BY BAMIDELE FAMOOFO
There was a contested battle between the bulls and the bears in the equities market in the trading week ended July 1, 2022 as mixed sentiments dominated activities on the domestic bourse.
Eventually, the All-Share Index notched a 0.2 percent week on week (w/w) gain to close at 51,829.67 points. Notably, buying interests in OKOMU OIL (+12.1%), FBNH (+10.0%), ETI (+9.3%), and INTBREW (+5.0%) underpinned the market’s performance.
Accordingly, the year to date (YTD) return increased to 21.3 percent. Likewise, activity level was positive, as volume and value traded rose by 20.3 percent w/w and 78.7 percent w/w, respectively.
Sectoral performance was mixed, as the Consumer Goods (-0.4%), Oil and Gas (-0.2%), and Industrial Goods (-0.1%) indices declined, while the Insurance (+3.6%) and Banking (+1.1%) indices recorded gains.
With the H1-22 earnings season on the horizon, Analysts believe investors will be looking for clues on the sustainability of the decent corporate earnings release for Q1-22.
However, they (experts) expect mixed market performance in the coming week as bargain hunting in stocks with attractive dividend yields will be matched by intermittent profit-taking activities. Notwithstanding, investors are advised to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.
Last week in the money market, the overnight (OVN) rate remained in the double-digit region, staying flat at 14.0 percent, following the already tight system liquidity, which was further pressured by outflows for net NTB issuances (N23.56 billion), FX auction, and cash reserve ratio (CRR )debit in the absence of any significant inflows to the system.
“We expect the OVN rate to trend southwards next week, as the system is saturated with inflows worth a combined N471.22 billion from FAAC disbursements (N451.22 billion) and OMO maturities (N20.00 billion),” Cordros Research said.
The Treasury bills secondary market remained bearish last week due to the intertwined factors of (1) persistent illiquidity in the system and (2) participants selling off their positions on some short to mid-dated instruments. As a result, the average yields across all instruments expanded by 50bps to 5.4 percent.
Across the segments, average yield expanded by 60bps and 18bps to 5.4 percent and 5.3 percent at the NTB and OMO secondary markets, respectively.
At this week’s NTB PMA, the CBN offered N174.09 billion – N13.88 billion of the 91-day, N2.16 million of the 182-day, and N158.04 billion of the 364-day – in bills. Eventually, the CBN allotted N197.65 billion – N12.28 million of the 91-day, N17.16 billion of the 182-day and NGN168.21 billion of the 364-day bills – at respective stop rates of 2.40 percent (previously 2.49%), 3.79 percent (unchanged), and 6.07% (unchanged).
This week, given our expectations of healthier system liquidity, we expect T-bills yields to decline from current levels in the face of improved demand.
Last week, the Treasury bonds secondary market turned bearish as month-end sell-offs at the top of the week, and increasing investor apathy for yields at this level drove the average yield higher by 3bps to 11.2 percent. Across the benchmark curve, the average yield contracted at the short (-4bps) end following bargain hunting on the APR-2023 (-22bps) bond; but contracted at the mid (+6bps) and long (-6bps) segments as investors sold off the APR-2032 (+9bps) and JUL-2045 (+54bps) bonds, respectively.
Cordros Research noted: “We maintain our expectation of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.”
Nigeria’s FX reserve maintained its accretion for the fifth consecutive time in the review week, as the gross reserve position grew by USD230.14 million w/w to USD39.16 billion (30 June 2022). Across the FX windows, the naira weakened against the US dollar by 1.1 percent w/w to N425.00/USD at the I&E window and by 0.2 percent to N615.00/USD in the parallel market.
At the I&E window, total turnover (as of 30 June) declined by 7.1 percent WTD to USD549.17 million, with trades consummated within the N410.00 – N444.00/USD band. In the Forwards market, the naira depreciated at the 1-month (-1.0% to N424.65/USD), 3-month (-1.0% to NGN431.97/USD), 6-month (-1.1% to N443.59/USD), and 1-year (-1.2% to NGN467.12/USD) contracts.