Nigeria Market Watch: Week Ending 15th May, 2015

Weekly Equities Market Review and Outlook
After posting marginal losses on all trading days in the previous week, the All Share Index (ASI) showed mixed performances this week. Though the index recorded declines on the first two trading days this week, the equities market closed the week positive (+0.1%) W-o-W as bargain hunting positioning drove the index northwards in the last three trading days of the week. Market capitalization also added N18.6bn W-o-W to settle at N11.7tn.

Conversely, market activities measured by volume and value were mixed W-o-W. The aggregate volume traded for the week increased 2.7% W-o-W to settle at 1.6bn units while aggregate value of shares traded also eased 28.4% W-o-W to close at N14.0bn. UBA topped the list of most active stocks with 521.3m units by volume and N2.7bn by value.

NSE sector indices were broadly positive this week save for the Banking and Insurance indices that contracted 0.2% and 0.1% W-o-W respectively. The loss recorded in Banking index was on the back of the depreciation in ETI (-12.0%) and SKYEBANK (-13.2%) during the week. The Consumer Goods index led the weekly sector gainers with 0.7% W-o-W due to gains in UNILEVER (+4.7%) and 7UP (+8.6%). The Oil & Gas and Industrial Goods indices followed with 0.6% and 0.1% W-o-W respectively.

Market breadth for the week however stayed negative at 0.8x as 30 stocks advanced against 40 declining stock while 112 stocks remained flat during the week. JBERGER (+10.3%), UPL (+10.0%) and NEIMETH (+10.0%) topped the gainers’ list while UNITYBANK (-14.9%), SKYEBANK (-13.2%) and HONYFLOUR (-12.4%) led the losers for the week. Given the performance of the market in recent sessions, we expect the relative calm in the week ahead as investors await the outcome of the MPC meeting.

Money Market Review and Outlook
The money market rates remained relatively low this week, but inched higher relative to the previous week as average Open Buy Back (OBB) and Overnight rates for the week pegged at 11.5% and 11.9% respectively, relative to the rates of the previous week (OBB : 8.5% and overnight rate: 9.15%).  On Monday, liquidity level opened at N304.7bn while OBB and Overnight rates closed at 9.7% and 10.1% respectively on Monday.

With no liquidity inflow at the beginning of the week, the liquidity level fell to N279.3bn as there was an OMO auction worth N21.1bn on Monday, hence Money market rates rose to 10.8%(OBB) and 11.2%(Overnight). On Wednesday however, liquidity level further declined due to another OMO auction worth N134.0bn; consequently, the OBB rate rose to 11.3% while the Overnight rate rose to 11.7%.

On Thursday, liquidity opened at N193.0bn as there was an OMO maturity worth N114.2bn that hit the system. Consequently, the Overnight rate eased marginally to11.6% although the OBB closed flat. Financial system liquidity declined to N144.2bn on Friday while OBB and Overnight rates rose to 14.3% and 14.7% respectively. The sharp decline in Liquidity level this week was due to outflows from the system linked to the multiple OMO auctions carried out by the CBN and the DMO bond auction.

In the coming week, liquidity level is expected to increase due to series of inflows expected: T-bills worth N110.9bn, OMO bills worth N298.5bn and bond maturity worth N26.2bn. Hence, rates may moderate even as we expect outflows linked to another NTB auction.

Foreign Exchange Weekly and Outlook
The naira held steady against the greenback yet again this week on continued intervention of the Apex bank in the market. Consequently, the interbank offer rate traded at a very tight range, closing at N199.10/US$1.00 throughout the week.  Meanwhile, the Central Bank of Nigeria’s (CBN) continued its intervention at N197.00/US$1.00. We believe the perceived stability in the currency market stays driven by measures put in place by the CBN since February. According to traders, dollars sale by oil multinationals and NNPC during the week provided liquidity in the currency market.

On the other hand, activities in the BDC segment of the foreign exchange market has not been as calm as rates opened at N221.00/US$1 but depreciated N1.00 on Tuesday to N222.00/US$1.The local currency appreciated N1.00 on Wednesday and Thursday each to settle at N220.00/US$1.

We expect the naira to remain relatively stable in the week ahead as the MPC hold its meeting to deliberate on key policy variables in the economy. We also anticipate that the current tight control in the currency market will be upheld.

Bond Market Review and Outlook
The W-o-W performance of short and medium term yields remained predominantly bullish in line with our earlier expectation. However, the W-o-W yields on long term instruments were mostly on a rise with the exception of MAR 2024 and JUL 2034 instruments.

Average yields eased marginally from 16.6% on Monday to 14.5% on Thursday, before rising back to 14.6% on Friday. Average yields on short term bonds settled at 13.6% while yield on medium tenor instruments was 13.5% while that of longer term bonds berthed at16.5% with a spread of 4.7% this week.

Bond auction worth N60.0bn for the month of May held on Wednesday for the re-opening of FEB 2020, MAR 2024 and JULY 2034 instruments at N20.0bn. The short, medium and long term bonds re-opened were all oversubscribed with the total N60bn fully alloted. Relative to the auction held in April, marginal rates at the primary market auction on Wednesday fell across tenors on offer. The FEB 2020, MAR 2024 and JUL 2034 instruments were offered at marginal rates of 13.8%, 13.5% and 13.9% respectively, 60bps, 74bps and 58bps less than the marginal rates at the April auction. The moderation was majorly attributed to the lower volume of bonds offered at this month’s auction (N60.0bn relative to N70.0bn offered in April) as well as the prevailing lower risk pricing of Nigerian fixed income securities. Following the reopening, it was observed that yields on FEB 2020 and MAR 2024 instruments rose 0.5% and 0.4% to close 13.5% and 13.4% respectively while the JULY 2034 instrument declined 0.1% to 13.6% the last day.

W-o-W analysis of the Sovereign Yield curve indicates a rise in average yields in the short term benchmark bonds while average yields on the medium term instruments dropped marginally as yields on long term bonds barely changed. The rise in yields at the shorter term cannot be dissociated from the tighter liquidity in the money market consequent on CBN’s aggressive liquidity mop-up. We expect yields to moderate next week as investors may likely take advantage of the high yields of fixed income securities, especially at the lower end of the curve.

Source: Afrinvest (West Africa) Limited Research Team.