Friday, March 29, 2024

Stock market closes on negative note as year to date return dips further

BY BAMIDELE FAMOOFO

The local bourse was not immune to the rout in global equities, as bearish sentiments persisted for the second consecutive week. Accordingly, the All-Share Index shed 0.6 percent week on week (w/w) to close at 49,370.62 points.

Particularly, sell-offs in bellwether stocks – OKOMUOIL (-10.0%), PRESCO (-10.0%), ACCESSCORP (-5.7%), and WAPCO (-10.0%), drove the weekly loss.
Consequently, the MTD loss increased to -2.0 percent, while the YTD gain moderated to +15.6 percent.

Likewise, activity levels mirrored the overall market broad gauge, as trading volume and value declined by 45.5 percent w/w and 9.7 percent w/w, respectively. Sectoral performance was mixed, as the Banking (+0.7%), Consumer Goods (+3.0%), and Industrial Goods (+0.3%) indices advanced, while the Insurance (-1.4%) and Oil and Gas (-0.9%) indices declined.

Stock analysts expect market performance to remain mixed this week as investors rotate their portfolios towards stocks with attractive dividend yields, which could be matched by intermittent profit-taking activities.

Notwithstanding, they (analysts) advised investors to take positions in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings.

In line with expectations, the overnight (OVN) rate expanded by 200bps w/w to 15.0 percent, as the debit for FGN bonds (N200.57 billion) and FX auctions outweighed the inflow from OMO maturities (N95.79 billion).

We also highlight that system liquidity was tighter this week, averaging a net short position of N78.80 billion (vs a net short position of N20.82 billion in the previous week).

This week, it is expected that the OVN rate will decline slightly, following the inflow of N111.82 billion – FGN bond coupon (N66.82 billion) and OMO maturities (N45.00 billion) – expected to hit the system.

Trading activities in the Treasury bills secondary market were mixed, albeit with a bearish tilt, as the average yield across all instruments expanded slightly by 1bp to 8.6 percent.

“We attribute the bearish sentiments in this market to the depressed system liquidity, which caused participants to sell off bills across the curve.

Across the segments, the average yield increased by 5bps to 11.2 percent at the OMO secondary markets, but contracted by 1bp to 7.9 percent at the NTB segment,” Cordros Research noted.

That said, last week, an auction was held at the OMO segment, where the CBN offered the market participants N50.00 billion worth of bills. However, the auction closed with no sale, and we suspect the high bid range across all tenors was responsible for this.

This week, it is expected that yields on T-bills will trend southward following the inflows expected in the system. Also, experts expect the PMA holding this week Wednesday (24 August) to shape the direction of yields at the NTB segment, where the CBN will be rolling over NGN295.53 billion worth of maturing bills.

This previous week, the FGN bonds secondary market continued in bearish territory as investors re-priced bonds in reaction to the July CPI reading (19.64%) released Monday.

As a result, the average yields across all instruments expanded by 13bps to 12.8 percent. Across the benchmark curve, the average yield increased at the short (+8bps), mid (+8bps), and long (+18bps) ends as investors sold off the JAN-2026 (+44bps), NOV-2029 (+13bps), and MAR-2050 (+35bps) bonds, respectively.

At this month’s bond PMA, the DMO offered instruments worth N225.00 billion to investors through re-openings of the 13.53 percent MAR 2025 bond (Bid-to-offer: 0.3x; Stop rate: 12.50%), 12.50 percent APR 2032 (Bid-to-offer: 0.5x; Stop rate: 13.50%) and 13.00 percent JAN 2042 (Bid-to-offer: 2.4x; Stop rate: 14.00%) bonds.

Demand improved relative to the last auction, with a subscription level of NGN247.07 billion, translating to a bid-to-offer ratio of 1.1x (vs bid-to-offer: 0.6x in the previous auction). The DMO eventually allotted instruments worth NGN196.57 billion, resulting in a bid-to-cover ratio of 1.3x.

“We maintain our stance of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply level over the rest of the year,” Cordros noted.

Nigeria’s FX reserves increased after four weeks of decline, rising by USD22.35 million w/w to USD38.91 billion (17 August).

Across the FX windows, the naira appreciated at the I&E window by 0.1% to N429.05/USD, but depreciated by 0.6% to N686.00/USD at the parallel market.

In the Forwards market, the naira was flat at the 1-month N429.54/USD) contract but expanded at the 3-month (+0.2% to N437.51/USD) and 1-year (+0.2% to N481.17/USD) contracts; the naira depreciated at the 6-month (+0.1% to NGN452.82/USD) contract.

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