SAT, SEPT 05 2020-theG&BJournal- The Nigerian Stock Exchange (NSE) recorded a higher level of activity this week from both local and foreign investors, as positive earnings releases from the tier I banks and bargain buying across some bellwethers drove the market to its largest gain in almost a month.
Specifically, interest in GUARANTY (+4.5%), NB (+8.1%), STANBIC (+5.4%), and ZENITHBANK (+3.3%) pushed the All Share Index 1.2% higher, w/w, to 25,605.64 points – the highest level since March 9, 2020.
Consequently, the YTD loss moderated to -4.6%. Performance across sectors was broadly positive with the Oil & Gas (+3.7%), Banking (+2.8%), Insurance (+2.0%), Consumer Goods (+1.5%), and Industrial Goods (+0.4%) indices all recording gains.
The Nigerian Stock Exchange (NSE) data showed that 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% respectively while the NSE ASeM Closed flat.
Total turnover of shares traded was 1.072 billion worth N7.384 billion in 16,684 deals, 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 activity chart was led by the Financial Services industry (measured by volume) with 586.761 million shares valued at N4.022 billion traded in 8,483 deals, thus contributing 54.76% and 54.47% to the total equity turnover volume and value respectively.
The Conglomerates industry followed with 307.744 million shares worth N799.159 million in 1,010 deals. The third place was the Consumer Goods industry, with a turnover of 50.170 million shares worth N968.272 million in 3,018 deals.
Also, trading in the top three equities namely Transnational Corporation of Nigeria Plc, UACN Plc and United Bank for Africa Plc. (measured by volume) 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.
Analysts at Cordros Research still advice investors to seek trading opportunities in only fundamentally justified stocks as risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions.
Money market and Fixed income
In line with expectations, the overnight (OVN) rate crashed by 12.65 ppts w/w to 2.3%, as inflows from OMO maturities (NGN321.48 billion) outweighed outflows for OMO (NGN100.00 billion) and FX auctions.
Cordros expects the OVN to remain in single digit territory, as inflows from OMO maturities (NGN265.00 billion) are expected in the system.
Treasury bills
The Treasury bills secondary market traded with bullish sentiments, as average yield across all instruments contracted by 23bps to 2.5%. The overall market was largely influenced by activities in the OMO segment (-31bps to 2.8%), as local players picked on the relatively attractive yields in the space, and covered for lost bids at the OMO auction. Elsewhere, yields at the NTB segment contracted by 11bps to 1.9%, due to sustained demand by retail investors.
At the OMO auction, the CBN offered bills worth NGN100.00 billion, with allotments of NGN10.00 billion of the 82-day, NGN10.00 billion of the 180-day and NGN80.00 billion of the 355-day – at respective stop rates of 4.86% (previously 4.87%), 7.68% (previously 7.68%), and 8.94% (previously 8.94%).
We expect the downward trend in T-bills yields to continue next week, on the back of buoyant system liquidity. At the NTB segment, we expect focus to shift to the primary market, where the CBN will be offering NGN128.06 billion worth of instruments to investors.
Bonds
The Treasury bonds secondary market was bearish month end sell-offs at the top of the week and increasing investor apathy for yields at this level drove average yield higher by 9bps to 8.1%. Across the benchmark curve, the average yield at the short (+2bps) and long (+27bps) ends expanded due to sell-offs of the JAN-2022 (+27bps) and MAR-2036 (+98bps) bonds, respectively, while yields they contracted at the mid (-8bps) segment, following buying interest in the FEB-2028 (-24bps) bonds.
We expect mixed trading in the bond market next week as liquidity driven demand is offset by further profit taking.
Foreign exchange
Nigeria’s FX reserves grew slightly this week, despite the CBN’s interventions across the various foreign exchange windows. Precisely, reserves grew by USD5.99 million w/w to USD35.67 billion. Across the FX windows, the naira weakened against the US dollar by 0.1% w/w, to NGN385.67/USD at the I&E window but strengthened significantly by 8.4% to NGN477.00/USD in the parallel market off improved supply from speculative traders as well as retail users in anticipation of renewed supply from the CBN. In the Forwards market, the rates on 1-month (-0.1% to NGN386.91/USD) and 3-month (-0.1% to NGN388.23/USD) contracts weakened, while the 6-month (+0.1% to NGN391.75/USD) and 1-year (+0.2% to NGN402.44/USD) contracts appreciated.
Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further in the medium-to-long term, at least towards its REER derived fair value.
Our forecast 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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