BY BAMIDELE FAMOOFO
The five-week bullish run came to a halt last week, as investors took profits off dividend-paying stocks on the Nigerian Exchange Limited.
Precisely, the local bourse recorded losses in three of the five trading sessions of the week, following profit-taking in the shares of OKOMUOIL (-10.0%), BUAFOODS (-4.0%), GTCO (-3.4%), SEPLAT (-2.3%) and MTNN (-1.2%). Consequently, the All-Share Index shed 0.2% w/w to close at 47,202.30 points. Accordingly, the month to date (MTD) and year to date (YTD) returns moderated to +1.2% and +10.5%, respectively.
Activity levels were mixed as volume traded declined by 25.4% week on week (w/w) while value traded rose by 15.4% w/w.
Performance across sectors was broadly positive, as the Banking (+2.3%), Insurance (+1.5%), Consumer Goods (+1.3%), Oil and Gas (+0.3%), and Industrial Goods (+0.1%) indices all closed in green.
“In the coming week, we expect investors to take advantage of the moderation in the share prices to make a re-entry in dividend-paying stocks ahead of subsequent 2021FY earnings releases. However, we believe investors will remain reluctant to leave gains in the market,” Stock analysts said. Experts expect intermittent profit-taking to continue due to uncertainties about the direction of yields in the fixed income market. Notwithstanding, investors are advised to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.
In the money market, the overnight (OVN) rate declined by 925bps w/w to 4.0%, as inflows from maturing FX swap contracts and OMO bills (N139.14 billion) outweighed funding pressures for net NTB issuances (N116.95 billion) and CBN’s weekly OMO (N80.00 billion) and FX auctions.
Cordros Research noted that it envisaged the OVN rate would trend northwards this week as expected debits for CRR, FGN bond and CBN’s weekly auctions are likely to outweigh the sole expected inflow from OMO maturities (N140.00 billion).
The Treasury bills secondary market ended the trading week on a bullish note, following (1) the improved system liquidity supporting demand, (2) moderations in the 1-year paper stop rate at Wednesday’s NTB PMA and (3) market participants’ movement to the secondary market in a bid to fill lost auction bids. Consequently, the average yield across all instruments contracted by 10bps to 4.6%.
Across the market segments, the average yield at the NTB segment settled lower by 4bps to 4.3%. At the NTB auction, the CBN offered N98.01 billion for sale with a total subscription of N446.31 billion. Accordingly, the CBN allotted N1.91 billion of the 91-day, N1.82 billion of the 182-day, and NGN211.23 billion of the 364-day bills – at respective stop rates of 2.48%, (unchanged), 3.30% (unchanged), and 5.20% (previously 5.40%). Elsewhere, the average yield at the OMO segment expanded by 16bps to 5.6%. The CBN also offered and allotted N80.00 billion worth of OMO bills to participants and maintained stop rates across the three tenures, as with prior auctions.
“We expect yields to trend marginally higher in the coming week as we expect a shortfall in system liquidity,” Cordros Research said.
Trading in the Treasury bonds secondary market continued with mixed sentiments, albeit with a bullish tilt, following the persistently lower demand as investors remain on the sidelines awaiting further clarity on the direction of fixed income yields. Consequently, the average yield pared by 3bps to 11.6%.
Across the benchmark curve, the average yield declined at the short (-17bps) and long (-2bps) ends following demand for the MAR-2024 (-44bps) and MAR-2035 (-11bps) bonds, respectively but expanded at the mid (+3bps) segment as investors sold off the FEB-2028 (+22bps) bonds.
This week, it is expected that the outcome of the bond auction and release of the January 2022 CPI (Cordros Forecast: 15.47%) will shape market sentiments and the direction of yields. At the auction, the DMO will be offering instruments worth N150.00 billion through re-openings of the 12.50% FGN JAN 2026 and 13.00% FGN JAN 2042 bonds. “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.”
In the review week, Nigeria’s FX reserve sustained its decline as the CBN maintained its interventions in the FX market. Specifically, the gross reserves declined by USD108.32 million w/w to USD39.87 billion (10th February 2022). Meanwhile, the naira appreciated by 0.1% w/w to N416.00/USD at the I&E window (IEW) but depreciated by 0.9% w/w to N576.00/USD at the parallel market. At the IEW, total turnover (as of 10th February 2022) declined by 18.3% WTD to USD484.55 million, with trades consummated within the N404.00 – 474.59/USD band. In the Forwards market, the naira rate closed flat at the 1-month (N418.6/USD) and 6-month (N434.01/USD) and 1-year (N448.61/USD) contracts but appreciated at the 3-month (+0.1% to N424.26/USD) contract.
“In our opinion, 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,” experts at Cordros Research noted.
