Nigeria Market Watch: Week Ended 8th May, 2015

Nigerian Stock Market Weekly Summary and Outlook
The Nigerian Stock Market sustained a downward trend throughout the week. NSE ASI closed the week at 0.8% lower compared to previous week’s return, hence index level berthed at 34,388.12 points despite the streams of quarterly results that were released. Likewise, YTD return swung back negative, settling at 0.8%. Market activity however improved as total volume for the week rose 35.5% W-o-W to 1.6bn units while value traded increased 68.5% W-o-W after N20.2bn worth of shares exchanged hands.

The Consumer Goods index (-2.5%) declined the most among the sector indices as investor sentiment in GUINNESS (-5.6%), NESTLE (-5.3%) and NIGERIAN BREWEREIS (-2.2%) weakened. Similarly, Oil and Gas trailed, declining 0.7% W-o-W. Conversely, the Banking (+2.0%), Industrial Goods    (+ 1.4%) and Insurance (+0.6%) sector indices all trended northwards as key counters in these sectors added points during the week.

Market breadth was broadly negative, settling at 0.8x as 33 stocks advanced while 43 stocks declined. 106 stocks however closed flat. VITAFOAM (+32.5%), CI LEASING (+26.9%) and REDSTAREX (+24.3%) were the best performing stocks for the week, while UNITY BANK (-32.7%), LEARN AFRICA (-11.2%) and ABCTRANS (-9.5%) were the market laggards. We anticipate a likely rebound in the market in the week ahead, albeit marginally, given sustained improvement in global oil prices and relatively cheap valuation of key counters in the market. Therefore, we advise investors to take strategic position in fundamentally sound stocks.

Money Market Review and Outlook
Liquidity Levels within money market this week were relatively high; hence, average Money market rates for the week settled at 8.5% for Open Buy Back (OBB) and 9.1% for Overnight rate similar to the rates in the previous week. Liquidity level opened for the week at N719.9bn with OBB and Overnight rates at 8.8% and 9.5% respectively.

On Tuesday however, Liquidity level declined consequent on OMO Auction worth N135.9bn the previous day while Standing Lending Facilities accessed from the CBN by Deposit Money Banks (DMBs) closed at N15.3bn.

With no liquidity inflow on Wednesday, Liquidity level further declined with an opening balance of N494.6bn while money market rates settled at 8.1% (OBB) and 8.7% (Overnight). On Thursday however, there was liquidity inflow due to T-bills maturity worth N150.6bn on same day while there was also an OMO auction worth N114.9bn. Consequently, the money market rates rose to 8.9% for the OBB and 9.3% for the Overnight rates.

In the coming week, we expect liquidity to stay moderate given bond auction worth N60.0bn scheduled to hold on Wednesday however OMO maturity worth N114.2bn is also expected on Thursday. Hence, money market rates should trade within current bands.

Foreign Exchange Market Review and Outlook
The Local unit held steady against the green back yet again this week, hence the naira closed flat at N199.10/US$1.00 at the interbank market as the local currency traded within a tight range throughout the week. Similarly, the CBN’s clearing rate steadied at N197.00/US$1.00 for the week.

In the BDC segment of the forex market on Monday, the value of the naira appreciated 2.4% to N217.56/US$1.00 from the previous week’s close of N223.10/US$1.00. However, the currency declined 2.0% to N222.00/US$1.00 the next day on the back of some level of scarcity in the parallel market.On Wednesday the domestic currency appreciated to N221.50/US$1.00 on weaker demand for the greenback compared to the previous day, strengthening marginally by 1 kobo to N222.50/US$1.00 the next day.

Despite CBN’s continued intervention in the currency market, External Reserves improved by 0.3% to US$29.7bn (compared US$29.5bn). We believe this is linkable to the recent rally in the global prices of oil which have increased 13.5% in the last 4weeks. We expect the naira to continue to trade within the current level at the interbank segment of the forex market in the coming week

Bond Market Review and Outlook
Yields on Nigerian short to mid-term tenor bonds trended southwards in the first three trading days of week as bullish sentiment strengthened. Average yields therefore eased marginally settling at 13.9%, 13.8% and 13.6% respectively from Monday to Wednesday. Yields on longer term bonds remained attractively high though traded divergently as average yields rose successively to 16.2%, 16.3% and 16.5% accordingly from Monday to Wednesday.

The bullish performance in the short and mid-term tenors was however corrected on Thursday as average yields rose 8bps to 13.7% and further increased to 13.9% on Friday. On the other hand, average yields on longer term bonds moderated to 16.4% on Thursday and Friday.

The May bond auction worth N60.0bn has been scheduled to hold next Wednesday for the re-opening of the FEB 2020, MAR 2024 and JUL 2034 instruments. Analysis of the yield curve clearly shows investors’ affinity for short to medium term bond instruments for fears of liquidity and uncertainty around future interest rate expectation; hence, the average 2.5% yield-spread between the short and long end of the curve. While risk perceptions on polity and exchange rate in the economy is low, we expect the market.

Source: Afrinvest (West Africa) Limited Research Team.