BY BAMIDELE FAMOOFO
The bulls continued to dictate proceedings on the local bourse, as the gradual release of corporate earnings bolstered buying interests in dividend-paying stocks.
Accordingly, the All-Share Index rose by 0.5% w/w to close at 46,205.05 points. Notably, bargain hunting in ETI (+44.8%), GUINNESS (+14.0%), INTBREW (+18.0%), AIRTEL AFRICA (+10.0%) and TOTAL ENERGIES (+8.6%) spurred the weekly gain.
Consequently, the YTD return improved to +8.2%. Activity levels were weaker than the prior week, as trading volume and value declined by 22.0% and 59.8% w/w, respectively.
Analysing by sectors, the Banking (+4.8%), Oil and Gas (+3.5%) and Consumer Goods (+2.0%) indices recorded gains while the Industrial Goods (-5.1%) and Insurance (-3.1%) indices closed in the red.
With the outcome of the MPC meeting aligning with market expectations amid negative real returns in the fixed income market, analysts expect investors to continue to cherry-pick stocks with attractive dividend yields.
However, they advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings.
In the money market, overnight (OVN) rate declined by 14.00ppts w/w to 1.3%, as inflows from the maturing JAN-2022 bond (N605.31 billion), FAAC disbursements (N420.37 billion), OMO maturities (N110.00 billion), and FGN bond coupon payments (N49.61 billion) saturated the system and outweighed funding pressures for net NTB issuances (N94.42 billion) and CBN’s weekly auctions – FX and OMO (NGN40.00 billion).
This week, it is expected that the CBN will mop up the pent-up liquidity in the market. “Thus, we envisage an expansion in the OVN rate to double-digit levels.
Trading in the Treasury bills secondary market was bullish, as average yield across all instruments contracted by 25bps to 4.6%, following the liquidity surfeit in the system. Across the market segments, the average yield at the OMO segment contracted by 59bps to 5.2%, given improved demand for higher-yielding bills.
At the primary market, the CBN sold N40.00 billion worth of OMO bills to market participants and maintained the stop rates at 7.00%, 8.50%, and 10.10% on the short, mid, and long-dated instruments, as with prior auctions. Elsewhere, the average yield at the NTB segment declined by 7bps to 4.3%, as participants sought to cover lost auction bids in the secondary market.
On Wednesday at its bi-weekly PMA, the CBN offered N129.33 billion for sale and recorded the highest demand level YTD, with a subscription level of N475.63 billion (Bid-to-offer ratio: 3.7x; previously 1.5x). Eventually, the CBN allotted N223.75 billion – N2.68 billion of the 91D, N3.54 billion of the 182D, and N217.53 billion of the 364D bills with respective stop rates of 2.48% (previously 2.49%), 3.30% (previously 3.45%), and 5.40% (previously 5.50%).
Experts expect yields to trend higher in the coming week as we expect a shortfall in system liquidity.
Meanwhile, trading in the Treasury Bonds secondary market was bearish following the expiry of the JAN-2022 bond that resulted in a higher average yield, although there was increased demand at the belly of the curve amid the improved liquidity from the maturing bond.
Consequently, the average yield expanded by 23bps to 11.6%. Across the benchmark curve, the average yield expanded at the short (+118bps) end but declined at the mid (-48bps), and long (-2bps) segments as buying activities increased on the NOV-2029 (-54bps) and MAR-2035 (-20bps) bonds, respectively.
In the medium term, analysts expect frontloading of significant borrowings for the year to result in an uptick in bond yields as investors demand higher yields in the face of elevated supply.
Nigeria’s FX reserve sustained its descent for the twelfth consecutive week, declining by USD163.80 million to USD40.15 billion (27th January 2022) on the back of CBN’s continued support of the naira at the official channels. Meanwhile, the naira was flat at N416.33/USD at the I&E window (IEW) but depreciated by 0.5% to N573.00/USD at the parallel market.
In the Forwards market, the naira also depreciated at the 1-month ( -0.4% to N 418.92/USD), 3-month (-0.6% to N425.57/USD), 6-month (-0.7% to N434.99/USD) and 1-year (-1.2% to N449.81/USD) contracts.
“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,” Cordros Research noted.
“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.”
