is 100% successful, that should help support the FX reserves, and thus, boost the CBN ammunition in its currency defense.’’-With Cordros Research
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