BY BAMIDELE FAMOOFO
Positive sentiments returned to the local bourse last week as investors took advantage of the moderation in share prices to make re-entries into companies with attractive dividend yields.
Accordingly, the NGX All-Share Index rose by 0.4% week on week (w/w) to close at 47,328.42 points.
Notably, bargain hunting in SEPLAT (+7.5%), GTCO (+2.7%), INTBREW (+4.8%), and MTNN (+0.8%) drove the weekly gain.
Return on investment got better as month-to-date (MTD) and year-to-date (YTD) return settled at +1.5% and +10.8%, respectively. However, activity levels were weaker than in the prior week, as trading volumes and value declined by 3.2% w/w and 37.0% w/w, respectively.
Performance across sectors was broadly positive in line with the directional movement in NGXASI, as the Oil and Gas (+3.9%), Insurance (+0.7%), and Banking (+0.2%) indices posted gains. The Consumer Goods (-1.1%) index closed lower while the Industrial Goods index closed flat.
Stock market Analysts said the NGX floor will be flooded with corporate earnings in the weeks ahead as more companies publish their audited 2021FY numbers, accompanied by dividend declarations.
“As things stand, we believe investors have fully priced-in dividend expectations. Hence, we think positive surprises from dividend-paying stocks would provide a catalyst for increased buying activities. Notwithstanding, we advise investors to seek trading opportunities in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings,” Analysts at Cordros Capital hinted.
In the money market last week, the overnight (OVN) rate expanded by 100bps w/w to 15.0%, as funding pressures for net NTB issuances (N142.73 billion) and CBN’s weekly OMO (NGN100.00 billion) and FX auctions outweighed inflows from OMO maturities (N227.20 billion).
It is expected the OVN rate to trend northwards this week as the CBN would likely mop up the extra liquidity emanating from FAAC disbursements (c. N359.76 billion) and OMO maturities (N70.00 billion).
Accordingly, trading in the Treasury bills secondary market ended the week on a bullish note, as market participants reacted to declining marginal rates at recent auctions.
Consequently, the average yield across all instruments fell by 65bps to 3.8 percent. Across the market segments, the average yield contracted by 67bps to 4.6 percent at the OMO segment following reinvestment of this week’s maturing bills.
At last week’s OMO auction, the CBN offered and allotted N100.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors (96DTM – 7.0%, 180 DTM – 8.5% and 362DTM – 10.1%), as with prior auctions.
Similarly, the average yield at the NTB segment moderated by 58bps to 3.8 percent as unmet demand from the NTB auction filtered into the secondary market.
At the NTB auction, the CBN offered N115.28 billion for sale with a total subscription of N602.65 billion. Eventually, the CBN allotted N258.01 billion – N5.36 billion of the 91-day, N11.03 billion of the 182-day and N241.61 billion of the 364-day bills – at respective stop rates of 2.24 percent (previously 2.48%), 3.30% (unchanged), and 4.35 percent (previously 5.20%).
This week, yields are expected to trend lower further, as investors sustain buying activities in reaction to the moderation in the stop rate of the one-year paper at the last primary market auction.
Trading in the Treasury bonds secondary market was also bullish in the review week, taking a cue from the declining yields in the T-bills market. In addition, investors also reacted positively to the rebound in economic growth as reported by the NBS (GDP print for 2021FY: +3.40% vs 2020FY: -1.92%).
Consequently, the average yield contracted by 13bps to 11.1 percent. Across the benchmark curve, the average yield declined at the short (-20bps) and long (-29bps) segments following buying activities on the MAR-2027 (-45bps) and APR-2037 (-53bps) bonds, respectively, but expanded at the mid (+8bps) segment due to sell pressures on the JUL-2030 (+70bps) bond.
This week, experts envisage that demand from investors will linger and drive yields lower.
“Nonetheless, we are maintaining our medium-term view that the FG’s significant frontloading of borrowings for the year in H1-22 will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply,” they said.
After sixteen consecutive weeks of decline, Nigeria’s FX reserves closed higher by USD40.68 million w/w to USD39.84 billion (23rd February 2022).
Consequently, the naira appreciated by 0.2 percent and 0.3 percent w/w to N416.00/USD and N574.00/USD at the I&E window (IEW) and the parallel market, respectively. At the IEW, total turnover (as of 24th February 2022) declined by 10.2 percent WTD to USD442.98 million, with trades consummated within the N406.00 – 453.12/USD band.
In the Forwards market, the naira rate was flat at the 1-month (N418.51/USD) contract; however, the rate depreciated at the 3-months (-0.1% to N424.41/USD), 6-months (-0.2% to NGN425.07/USD) and 1-year (-1.6% to N455.35/USD) contracts.
Cordros Capital disclosed: “In our opinion, 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 pretty 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, we 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.”
