BY BAMIDELE FAMOOFO
Despite the negative kick-off in the week ended June 9, 2023, the domestic bourse closed in the green territory given investors’ interest in the shares of Airtel Africa which gained 1.8 percent.
Notably, the All-Share index advanced by 0.2 percent to close at 55,930.97 points.
As a result, the month-to-date and year-to-date returns for the index settled at +0.3 percent and +9.2 percent , respectively. Activity level was weaker than the prior week, as trading volume and value declined by 15.1 percent w/w and 1.4 percent w/w, respectively.
From a sectoral standpoint, the Insurance index recorded the most significant gain of 13.9 percent, followed by the Oil and Gas (+3.4%), Banking (+1.1%) and Consumer Goods (+0.1%) indices.
On the flip side, the Industrial Goods index declined by -1.3 percent
Stock market analysts at Cordros Securities said they expect the choppy trading pattern that played out last week to persist this week, as investors continue to cherry-pick stocks with sound fundamentals and, at the same time, remain cautious about leaving gains in the market.
Notwithstanding, they advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.
Meanwhile, overnight rate inched higher by 23bps to 12.1 percent in the review week at the money and fixed income markets, with the level ticking up marginally at the tail end of the week, given a late CRR debit.
“We note that system liquidity was buoyant during the week, with the level settling at a net long position of NGN543.14 billion (prior week: net long position of NGN184.17 billion),” experts noted.
This week, Cordros Research expects the OVN rate to head upwards as it envisages a squeeze in the system liquidity in the face of no significant inflows into the system.
Similarly, proceedings in the treasury bills secondary market were tempered at the start of the week, but turned bullish after the NTB auction as the average yield dipped by 9bps to 6.3 percent.
“We attribute this performance to the combined impact of (1) the healthy system liquidity and (2) market participants moving to the secondary market to compensate for lost bids at Wednesday’s PMA,” analysts hinted.
At the auction, the CBN offered bills worth N182.85 billion – N1.03 billion of the 91-day, N1.94 billion of the 182-day, and N179.89 billion of the 364-day – to market participants. Demand was higher, especially for the 364-day bill (bid-to-cover: 4.5x), as the total subscription settled at N815.61 billion.
Eventually, the CBN allotted exactly what was offered at respective stop rates of 4.48 percent (previously 2.29%), 6.00 percent (previously 4.99%), and 9.45 percent (previously 7.99%).
Looking ahead, experts envisage yields in the Treasury bills secondary market to expand as the liquidity in the financial system becomes pressured during the week.
Activities in the FGN bonds secondary market remained bullish as investors continued to cherry-pick attractive bonds across the curve. Accordingly, the average yield across all instruments declined by 12bps to 13.8 percent. Across the benchmark curve, the average yield contracted at the short (-26bps), mid (-10bps), and long (-5bps) segments, following investors’ demand for the MAR-2027 (-43bps), APR-2032 (-16bps), and APR-2049 (-14bps) bonds, respectively.
Cordros analysts maintain their view that frontloading of significant borrowings for the year by the FG will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply.
Activities at the FX reserves declined further last week, as the gross reserves level declined by N137.97 million w/w to N34.88 billion (07 June). Likewise, the naira depreciated by 1.7 percent to N472.50/USD at the I&E window (IEW), with total turnover at the window (as of 08 June 2023) decreasing by 21.4 percent WTD to USD74.18 million, as trades were consummated within the N460.00 – N492.30/USD band.
In the Forwards market, the naira appreciated across the 1-month (+0.5% to N480.18/USD), 3-month (+0.9% to N506.77/USD), 6-month (+0.8% to N532.01/USD) and 1-year (+0.8% to N561.12/USD) contracts.
Experts believe the FX liquidity issues will remain over the short-to-medium term as they do not see any positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.