Nigeria Capital Market: Week Ended 17th April, 2015

Nigerian Stock Market Weekly Summary and Outlook
The NSE ASI added 20bps W-o-W as the index closed at 35,005.42pts. Market capitalization advanced N25.7bn to N11.9tn while YtD performance remained positive at 1.0% at the close of the week. On the contrary, activity level measured by volume traded retreated 45.3%% to 1.9bn units even as value traded declined 23.0% to N19.4bn.
The Banking sector topped the sector advancers for the week, rising 1.5% due to rally in GUARANTY (+13.3%) and ZENITH (+12.3%) as well as earnings releases during the week. The Oil & Gas sector also advanced 1.5% on the back of W-o-W price appreciation in OANDO (+15.3%). The Insurance and Industrial sectors also added 0.4% and 0.1% respectively. However, the Consumer Goods Index slipped 1.3% on pull back in NESTLE (-10.5%).
Market breadth was broadly positive (2.4x) as 52 stocks advanced while 22 stocks declined. 109 stocks however closed flat. Leading the gainers’ chart were GUINNESS (+27.4%), BETAGLASS (+21.2%) and VONO (+18.8%) while NESTLE (-10.5%), PRESCO (-7.9%) and WAPIC (-7.3%) led the losers. We expect more corporate releases to drive the market.

Money Market Review and Outlook
Money market rates surged high at the beginning of the week as liquidity opening balance was at a low level of N89.9bn. As a result, the scramble for funds worth N88.1bn at the Standing Lending Facility (SLF) by Deposit Money Banks (DMBs) brought Monday’s OBB and Overnight rates to their week’s high of 78.3% and 80.3% respectively. On Tuesday however, as a result of an improvement in liquidity opening balance (at N108.6bn), OBB and Overnight rates fell by 2.5% and 1.8% to settle at 75.8% and 78.4% respectively.
As the scramble for liquidity at the SLF reduced to N68.5bn on Wednesday, Money Market rates dropped to 29.2% (OBB) and 30.1% (Overnight). In the same manner, with a liquidity opening balance of N106.8bn on Thursday, the OBB and Overnight rates further declined to 11.2% and 11.5% respectively. Due to OMO maturity worth N188.4bn on the same day, liquidity closing balance on Thursday improved to N215.6bn. Consequently, Money Market rates settled at 13.1% for OBB and 13.4% for Overnight on Friday. In the coming week, we expect liquidity level to remain moderate on the back of bond maturity of N535.0bn and T-bills of N169.4bn expected to hit the system on Thursday.

Foreign Exchange Market Review and Outlook
The naira opened the week at the rate of N199.11/US$1.00 at the interbank market, appreciating by 2 kobo relative to previous week. Throughout the week, the local unit traded at a tight range, oscillating between N199.11/US$1.00 and N199.13/US$1.00. The market witnessed inflows worth US$300m from dollar sales by NNPC on Wednesday. Despite this, the exchange rate depreciated by 2 kobo to close at N199.13/US$1.00 the same day.
The latest move of the Central Bank to stabilize the naira has been to restrict the naira debit card spending to US$50,000 per annum (from US$150,000) for overseas cardholders. This is due to inadequate foreign exchange to pay for rising spending by oversea cardholders. Also, CBN directed Commercial banks to peg overseas customers’ daily cash withdrawals at $300. We expect the local unit to continue to trade at the current band of N199.11/US$1.00 and N199.13/US$1.00 in the coming week.

Bond Market Review and Outlook
Investor sentiments toward bond continue to garner increasing momentum around the fundamentals of bond market. Whilst the sovereign credit risk rating remains a non-investment grade – S&P: B+ and Fitch: BB-, investors seem to be optimistic about near to medium term performance of bonds. Outlook on yields still favours bond prices as no hike is expected in the benchmark policy interest rate given the macroeconomic headwinds around external reserves accretion.
Bond instruments across tenors during the week traded sideways but with an overall bullish momentum in line with the outing in prior two weeks. Investor appetite largely moved in favour of short to medium term bond instruments as issues around Nigeria’s sovereign credit rating are still of main concern; hence, the low appetite for long tenured bonds. Average yields in the week opened at 14.0%, traded as high as 14.6% before moderating to 13.9% and eventually closed at 14.1%. April-23 2015 bond instrument worth N535.0bn will be maturing next week. This is expected to impact on market liquidity.
The sovereign yield curve continues to maintain its normality though showed some form of moderation relative to the previous week. Investors continue to factor near term country risks into yield pricing with much more attraction for shorter tenured bonds. Recent buffer for the bond market has been the clarity in domestic polity and the relative stability in foreign exchange.
Our expectation for the market in the week remains positive on the back of funds flow across markets given that Nigerian yield environment is still more attractive relative to peers in emerging markets (EMEs average yield: 7.0%). Nevertheless, uncertainties around future interest rate expectation, possible exchange rate risks due to falling oil prices and reserves and frail market sentiments may constitute a drag.

Source: Afrinvest (West Africa) Limited Research Team.