BY BAMIDELE FAMOOFO
Local stocks closed in the green territory despite pressure from profit-taking activities during the week. Pertinently, the All-Share Index ended the week 0.7 percent higher, settling at 50,722.33 points.
Gains in MTNN (+7.4%), BUAFOODS (+7.2%), ZENITHBANK (+5.8%), STANBIC (+9.2%), and WAPCO (+8.8%) spurred the weekly gain. Based on the preceding, the year -to -date (YTD) return settled at +18.7 percent, though activity levels were weaker, as trading volume and value declined by 54.3 percent week on week (w/w) and 21.1 percent w/w, respectively.
On sector basis, performance was mixed as the Consumer Goods (+3.0%), Banking (+2.6%), and Oil and Gas (+0.6%) indices advanced, while the Industrial Goods (-5.8%) and Insurance (-0.4%) indices declined.
In the interim, it is believed that the full swing of the half year 2022 earnings season will dictate market sentiments and possibly drive positive performance as investors hunt for bargains in fundamentally sound stocks with a consistent history of interim dividend payments.
Notwithstanding, stock analysts envisage intense selling pressures on stocks of companies that grossly underperform in H1-22. Overall, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.
Elsewhere in the money market, the overnight rate was unchanged at 15.0 percent, reflective of the unhealthy balance in system liquidity amid inflows from the Federal Accounts Allocation Committee disbursement of about N480 billion in the review period.
“We highlight that funding conditions this week averaged a net long position of N92.45 billion this week as against a net short position of N138.48 billion in the previous week,” Cordros Research noted.
It is expected that the OVN will remain elevated this week, as the expected inflow from Open Market Operation maturities which stood at N5.0 billion may not be enough to saturate the liquidity in the system.
Meanwhile, the tight liquidity in the financial system continued to drive bearish sentiments in the Treasury bills secondary market last week, as the average yield across all instruments expanded by 29bps to 8.5 percent. Across the segments, average yield increased by 147bps and 29bps to 10.0 percent and 7.6 percent at the OMO and NTB secondary markets, respectively.
Following the relatively lower inflows expected in the system this week, financial experts at Cordros Research expect bearish sentiments to continue to pervade the T-bills market and drive yields higher. They also expect market focus to be shifted to the NTB PMA holding on Wednesday (August 10), with the CBN expected to roll over N150.62 billion worth of instruments.
Activities in the FGN bonds secondary market remained bearish as the sell-offs of instruments across the curve persisted in the review week. Thus, the average yield across instruments inched higher by 29bps to close at 12.3 percent. Across the benchmark curve, the short (+9bps), mid (+36bps), and long (+43bps) dated instruments bore the impact of the sell-offs as investors took profits off the MAR-2024 (+18bps), FEB-2028 (+59bps), and JUL-2045 (+151bps) bonds, respectively.
Cordros maintains in its view an upward repricing of FGN bonds in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
In the foreign exchange market, Nigeria’s FX reserve declined for the second consecutive week, decreasing by USD133.52 million w/w to USD39.09 billion (04 August).
Across the FX windows, the naira appreciated by 0.2 percent and 8.3 percent to N428.13/USD and N660.00/USD at the I&E window (IEW) and parallel market, respectively. At the I&E window, total turnover (as of 4 August 2022) declined by 2.2 percent week to date (WTD) to USD452.96 million, with trades consummated within the N409.97 – N446.00/USD band.
In the Forwards market, the rate weakened at the 1-month (-0.3% to NGN429.31/USD), 3-month (-0.7% to N438.86/USD), 6-month (-2.7% to N461.49/USD) and 1-year (-1.3% to N479.17/USD) contracts.