BY BAMIDELE FAMOOFO
Investment in the stock market recorded a 6.1% return year-to-date in 2021 as against 50% achieved in 2020 as the Nigerian equities market ended the last trading week of 2021 on a bullish note with All-Share Index edged up by 1.1% to close at 42,716.44 points.
Notably, investors’ buying interest in Nestle Plc (+10.0%), MTNN Plc (+7.8%), Access Bank Plc (+5.1%), and Zenith Bank Plc (+3.1%) drove the benchmark index higher.
Activity levels were stronger than in the prior week, as trading volume and value increased by 3.1% w/w and 6.1% w/w respectively.
Performance across sectors was broadly positive as the Consumer Goods (+6.2%), Banking (+2.6%), and Insurance (+1.9%)indices posted gains, while the Industrial (-3.9%) and Oil and Gas (-1.1%) indices declined.
In the first trading week of the New Year; stock analysts expect the bulls to retain dominance as buying activities due to positioning for 2021FY dividends will likely suppress selling activities.
However, investors are advised to take positions in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings.
In the money market, the overnight rate contracted by 200bps w/w to 10.5% as at the last trading day in 2021, following inflows from OMO maturities (N60.00 billion) which offset funding pressures for CBN’s weekly FX auction.
Financial experts at Cordros Research, envisaged that the OVN rate would remain elevated in the double-digit region in the first week in 2022 as expected debits for CRR and CBN’s weekly auctions inflows are likely to outweigh expected inflows from OMO maturities (N50.00 billion).
Meanwhile, proceedings in the treasury bills secondary market traded ended the week on a mixed note as the average yield was unchanged at 4.8%. Across the market segments, the average yield at the OMO segment expanded by 6bps to 5.5%.
Elsewhere, the average yield at the NTB segment settled lower by 1bp to 4.4%.
At Wednesday’s NTB PMA, the CBN offered N52.31 billion worth of instruments for sale to market participants and demand at this auction was strong with a subscription level of N82.25 billion (Bid-offer ratio: 1.6). Eventually, the CBN allotted N52.76 billion – N2.49 billion of the 91D, N2.16 billion of the 182D and N48.11 billion of the 364D bills with respective stop rates of 2.49% (unchanged), 3.45% (unchanged), and 4.90% (previously 5.00%).
Accordingly, experts expect yields to trend lower this week, 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.
Analysis of the performance of the treasury bonds secondary market showed a continued trading with mixed sentiments, although with a bullish bias, following the persistently lower demand as investors opted for non-sovereign instruments.
Consequently, the average yield pared by 1bp to 11.6%. Across the benchmark curve, the average yield declined at the short (-3bps) and long (-2bps) ends following demand for the APR-2023 (-7bps) and APR-2049 (-9bps) bonds, respectively but expanded at the mid (+2bps) segment as investors sold off the MAR-2027 (+7bps) bond.
“In the first week of the new year, we expect yields to oscillate around current levels, as activities are likely to remain tepid due to the festivities. Also, we expect non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand,” Cordros Research noted.
Meanwhile, Nigeria’s FX reserve sustained its decline as the CBN maintained its interventions in the FX market. Thus, the gross reserves closed lower by USD61.41 million w/w to USD40.53 billion as at December 30, 2021. The naira depreciated by 4.6% to NGN435.00/USD at the I&E window (IEW) but appreciated by 0.5% w/w to N 565.00/USD at the parallel market. At the IEW, total turnover (as of 30th December 2021) declined by 70.6% WTD to USD346.77 million, with trades consummated within the N405.00 – 453.12/USD band. In the Forwards market, the naira rate depreciated at the 1-month (-1.0% to N418.88/USD), 3-month (-1.4% to N426.36/USD), 6-month (-2.1% to N437.71/USD), and at the 1-year (-0.9% to N448.81/USD) contracts.
In the opinion of Cordros Research, 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 quite 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.”