BY BAMIDELE FAMOOFO
The domestic bourse edged higher last week as the reforms of the new administration continued to spur an unprecedented rally in the market.
Precisely, the All-Share index rose by 5.5 percent to 59,000.96 points, supported by strong interest in MTN Nigeria Plc shares which appreciated by 9.6 percent and Airtel Africa Plc, its close rival, gaining 7.8 percent.
Accordingly, the month-to-date and year-to-date returns for the index increased to 5.8 percent and 15.1 percent, respectively.
In terms of activity levels, the trading volume and value grew by 94.7 percent w/w and 35.3 percent w/w, respectively.
Sectoral performance was broadly positive, as the sectors under the coverage of Cordros Research showed that banking stocks gained 12.6 percent, Oil and Gas, 11.9 percent; Insurance, 9.0 percent; Consumer Goods, 4.1 percent; and Industrial Goods, 5.8 percent.
This week, it is expected that investors would embark on profit-taking activities following the recent rally in the market.
However, stock market analysts at Cordros Research expect that the profit-taking activities will be tempered by bargain-hunting activities from “early bird” investors ahead of the H1-23 earnings season.
Overall, the experts reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.
At the money market, during the review week, the overnight (OVN) rate closed flat at 12.1 percent, amid the absence of significant inflows into the financial system.
Accordingly, the average liquidity level closed lower at a net long position of N233.86 billion as against net long position of N543.14 billion in the previous week.
This week at the money market, experts envisage an upward shift in the OVN rate as they believe the debits for next week’s FGN bonds auction and possible CRR will mount pressure on system liquidity.
Meanwhile, activities in the treasury bills secondary market were bearish in the week under review, as the lower liquidity system influenced the reduced demand for bills across the spectrum.
As a result, the average yield expanded by 2bps to 6.3 percent.
At the week’s NTB PMA, the CBN offered N34.54 billion – N1.01 billion of the 91-day, N1.29 billion of the 182-day, and N32.15 billion of the 364-day – in bills to participants.
The total subscription level settled at N286.13 billion (vs N830.19 billion at the previous auction), with more demand skewed toward the longer-dated bills (N277.27 billion translating to 96.9 percent of the total subscription).
As in the previous auction, the CBN allotted precisely what was offered at respective stop rates of 4.89 percent (previously: 4.48%), 5.12 percent (previously: 6.00%), and 8.24 percent (previously: 9.45%).
Given the expectations of a liquidity squeeze in the system this week, experts anticipate higher yields in the T-bills secondary market.
Relatedly, bearish sentiments returned to the treasury bonds secondary market as investors booked profits at the short and long ends of the naira curve.
Consequently, the average yield increased by 2bps w/w to 13.8 percent. Across the benchmark curve, the average yield expanded at the short (+4bps) and long (+4bps) ends, following sell-off on the MAR-2027 (+20bps) and APR-2049 (+24bps) bonds, respectively.
Meanwhile, the average yield contracted at the mid (-2bps) segment as investors demanded the APR-2032 (-3bps) bond.
This week in the bond market, experts at Cordros Research expect the outcome of this month’s FGN bond auction to be held today to influence the direction of yields in the secondary market.
At the auction, the DMO is offering instruments worth N360.00 billion through the re-opening of the 14.55 percent FGN APR 2029 bond and new issuance of the FGN JUN 2033 (10-year), FGN JUN 2038 (15-year), and FGN JUN 2053 (30-year) bonds.
“Nonetheless, we retain our view that frontloading of significant borrowings for the year by the FG will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply,” Cordros noted.
Nigeria’s FX reserves remained pressured last week, declining by $194.00 million w/w to $34.62 billion (15 June).
Likewise, the naira depreciated significantly by 28.7 percent to N663.04/$ at the I&E window (IEW), reflecting the impact of the FX market liberalisation announced during the week.
At the IEW, total turnover (as of 13 June 2023) declined by 34.2 percent WTD to $378.85 million, with trades consummated within the N460.00 – N791.00/USD band.
In the Forwards market, the naira depreciated at the 1-month (-31.2% to N698.21/USD), 3-month (-31.9% to N743.69/$, 6-month (-30.9% to N769.91/USD), and 1-year (-29.0% to N790.62/$) contracts.
“This week, we expect the re-introduction of the “willing buyer, willing seller” model at the IEW to influence the exchange rate direction. Nonetheless, while the CBN’s abolishment of its multiple FX windows is positive in boosting foreign investors’ confidence, we think they will adopt a wait-and-see approach, for now, looking for signals on the CBN’s plans to start clearing the FX backlogs and boosting FX supply to support the market in the near term,” Cordros disclosed in a report.
