SAT, OCT 10 2020-theG&BJournal-Despite some profit-taking towards the end of the week, record gains at the start of the week drove the equities market beyond the 28,000-point mark and to its largest weekly gain since May. Notably, investors’ interest in MTNN (+8.1%), AIRTELAFRI (+7.8%), and DANGCEM (+4.2%) drove the benchmark index 5.3% higher, w/w, to 28,415.31 points. The MTD and YTD return for the index grew to 5.9%. The Banking (+7.8%) index topped the sectoral charts, following gains in ZENITHBANK (+10.8%) and GUARANTY (+4.8%), followed by the Industrial Goods (+2.7%), Consumer Goods (+2.0%), Oil & Gas (+2.0%), and Insurance (+2.0%) 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
The overnight (OVN) rate expanded by 330bps w/w, to 4.9%. This was as funding pressures for FX retail and OMO auctions, and CRR debits at the latter part of the week, outweighed inflows from OMO maturities (NGN567.69 billion) and FX retail refunds (NGN320.00 billion).
We expect the OVN to contract in the coming week, as OMO maturities worth NGN370.00 billion boost system liquidity.
Treasury bills
Activity in the Treasury bills secondary market reversed, as bullish trading returned to the market. The performance was supported by increased participation by retail investors and the improved system liquidity. Thus, the average yield across all instruments contracted by 50bps to 1.4%. Across the segments, average yield contracted by 53bps and 45bps to 1.4% and 1.4%, at the OMO and NTB secondary markets, respectively.
Considering the abysmal level of yields at the T-bills market, we expect lethargic demand for instruments in this space. At the NTB segment, we expect market participants to shift their focus to the primary market, where the CBN will be rolling over NGN104.88 billion worth of maturities.
Bonds
Trading in the Treasury bonds secondary market remained bullish, as investors re-invested the excess liquidity in the system. Consequently, the average yield across instruments contracted by 58bps to 6.3%. Across the benchmark curve, the short (-32bps), mid (-96bps) and long (-55bps) segments all recorded significant demand, as investors bought up the JAN-2026 (-127bps), FEB-2028 (-149bps) and JUL-2034 (-77bps) bonds, respectively.
With system liquidity expected to improve next week, we expect sustained demand for bonds, as investors seek relatively favourable investible instruments.
Global markets
Global equity markets were set to close higher on hopes of more federal fiscal aid and growing expectations of a Democratic victory in next month’s presidential election, and as a string of mergers and acquisitions as well as a recovery in beaten-down sectors like banks and energy lifted stocks. Consequently, US (DJIA: +2.7%; S&P: +2.9%), European (STOXX Europe: +1.9%; FTSE 100: +1.8%), and Asian (Nikkei 225: +2.6%; SSE: 1.7%) shares were up in the week.
Elsewhere, the Emerging markets (MSCI EM: +3.3%) index was up following a rise in China (+ 1.7%) while the frontier markets (MSCI FM: +2.8%) stocks were on track to end the week higher as Kuwaiti stocks surged 5.8% w/w.-With Cordros Research
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