Banking, telco stocks relaunch Nigerian bourse on winning path as returns hit 33.2%

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Although the local bourse kicked off the week sluggishly, positive sentiments resurfaced later in the week, following renewed interest in banking stocks.

Particularly investors’ interest in FBNH (+32.7%), GTCO (+16.1%), UBA (+12.1%) and MTNN (+6.4%) drove the benchmark index higher by 1.5 percent week-on-week to 99,587.25 points, with the Month-to-Date and Year-to-Date returns settling at +1.4 percent and +33.2 percent, respectively.

However, trading activity was mixed, as the total trading volume increased by 5.6 percent while the total trading value declined by 4.7 percent w/w.

Analyzing by sectors, the Banking (+9.4%) and Insurance (+1.0%) indices advanced while the Oil and Gas (-0.7%), Industrial Goods (-0.4%) and Consumer Goods (-0.3%) indices declined.

Looking ahead, stock market experts at Cordros Research said they expect investors to adjust their portfolios based on the assessment of Q1-24 corporate earnings reports.

“However, the prospect of higher fixed-income yields could dampen buying interests, especially in the absence of any significant positive catalysts,” Cordros said in a review report.

The major themes in the global equities market last week, centered around (1) quarterly corporate reports, (2) US Federal Reserve’s latest monetary policy decision that initially signaled a potentially dovish pivot, and (3) US Non-farm payrolls data indicating a slowdown, which raised expectations for potential interest rate cuts by the Federal Reserve.

As of the time of writing, US equities (DJIA: 0.0%; S&P 500: -0.7%) were headed for a weekly loss following the Federal Reserve’s FOMC decision to maintain the target range for the Fed funds rate. European equities (STOXX Europe: -0.6%; FTSE 100: +0.8%) posted mixed performances, as investors digested mixed corporate results and weaker-than-expected rise in US private payrolls.

In Asia (Nikkei 225: +0.8%; SSE: +0.5%), sentiments remained upbeat driven by dovish remarks from the US Federal Reserve and pledges from China’s policymakers to stimulate economic growth.

The Emerging Markets Index (MSCI EM: +1.1%) closed higher buoyed by positive sentiment in China (+0.5%) while the Frontier Markets index (MSCI FM: -0.1%) declined due to bearish sentiments in Iceland (-0.3%) and Kuwait (-0.2%)
In the money and fixed income market, the overnight rate contracted by 417bps w/w to 27.1 percent, following the inflows from FGN bond coupon payments (N53.35 billion) and OMO maturities (N42.00 billion). The average system liquidity remained positive, closing at a net long position of N706.61 billion (vs. a net long position of N1.07 trillion from the previous week).

Barring any significant liquidity influx into the financial system this week, financial pundits envisage the OVN rate will likely notch higher amid possible debits for net NTB issuances at Wednesday’s auction.

Proceedings in the Treasury bills secondary market closed on a bullish note driven by bargain hunting mainly at the short end of the curve amid pressures on longer-dated papers. As a result, the average yields across all instruments declined by 7bps to 21.3 percent. Across the market segments, the average yield at the T-bills segment dipped by 2bps to 22.3 percent but contracted by 7bps to 18.7 percent in the OMO segment.

A northward movement in yields is anticipated this week in the Treasury bills secondary market as demand for instruments moderates.

In addition, the CBN is scheduled to hold an NTB PMA on Wednesday (08 May) with N179.36 billion worth of maturities on offer.

Trading in the Treasury bonds secondary market was bullish, as the average yield declined by 12bps to 18.8 percent.

Across the benchmark curve, the average yield contracted at the short (-15bps), mid (-25bps) and long (+3bps) segments following interests in the APR-2029 (+35bps), APR-2032 (-40bps) and APR-2037 (-40bps) bonds, respectively.

Players in the Treasury bonds secondary market are expected to continue to reshuffle their holdings in preparation for this month’s FGN bond auction scheduled to hold on 13 May and thus, anticipate activities will remain subdued in the meantime.

“Over the medium term, we expect yields to remain elevated, driven by the (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics,” Cordros stated.

However, Nigeria’s FX reserves settled higher in the review week as the gross reserves level grew by USD132.68 million to USD32.28 billion (02 May). Meanwhile, the naira depreciated further by 4.4 percent to N1, 400.40/USD at the Nigerian Autonomous Foreign Exchange Market.

The naira remained volatile in the FX market, largely reflecting weak capital inflows and subpar interventions from the CBN.

Although concerns about the escalation of the Middle East conflict are waning, experts highlight that the moderation of yields on naira-denominated assets amid elevated global interest rates is further discouraging FPI inflows.

With the CBN maintaining a relaxed stance on its monetary tightening measures and considering the persisting uncertain geopolitical environment, they anticipate FPI inflows will remain subdued. Consequently, the naira is expected to remain under pressure in the short term.