BY BAMIDELE FAMOOFO
The Nigerian equities market mirrored the bullish trend across global stocks last week as investors continued to cherry-pick stocks with attractive dividend yields ahead of 2021FY dividend declarations.
Thus, the All-Share Index rose by 2.3% w/w to close at 47,279.92 points. Notably, bargain hunting in SEPLAT (+10.1%), PRESCO (+7.6%), GTCO (+7.2%), MTNN (+5.4%) and DANGCEM (+5.5%) drove the weekly gain. Consequently, the MTD and YTD returns printed +1.4% and 10.7%, respectively.
Activity levels were decent, as trading volume and value rose by 23.2% and 2.8% w/w, respectively. Performance across sectors was mixed, as the Insurance (-0.9%), Consumer Goods (-0.6%), and Oil and Gas (-0.2%) indices recorded losses while the Banking (+0.2%) index was the sole gainer. The Industrial Goods index closed flat.
In the short term, stock market analysts said they expect the bulls to continue to rotate their portfolio towards dividend-paying stocks ahead of 2021FY dividend declarations, even as institutional investors continue to search for clues on the direction of yields in the FI market. “However, we advise investors to take positions in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings.”
In the money market, however, overnight (OVN) rate expanded by 12.00ppts w/w to 13.3% this week, following debits for CRR, CBN’s weekly FX auction that offset the sole inflow from OMO maturities (N102.23 billion). However, system liquidity was healthy (average net liquidity position in the review week: N285.54 billion vs last week: N271.75 billion) for most of the week.
This week, analysts expect the OVN to remain relatively elevated in the double-digit region, as the outflows for CBN’s auctions (NTB, OMO and FX) may outweigh the sole inflow from OMO maturities (N140.00 billion).
Trading sentiments in the Treasury bills secondary market turned bearish, as market participants took profits off their positions on some long-dated instruments in both segments of the market. Thus, the average yield increased by 8bps to 4.7%. Across the market segments, most of the yield expansion was witnessed at the OMO space (+26bps to 5.5%), while the NTB segment expanded slightly by 3bps to 4.4%, amid efforts by local banks to sterilize idle funds.
According to experts at Cordros Research, this week, the outcome of the NTB auction will shape the direction of yields in the T-bills market as the CBN is set to roll over N98.01 billion worth of maturities to market participants at the auction.
The Treasury bonds secondary market ended on a mixed note, albeit with a bullish bias, as investors traded cautiously considering the uncertainty of FI yields direction. Consequently, the average yield pared by 1bp to 11.6%. Across the benchmark curve, the average yield expanded at the short (+9bps) end following the sell-off of MAR-2025 (+22bps) bond but declined at the mid (-6bps) and long (-1bp) segments as investors demanded the NOV-2029 (-12bps) and MAR-2050 (-10bps) bonds, respectively.
“In the absence of significant inflows to support demand, we expect bond yields to oscillate around current levels in the coming week. Nonetheless, in the medium term, we still expect frontloading of significant borrowings for the year by the FG to result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply,” Cordros Research mentioned in its weekly market update report.
Meanwhile, Nigeria’s FX reserves sustained its descent as it closed lower by USD136.84 million w/w, to USD39.98 billion (3rd February 2022). Meanwhile, the naira was flat at N416.33/USD but appreciated by 0.4% to N571.00/USD at the parallel market. In the Forwards market, the 1-month (+0.1% to NGN418.55/USD), 3-month (+0.2% to NGN424.77/USD), 6-month (+0.2% to NGN434.08/USD) and 1-year (+0.2% to NGN448.78/USD) contracts reflected appreciations of the naira to the greenback.
Cordros Research said the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR. “However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low. Thus, FPIs which have historically supported supply levels in the IEW (53.8% of FX inflows to the IEW in 2019FY) will be needed to sustain FX liquidity levels. Hence, we think (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.”
