BY BAMIDELE FAMOOFO
Although the domestic equities market kicked off the week positively, the bears resurfaced on the penultimate and last trading days of the week, as investors booked profits on bellwether stocks. Accordingly, the All-Share Index dipped by 1.1 percent w/w to close at 43,912.64 points.
Notably, Dangote Cement’s -10.0 percent closing limit declined in the last trading session, and losses in Airtel Africa (-2.8%) and GTCO (-3.2%) drove the weekly loss. Based on the preceding, the MTD loss increased to -10.4 percent, while the YTD gain further moderated to +2.8 percent.
Analysing activity levels, the total volume and value traded declined by 36.1 percent w/w and 14.8 percent w/w, respectively.
Save for the Industrial Goods (+0.3%) index that closed positive, all other sectoral indices — Insurance (-2.4%), Consumer Goods (-0.4%), Banking (-0.1%), and Oil and Gas (-0.2%), recorded losses.
Analysts expect a mixed performance from the market in the week ahead as the bulls will likely increase their positions in light of decent corporate earnings released last week. “On the other hand, we still see scope for intermittent profit-taking activities given the improving yields in the FI market. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings,” analysts at Cordros Research noted.
The overnight (OVN) rate was unchanged last week at 16.5 percent in the money market, amid a flurry of inflows from FAAC disbursement of about N465.99 billion, FGN bond coupon payments (N178.50 billion), net NTB issuances (N131.08 billion) and OMO maturities (N30.00 billion). It was noted that the average system liquidity for the week closed at a net short position of N15.48 billion as against a net short position of N174.62 billion in the previous week.
This week, it is expected that the OVN rate will trend upwards, as the N20.00 billion expected from OMO maturities may not be sufficient to saturate the system and keep the system afloat.
Bearish sentiments persisted in the Treasury bills secondary market in the reviewed week as participants reacted to the higher stop rates at Wednesday’s NTB PMA. As a result, the average yields across all instruments expanded by 59bps to 10.9 percent.
Across the segments, the average yields inched 76bps higher to 11.0 percent at the NTB segment but contracted by 2bps to 10.2 percent at the OMO secondary market. At this week’s NTB PMA, the CBN offered participants N240.26 billion worth of bills.
However, the auction was undersubscribed as the total subscription settled at N136.96 billion – translating to a 1.3x bid-to-cover. Eventually, the CBN allotted N1.74 billion of the 91-day, N10.12 billion of the 182 – day and N97.33 billion of the 364-day – at respective stop rates of 6.50 percent (previously 6.47%), 8.05 percent (previously 7.90%), and 14.50 percent (previously 13.00%).
This week, Analysts expect the yields on T-bills to maintain the same trajectory, following the thin liquidity expected in the system.
Similarly, trading in the Treasury bonds secondary market closed the week on a bearish note as investors continued to reprice bonds upwards. As a result, the average yields across all instruments expanded by 16bps to 14.3 percent. Across the benchmark curve, the average yield contacted at the short (-26bps) end due to investors’ buying interest on the APR-2023 (-234bps) bond but expanded at the mid (+14bps) and long (+48bps) segments following profit-taking activities on the NOV-2029 (+19bps) and APR-2049 (+126bps) bonds, respectively.
In the medium term, Cordros maintains its expectation of an uptick in yields in the bonds market, as both the FGN’s borrowing plan for 2022 FY and the expected fiscal deficit point towards an increased supply.
At the forex market, Nigeria’s FX reserves declined for the eighth consecutive week, falling by USD67.22 million w/w to USD37.49 billion (26 October). The naira depreciated by 0.7 percent to N444.75/USD at the I&E window. At the IEW, total turnover (as of 27 October) declined by 14.5 percent WTD to USD300.82 million, with trades consummated within the N423.00 – N458.15/USD band. In the Forwards market, the naira depreciated at the 1-month (-0.5% to N449.45/USD), 3-months (-1.0% to N458.75/USD), 6-months (-1.1% to N476.53/USD) and 1-year (-0.8% to N501.04USD) contracts.
