Nigeria Capital Markets Update Week Ending Nov 11 2016

Equities Market Review and Outlook
Unperturbed by events in the global political environment, the Nigerian equities market maintained its bearish momentum. The local Bourse closed lower all through the week save for Thursday due to strong interest in Banking Stocks. Consequently, the All Share Index (ASI) slumped 3.0% W-o-W in contrast to the dramatic surge in share prices in major exchanges around the world. The weak performance of the benchmark index was driven by heavy losses in large cap Industrial Goods and Oil & Gas stocks such as DANGCEM (-4.9%), WAPCO (-12.5%), FORTE (-13.1%), TOTAL(-8.2%) and MOBIL (-2.6%). Accordingly, market capitalization eased N279.1bn to settle at N9.0tn while YTD loss worsened to –8.6%. Activity level however closed mixed with average volume traded surging significantly by 225.8% to 569.3m units (due to increased trade on Standard Alliance Insurance) while average value traded eased 7.5% to N1.4bn respectively.

Sector indices all trended southwards in line with the broader index with the Industrial Goods index sustaining the largest W-o-W decline of 7.7% due to significant losses sustained by DANGCEM (-4.9%),  WAPCO (-12.5%) and CCNN (-14.3%). The Oil & Gas index followed with 4.3% loss due to huge sell pressure on FORTE (-13.1%), TOTAL (-8.2%) and MOBIL (-2.6%) while the Insurance index depreciated 2.5% – dragged by NEM (-3.8%) and AIICO (-4.8%). The Banking index dipped 2.1% as GUARANTY (-4.8%), ACCESS (-4.3%) and DIAMOND (-9.0%) suffered losses. The Consumer Goods index also eased 0.6% on declines in CADBURY (-14.1%) and FLOURMILL (-8.4%).

Investors sentiment measured by market breadth (advancers/decliners ratio) stayed mostly dreary settling at 0.5x – much in line with that of previous week (0.6x). A total of 17 stocks appreciated during the week while 35 depreciated. AIRSERVICE (+19.7%), WEMA (+10.5%) and LIVESTOCK (+9.6%) were price winners for the week while CCNN (-14.3%), NAHCO (-14.2%) and CADBURY (-14.1%) were the worst performers. With sustained downtrend in the Nigerian Bourse, the All Share Index touched its lowest point since 31st May 2016 this Week. We think this may indicate an attractive point for bargain hunters and long term value investors to cherry pick stocks.

Money Market Review and Outlook
Money market rates operated within a tight band at the start of the week but rose significantly towards the end of the week on account of tight financial system liquidity. In the absence of substantial inflows, the Apex Bank also held fire on primary market activities during the week. Accordingly, Open Buy Back (OBB) and Overnight (O/N) lending rates rose 12.2 and 13.3 percentage points W-o-W on Friday (from 13.0% and 13.5% last Friday).

OBB and O/N rates opened at last Friday’s close of 13.0% and 13.5%, closing flat on Monday but increased marginally on Tuesday. The impact of the tight system liquidity was however observed by midweek as OBB and O/N rates jumped 5.5 percentage points apiece to close at 19.2% and 19.5% at the end of Wednesday’s trading session.  This uptrend continued on Thursday, as OBB and O/N rates further rose 3.5 and 3.7 percentage points to close at 22.7% and 23.2% respectively. Interbank lending rates inched higher on Friday, with OBB and O/N rates closing the week at 25.7% and 26.3%.

Activities in the Treasury Bills market were mixed during the week, with sentiment opening bullish before swinging bearish by midweek. Thus, average T-bills rate rose on 3 of 5 trading days. The week opened with significant buying interest particularly in the shorter termed instruments, and this triggered a drop in yields as average T-bills rate fell 1.0% point to close at 16.3% on Monday. The buying interests continued into the second trading session of the week as average rate further shed 11bps to settle at 16.2%. The buying interests were however not sustained into midweek as bearish sentiments filtered into the market and selloffs recorded across tenors, consequently, average rate rose 27bps to close at 16.5% on Wednesday. The selloffs continued in Thursday’s trading session, triggering a 36bps increase in average T-bills rate to settle at 16.9%, eventually closing the week at 17.3% on Friday, down 4bps W-o-W.

In the week ahead, we expect money market rates to trend northwards at the start of the week but moderate towards the end of the week on the back of a scheduled N119.9bn and N140.0bn in Net T-bills and OMO maturity. We also expect the Apex Bank to mop up liquidity through OMO auctions accordingly, in addition to the T-bills auction scheduled for Wednesday.

Foreign Exchange Review and Outlook
Despite the sharp intraday volatilities in Naira/Dollar spot rate observed at the interbank market during the week, parallel market rate held steady as security agencies clamped down on market operators during the week. The Apex Bank reportedly sanctioned one of the Deposit Money Banks (Standard Chartered Bank), imposing a N2.0bn fine on the Lender (14.9% of its FY:2015 PAT) for currency market infractions. BDC operators were also reportedly under strict surveillance as officials of the Department of State Securities (DSS) raided the offices of some operators perceived to be breaching the approved BDC exchange rate. At close of business on Friday, parallel market rate was reported by local media to have been fixed at N395.00/US$1.00 (Buy) and N400.00/US$1.00 (Sell).

At the interbank, the Naira further weakened against the dollar on Monday with spot rate settling at N350.22/US$1.00 from N328.00/US$1.00 the previous Friday. Intraday spot rate touched a low of N375.00/US$1.00 before the Apex Bank intervened to moderate rate to N305.27/US$1.00 at the close of trade on Tuesday. Interbank spot rate remained around Tuesday’s levels till the end of the week, closing the week at N304.75/US$1.00 on Friday. Whilst interbank spot rate appreciated on some trading sessions during the week due to the CBN interventions, 1-Yr forward rate on the FMDQ OTC Platform depreciated on all trading days (from N321.00/US$1.00 on Monday to N355.00/US$1.00 by Friday), implying bearish outlook on the local unit.

In the interim, we expect recent developments to constrain supply at the BDC/Parallel segments as operators withhold supplies. We imagine the possibility of this also leading to further fragmentation of the FX market, taking the parallel market further underground in view of the close scrutiny by security agencies. Thus, whilst parallel market rate could strengthen in the interim, the medium term outlook points to a more volatile currency.

Bond Market Review and Outlook
Activities in the local bonds market remained soft this week as investors concentrated on shorter term money market instruments. Benchmark bond yields trended northward, albeit marginal, as sentiment remained bearish. Average yield closed the week at 15.3% after recording a 2bps and 4bps increase on Wednesday and Thursday respectively. We expect activities in the local bonds market to increase next week as the Debt Management Office (DMO) is scheduled to auction net N110.0bn worth of the 14.50% FGN JUL 2021, 12.50% FGN JAN 2026 and 12.40% FGN MAR 2036 instruments at its monthly primary market auction next Wednesday.

Performance across the Sub-Saharan Africa sovereign Eurobonds remained dampened this week as bearish sentiments persisted. The SSA sovereigns had been impacted in the past weeks by expectations of a rate hike by the US Fed following stronger economic performance. The bearish sentiments in SSA sovereigns was further heightened by the emergence of Donald Trump as the winner of the US Presidential Election. The president-elect’s campaign of stimulus spending and lower tax rate fueled expectation of higher fiscal deficits and interest rate, hence the general bearish sentiment in the global bonds market this week.

The repricing of instruments led to an increase in yields on all SSA sovereigns with average yield on Nigerian sovereign Eurobond instruments inching 1.0% higher whilst average yield on South African sovereign Eurobonds rose 0.6%. Average yield on the Ghana sovereigns moved 1.1% northwards whilst Kenya sovereign Eurobonds increased 0.9% on average. We expect this bearish sentiment to persist in the week ahead.

Performance in the Nigerian corporate Eurobonds market was largely bearish as yields rose on all instruments save for the ACCESS 2017 (down 0.9% W-o-W to 4.3%) and the FBN 2020 (down 0.4% W-o-W to 13.4%) Eurobonds. Investors took profit on the FIDELITY 2018 Eurobond (up 2.7% W-o-W to 18.9%) whilst sell-offs were also recorded in the 9.3% ACCESS 2021 (up 0.6% W-o-W to 11.5%) and the DIAMOND 2019 (up 1.5% W-o-W to 22.6%) Eurobonds. With YTD return of +8.1% and -18.8% respectively, the GUARANTY 2018 and DIAMOND 2019 Eurobonds remain the best and worst performer amongst the Nigerian corporate Eurobonds.


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