SAT, AUG 22 2020-theG&BJournal– Despite the significantly lower trading activity in the stock market, the bourse inched higher for the fourth successive week, following a series of marginal gains over 4 trading sessions. Specifically, interest in MTNN (+2.0%) pushed the ASI 0.1% higher, w/w, to 25,221.87 points. Market Capitalization now totals N13.158 trillion.
All other indices finished higher with the exception of NSE Oil/Gas, NSE Lotus and NSE Industrial Goods Indices which depreciated by 0.92%, 0.12% and 0.41% while the NSE ASeM Closed flat.
The YTD loss moderated to -6.0%, while the MTD gain increased to 2.1%. Performance across sectors within our coverage was mixed with the Insurance (+4.4%), Consumer Goods (+1.9%), and Banking (+0.8%) indices recording gains while the Oil & Gas (-0.9%) and Industrial Goods (-0.4%) indices declined.
Market total turnover was 950.414 million shares worth N10.123 billion in 16,647 deals traded, in contrast to a total of 1.327 billion shares valued at N13.934 billion that exchanged hands last week in 19,392 deals.
Trading in the top three equities namely Zenith Bank Plc, Guaranty Trust Bank Plc and Transnational Corporation of Nigeria Plc. (measured by volume) accounted for 298.901 million shares worth N4.761 billion in 3,056 deals, contributing 31.45% and 47.03% to the total equity turnover volume and value respectively.
31 equities appreciated in price during the week, higher than 29 equities in the previous week while 27 equities depreciated in price, lower than 33 equities in the previous week, while 105 equities remained unchanged.
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
The overnight (OVN) rate ebbed down by 17.17ppts w/w to 2.6% as inflows from OMO maturities (NGN180.63 billion) and FAAC disbursements (NGN376.45 billion) saturated the system and eased off funding pressures from debits for FGN bond (NGN126.15 billion) and OMO (NGN72.50 billion) auctions.
With a combined NGN333.31 billion expected in the system next week from OMO maturities (NGN283.42 billion) and FGN bond coupon payments (NGN49.89 billion), we expect a further contraction in the OVN.
Treasury bills
Trading in the Treasury bills secondary market was bullish, as liquidity posture sustained demand for instruments in the space. Thus, the average yield across all instruments contracted by 29bps to 3.0%. Across the market segments, average yield contracted by 42bps and 4bps to 3.6% and 1.5%, at the OMO and NTB markets. At the OMO auction, the CBN offered instruments worth NGN80.00 billion with allotments of NGN7.50 billion of the 96-day, NGN15.00 billion of the 180-day and NGN50.00 billion of the 355-day – at respective stop rates of 4.90% (previously 4.92%), 7.71% (previously 7.74%), and 8.94% (previously 8.94%).
Next week, we expect the buoyant system liquidity to sustain the demand for T-bills, as maturities are likely re-invested in the market. At the NTB segment, we expect market participants to shift their focus to next week’s PMA, where the CBN will be rolling over NGN197.60 billion worth of maturing bills.
Bonds
The Treasury bonds secondary market ended the week bearish, due to some profit-taking by successful participants at Wednesday’s PMA. Consequently, average yield expanded by 14bps to 8.0%.
At the PMA, the DMO offered instruments worth NGN150.00 billion to investors through re-openings – 12.50% JAN 2026 (Bid-to-offer: 1.3x; Stop rate: 6.7%), 12.50% MAR 2035 (Bid-to-offer: 1.2x; Stop rate: 9.35%), 9.80% JUL 2045 (Bid-to-offer: 1.0x; Stop rate: 9.75%) and 12.98% MAR 2050 (Bid-to-offer: 2.9x; Stop rate: 9.90%).
Despite a total subscription of NGN242.22 billion, the DMO eventually allotted instruments worth NGN116.65 billion, resulting in a bid-cover ratio of 2.1x.
We expect demand for bonds to pick-up in the coming week, as investors find alternative options for the liquidity coming into the system.
Foreign exchange
The CBN’s foreign reserves sustained its descent as FX outflows continue to outpace inflows, thus dipping by USD20.37 million w/w to USD35.60 billion. Nevertheless, the naira was flat against the US dollar w/w to NGN386.00/USD at the I&E window but depreciated by 0.4% to NGN477.00/USD at the parallel market.
In the forwards market, the naira appreciated against the US dollar across the 1-month (+0.1% to NGN387.07/USD), 3-month (+0.09% to NGN389.47/USD), 6-month (+0.1% to NGN393.27/USD) and 1-year (+0.7% to NGN406.56/USD) contracts.
Cordros Research analysts say despite the CBN’s stronger commitment towards exchange rate unification, they still see legroom for the currency to depreciate further, at least towards its REER derived fair value.
‘’Our prognosis is hinged on the widening current account (CA) position, currency mispricing, which could induce speculative attacks on the naira, and 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.’’
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