BY BAMIDELE FAMOOFO
The All Share Index of the Nigerian Exchange Limited recorded a gain of 0.5 percent week-on-week during the trading week ended October 14, 2022.
Gains in tier-1 banks, GTCO Plc, 5.3 percent; Access Corporation Plc, 5.3 percent and Zenith Bank Plc, 2.3 percent; as well cement giant, BUA Cement Plc, 8.7 percent; was responsible for the positive outcome of the index in the review week.
Though it was a shortened trading week, it was, however, enough for the local bourse to stage a come-back from its five-week bearish streak.
Consequently, the month to date (MTD) and year to date (YTD) returns settled at -3.0 percent and +11.4 percent, respectively. Activity levels were mixed, as trading volume declined by 16.2 percent w/w while value traded increased by 34.9 percent w/w.
Analysing by sectors, the Industrial Goods (+3.2%), Banking (+1.9), and Insurance (+1.7%) indices advanced, while the Oil & Gas (-2.1%) and Consumer Goods (-0.7%) indices closed in the red.
In the trading week that kicks off today, it is believed that investors will remain reluctant to leave gains in the market. As such, experts expect intermittent profit-taking to persist. However, market observers expect this to be tempered by bargain-hunting activities from early birds ahead of the Q3-22 earnings season. Notwithstanding, experts at Cordros Research advise investors to take positions in only fundamentally sound stocks as the fragility of the macro environment remains a significant headwind for corporate earnings.
The overnight (OVN) rate in the money market dipped by 75bps w/w to close at 16.5 percent last week, as inflows from NTB maturities closed at N190.89 billion and OMO maturities (N10.00 billion) saturated system liquidity and overshadowed debits for CBN’s NTB and FX auctions.
Nonetheless, financial experts highlight that the average liquidity level for the week settled lower at a long position of N54.08 billion as against a long position of N182.54 billion in the previous week.
“We expect the OVN to trend upwards in the coming week, as funding pressures from the week’s auctions (FGN bond, OMO & FX) will likely offset the expected inflow from FGN bond coupon payments (N46.44 billion),” Cordros Research hinted.
The Treasury bills secondary market closed with mixed sentiments, albeit with bullish bias, as the average yield across all instruments pared by 1bp to 7.9 percent. The performance was attributed to participants moving to the secondary market to cover for lost bids at the NTB PMA. Across the segments, the average yield contracted by 2bps and 1bp to 10.3 percent and 7.3 percent at the OMO and NTB secondary markets, respectively.
At Wednesday’s NTB PMA, the CBN offered bills worth N190.89 billion – N14.27 billion of the 91-day, N25.56 billion of the 182-day, and N151.06 billion of the 364-day – to market participants. That said, demand at the auction was skewed toward the long-dated bond, although the total subscription level settled lower at N111.94 billion (bid-to-offer 0.6x). Eventually, the CBN allotted N34.82 billion worth of bills to participants at respective stop rates of 6.47 percent (previously 6.49%), 7.90 percent (previously 7.50%), and 13.00 percent (previously 12.00%).
Following the thin inflows expected in the system this week, market analysts anticipate a low demand for T-bills and a slight expansion in yields from current levels.
Bearish sentiments persisted in the FGN bonds secondary market in the review week, as the average yield expanded by 21bps to 13.7 percent.
“We attribute this bearish sentiment to sell-offs across the mid and long spectrums as investors (1) reacted negatively to the Finance Minister’s debt restructuring comments and (2) took positions in anticipation of the October 2022 bond auction scheduled to hold next week Monday. Across the benchmark curve, the average yield contracted at the short (-3bps) end as investors demanded the MAR-2025 (-34bps) bond, but expanded at the mid (+50bps) and long (+18bps) segments, following the profit-taking activities on the NOV-2029 (+53bps) and JAN-2042 (+55bps) bonds, respectively,” Cordros disclosed.
It is expected that the outcome of the FGN auction held today (17 October) will shape the sentiments in the Treasury bond secondary market next week. At the auction, the DMO will offer instruments worth N225.00 billion through re-openings of the 14.53 percent FGN APR 2029, 12.50 percent FGN APR 2032 and 16.2499 percent FGN APR 2037 bonds. Notwithstanding, in the medium term, we maintain our view of an uptick in bond yields, as both the FGN’s borrowing plan for 2022 FY and the expected fiscal deficit point towards an elevated supply.
Nigeria’s FX reserve sustained its descent for the sixth consecutive week, falling to its lowest level since 5 October 2021. Precisely, the reserves declined by USD165.65 million w/w to USD37.91 billion (13 October 2022). Across the FX windows, the naira depreciated both at the I&E window (IEW) and parallel market by 0.5 percent and 1.1 percent to N441.38/USD and N743.00/USD, respectively. At the I&E window, total turnover (as of 13 October 2022) declined by 21.5 percent WTD to USD333.55 million, with trades consummated within the N414.00 – N464.55/USD band. In the Forwards market, the rate depreciated on the 1-month (-0.5% to N419.70/USD), 3-month (-0.7% to N455.41/USD), 6-month (-1.3% to N473.04/USD), and 1-year (-1.3% to N498.04/USD) contracts.
