Sunday, April 14, 2024

Renewed interest by foreign investors in Airtel shares buoy stock market index

Uba Group


The local bourse closed in the green territory despite profit-taking activities in heavyweights in the telecommunications and consumer goods sectors, as the All-Share Index advanced by 2.1 percent w/w to close at 54,085.30 points.

Notably, the positive performance this week was buoyed by foreign investors’ renewed interest in AIRTELAFRI (+20.2%) which proved sufficient in offsetting losses in GUINNESS (-11.2%), NB (-10.0%), and MTNN (-4.8%).
Consequently, the MTD and YTD returns for the index increased to +9.0 percent and +26.6 percent, respectively. However, activity levels were weaker than in the prior week, as trading volume and value declined by 39.4 percent w/w and 14.5 percent w/w, respectively.

Performance across sectors in our coverage was broadly negative, following losses in the Insurance (-6.3%), Consumer Goods (-3.9%), Oil and Gas (-0.9%), Banking (-0.8%), and Industrial Goods (-0.7%) indices.

With the recent decision of the MPC to hike the MPR by 150bps, it is expected that negative sentiments will dominate market performance in the short term. Nonetheless, experts think a short-term market correction will present opportunities for investors to make re-entry in stocks with sound fundamentals and attractive dividend yields. Overall, analysts at Cordros Research advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings.

Just as was envisaged, the overnight (OVN) rate expanded by 150bps w/w to 14 percent in the money and fixed income market. The OVN rate was elevated all through the week as the system was pressured with funding for CBN’s auctions (OMO, NTB and FX) and offset inflows from OMO maturities (N30.00 billion) and FGN bond coupon payments (N9.37 billion).

This week, a moderation is envisaged in the OVN rate due to expectations of improved system liquidity, as inflows amounting to N425.63 billion flow into the system from FAAC disbursements (c. N400.00 billion), FGN bond coupon payments (N5.63 billion) and OMO maturities (N20.00 billion).

Proceedings in the Treasury bills secondary market closed the week on a bearish note on the back of the depressed system liquidity, and the adjustment in secondary market rates to reflect the higher stop rates from Wednesday’s NTB PMA. Thus, the average yield across all instruments expanded by 19bps to 4.0 percent. Across the segments, the average yield expanded by 40bps and 14bps to 4.4 percent and 3.8 percent at the OMO and NTB segments, respectively. At last week’s NTB auction, the CBN offered N153.03 billion – N5.36 billion of the 91-day, N3.78 billion of the 182-day, and N143.88 billion of the 364-day – in bills. Ultimately, the CBN allotted N173.48 billion – N3.56 billion of the 91-day, N1.52 billion of the 182-day and N168.67 billion of the 364-day bills – at respective stop rates of 2.50 percent (previously 1.74%), 3.89 percent (previously 3.00%), and 6.49 percent (previously 4.70%). Elsewhere, at the OMO auction, the CBN offered and allotted N20.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions.

This week, we expect bullish sentiments in the T-bills market, following the expectation of healthy system liquidity.

Trading in the FGN bonds secondary market was bearish, as investors’ sell-offs in reaction to the MPC rate hike on Wednesday watered the gains recorded at the beginning of the week. Thus, the average yield across instruments expanded by 8bps to close at 11.2 percent. Across the benchmark curve, the average yield expanded at the short (+8bps), and long (+23bps) ends as investors sold off the JAN-2026 (+52bps) and MAR-2036 (+35bps) bonds, respectively; but contracted at the mid (-6bps) segment following buying interest on the NOV-2029 (-15bps) bond.

“We believe the MPC’s rate hike will continue to drive aversion for long-dated bonds in the short term. Consequently, we reiterate our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply,” experts at Cordros Research noted.

Nigeria’s FX reserves decreased by USD125.53 million w/w to USD38.63 billion (24 May 2022) during the review week. Across the FX windows, the naira fell by 0.1 percent to N419.50/USD at the I&E window (IEW) and depreciated by 0.7 percent to N610.00/USD at the parallel market.

At the I&E window, total turnover (as of 26 May 2022) decreased by 31.4 percent WTD to USD428.10 million, with trades consummated within the N410.00 – N453.55/USD band. In the Forwards market, the rate weakened on the 1-month (-0.3% to N419.66/USD), 3-month (-0.4% to N426.54/USD), 6-month (-0.7 percent to N437.61/USD) and 1-year (-0.4% to N458.67/USD) contracts.

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