BY BAMIDELE FAMOOFO
The bears resurfaced on the domestic bourse last week as the benchmark index recorded declines in three of the five trading sessions. Accordingly, the All-Share index dipped by 0.7 percent week on week (w/w) to close at 49,695.12 points.
Particularly, profit-taking activities witnessed in ZENITHBANK (-5.3%), STANBIC (-4.6%), AIRTELAFRI (-2.0%), and FBNH (-1.4%) drove the weekly loss. Consequently, the MTD and YTD returns settled at -0.3 percent and +16.3 percent, respectively. Activity levels were weak, as trading volume and value declined by 20.5% w/w and 27.8% w/w, respectively.
Finally, sectoral performance was mixed as the Insurance (+1.0%), and Consumer Goods (+0.7%) indices advanced, while the Banking (-0.6%) and Oil & Gas (-0.1%) indices declined; the Industrial Goods index closed flat.
Analysts expect alpha-seeking investors to rotate their portfolios towards cyclical stocks that delivered decent earnings during the Q2-22 earnings season amid the yield uptick in the Fixed Income market. However, they think the absence of a near-term catalyst will likely skew overall market sentiments to the negative side, particularly as the political space gets heated. Notwithstanding, experts reiterate the need for positioning in only fundamentally sound stocks as the unimpressive macro environment remains a significant headwind for corporate earnings.
Last week, in the money market, the overnight (OVN) rate closed lower by 350bps, w/w, at 9.0 percent, as the system remained saturated with liquidity from the prior week despite the absence of significant inflows. We highlight that the average system liquidity level settled lower this week, but remained positive at a net long position of N78.72 billion (vs a net long position of N352.31 billion in the previous week).
Cordros Research expects the OVN rate to trend northward next week, as the thin inflow from OMO maturities (NGN35.00 billion) may not be sufficient to keep system liquidity afloat.
The Treasury bills secondary market sustained its bullish sentiments driven by the (1) ample liquidity in the market and (2) market participants looking to the secondary market to fill lost bids at the week’s NTB PMA.
As a result, the average yields across all instruments contracted by 9bps to 8.4 percent. Across the segments, the average yields contracted by 31bps and 1bp to 10.8 percent and 7.7 percent at the OMO and NTB secondary markets, respectively.
At the NTB PMA, the CBN offered N214.74 billion – N20.77 billion of the 91-day, N31.29 billion of the 182-day, and N162.68 billion of the 364-day – in bills. Eventually, the CBN allotted precisely what was offered at respective stop rates of 5.50 percent (previously 4.00%), 5.85 percent (previously 5.00%), and 10.00 percent (previously 8.50%).
This week, Cordros expects yields in the T-bills secondary market to expand from current levels, given our expectations of tight liquidity conditions. Also, we anticipate quiet trading at the NTB segment as participants’ position for next week’s PMA, with NGN159.60 billion worth of maturities on offer.
Elsewhere, activities in the Treasury bonds secondary market turned bearish this week, driven by investors’ sell-offs of positions at the short and mid spectrum of the curve.
Consequently, the average yield inched higher by 18bps to 13.0 percent. Across the benchmark curve, the average yield expanded at the short (+56bps), mid (+4bps) and long (+7bps) segments as investors sold off the APR-2023 (+293bps), FEB-2028 (+19bps) and MAR-2035 (+52bps) bonds, respectively. Notably, the DMO revised the Q3-22 FGN bond issuance calendar, reflecting that the DMO has replaced the 13.00 percent FGN JAN-2042 bond with the 16.25 percent FGN APR-2037 bond.
Cordros maintains its view of an uptick in bond yields in the medium term, as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
Meanwhile, Nigeria’s FX reserves dipped after three consecutive weeks of accretion, falling by USD81.74 million w/w to USD38.92 billion (as of 6 September).
Across the FX windows, the naira depreciated by 1.1 percent to N436.33/USD and N708.00/USD at the I&E window and parallel market, respectively.
At the IEW, total turnover (as of 8 September) declined by 62.2 percent WTD to USD282.85 million, with trades consummated within the N425.00 – N437.50/USD band.
In the Forwards market, the naira depreciated at the 1-month (-0.3% to NGN435.83/USD) contract, but appreciated at the 6-months (+0.1% to NGN452.19/USD) and 1-year (+0.3% to N476.36/USD) contracts. Conversely the naira was flat at the 3-months (NGN440.30/USD) contract.
