BY BAMIDELE FAMOOFO
Sentiments remained broadly bullish in the second trading week of the year as investors continued to cherry-pick stocks with attractive dividend yields ahead of 2021FY dividend declarations.
Accordingly, the All-Share Index rose by 1.4% w/w to close at 44,454.67 points. Pertinently, bargain hunting in BUAFOODS (+24.1%), DANGCEM (+8.0%), GUINNESS (+5.8%), and INTBREW (+5.1%) drove the weekly gain as year-to-date gain increased to 4.1%.
Activity levels were weaker than in the prior week, as trading volume and value declined by 22.4% w/w and 44.8% w/w, respectively.
Analysing by sectors, the Industrial Goods (+3.6%), Banking (+2.5%), and Oil and Gas (+1.7%) indices posted gains. On the flip side, the Consumer Goods (-4.4%) and Insurance (-1.5%) indices declined.
In the short term, stock analysts expect the bulls to retain dominance in the market given positioning for 2021FY dividends as institutional investors continue to search for clues on the direction of yields in the FI market. Notwithstanding, investors are advised to take positions in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings.
At the Money market, the overnight rate remained elevated in the double-digit region but unchanged at 14.8% w/w, as funding pressures for CBN’s weekly OMO (N20.00 billion) and FX auctions offset inflows from OMO maturities (N59.50 billion).
In the coming week, it is expected that the OVN rate will trend northwards as the CBN would likely mop up the pent-up liquidity emanating from FGN bond coupon payments (N105.17 billion) and OMO maturities (N88.41 billion).
For the third consecutive week, mixed trading persisted in the Treasury bills secondary following the uncertainty in the direction of yields at recent primary market auctions.
Specifically, the average yield pared by 1bp to 4.8%. Across the market segments, the average yield at the NTB segment contracted by 4bps to 4.4%.
Elsewhere, the average yield at the OMO segment expanded by 11bps to 5.6%. At Wednesday’s NTB PMA, the CBN offered N77.61 billion for sale with a total subscription of N113.06 billion. Accordingly, the CBN allotted N2.19 billion for the 91-day, N1.46 billion for the 182-day, and N53.90 billion for the 364-day bills – at respective stop rates of 2.50% (previously 2.49%), 3.44% (previously 3.49%), and 5.50% (previously 4.90 %). Also, the CBN sold N20.00 billion worth of bills to market participants at this week’s OMO auction and maintained stop rates across the three tenors, as with previous auctions.
Experts said the yield on T-bills is expected to inch higher in the coming week as participants sell-off instruments to obtain liquidity for short-term obligations.
The Treasury bonds secondary market was bullish following improved demand from investors as they cherry-picked attractive instruments across the curve. Consequently, the average yield declined by 7bps to 11.5%. Buying activities was witnessed across the benchmark curve, as the average yield contracted at the short (-14bps), mid (-3bps), and long (-8bps) segments, mostly on the APR-2023 (-29bps), MAR-2027 (-7bps) and JUL-2034 (-41bps) bonds, respectively. Notably, the DMO published the Q1-22 bond issuance calendar on Wednesday, which showed the total volumes offered at c. N420.00 – 480.00 billion. Also, only the short (a JAN-2026 re-opening) and long (a JAN-2042 new issue) dated instruments are on offer.
Nigeria’s FX reserve recorded its first weekly accretion in the past two months, as it increased by USD13.19 million w/w to USD40.51 billion (12th January 2022). Meanwhile, the naira depreciated by 0.1% w/w and 0.3% w/w to N416.50/USD and N572.00/USD at the I&E window (IEW) and parallel market, respectively. In the Forwards market, the naira rate depreciated at the 1-month (-0.1% to N417.04/USD), 3-month (-0.1% to N422.92/USD), and at the 1-year (-1.0% to N447.12/USD) contracts, but appreciated at the 6-month (+0.1% to N432.10/USD) contract.
In the opinion of analysts at Cordros Securities Limited, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR. However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low. Thus, FPIs which have historically supported supply levels in the IEW (53.8% of FX inflows to the IEW in 2019FY) will be needed to sustain FX liquidity levels. Hence, they think (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.