Sell-offs in heavy weight stocks drag All Share Index down 0.7%

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BY BAMIDELE FAMOOFO

Uba Group

Activities in the domestic bourse took a negative turn last week as the loss recorded on the second trading day (-1.8%) proved sufficient in wiping off the cumulative 1.2 percent gain as of Friday.

Precisely, the All-Share Index declined by 0.7 percent to 43,968.75 points, driven by sell-offs in GUINNESS (-10.0%), FLOURMILL (-9.9%), NB (-6.3%), MTNN (-2.0%) and DANGCEM (-0.8%).

Consequently, the MTD and YTD returns printed +0.3 percent and +2.9 percent, respectively. Likewise, activity levels were weaker than the prior week, as trading volume and value declined by 21.9 percent w/w and 24.5 percent w/w, respectively.

Elsewhere, the performances across sectors were broadly negative, as all the coverage indices – the Insurance (-2.2%), Consumer Goods (-1.9%), Oil and Gas (-0.7%), and Industrial Goods (-0.3%) — save for the Banking (+0.2%) index, printed losses.

Analysts expect the bearish sentiments to remain predominant this week in the absence of any positive triggers to turn the tide for Nigerian equities.

Nonetheless, they reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.

Just as was envisaged, the overnight (OVN) rate in the money market expanded by 400bps to 12.8 percent last week, as the net NTB issuances (NGN117.09 billion) and OMO auction (NGN20.00 billion) debits outweighed the sole inflow from OMO maturities (NGN15.00 billion).

Cordros Capital highlighted that the average liquidity level remained at a net long position of NGN378.28 billion (vs net long position of NGN407.81 billion in the previous week).

“We believe the outflows for next week’s auctions (FGN bonds, OMO & FX) and possible CRR debits will pressure the system liquidity. Thus, we expect the OVN rate to trend northwards next week,” Cordros added.

The buoyant system liquidity triggered bullish sentiments in the NTB secondary market this week, as market participants took positions at the short and mid spectrums of the curve to cover for lost bids at the NTB PMA. Consequently, the average yield across all instruments dipped by 40bps to 10.5 percent. Across the market segments, the average yield contracted by 50bps to 10.6 percent in the NTB segment and declined marginally by 2bps to 10.2 percent in the OMO secondary market. At this week’s NTB PMA, the CBN offered NGN193.03 billion – NGN21.15 billion of the 91-day, NGN32.83 billion of the 182-day, and NGN139.06 billion of the 364-day – in bills. At the auction, demand was higher at a total subscription level of NGN520.92 billion with more demand skewed towards the longer-dated bills (NGN499.42 billion translating to 95.9 percent of the total subscription). Eventually, the CBN allotted NGN310.12 billion – NGN4.52 billion of the 91-day, NGN5.44 billion of the 182-day, and NGN300.16 billion of the 364-day bills – at respective stop rates of 6.50 percent (unchanged), 8.05 percent (unchanged), and 13.99% (previously: 14.50%). With system liquidity expected to be tight in the coming week, Cordros anticipates an increase in the average yield on T-bills from current levels.

The FGN bonds secondary market turned bullish last week, as the average yield dipped by 6bps w/w to 14.5%.

Experts attributed this performance to investors cherry-picking attractive bonds in higher-yield environments particularly at the short and mid segments of the naira curve. Across the curve, the average yield contracted at the short (-15bps) and mid (-13bps) segments following bargain-hunting activities on the JAN-2026 (-35bps) and NOV-2029 (-16bps) bonds, respectively. However, sell-offs were witnessed at the long (+8bps) end as investors sold off the MAR-2036 (+37bps) bond.

“We expect the outcome of the FGN auction holding on Monday (14 November) to shape the sentiments in the Treasury bond secondary market next week. At the auction, the DMO will offer instruments worth NGN225.00 billion through re-openings of the 14.55% FGN APR 2029, 12.50% FGN APR 2032, and 16.2499% FGN APR 2037 bonds. Notwithstanding, in the medium term, we maintain our view of an uptick in bond yields, as both the FGN’s borrowing plan for 2022 FY and the expected fiscal deficit point towards an elevated supply,” Cordros noted.