Last week, the local stock market remained downcast due to bearish sentiments, as investors continued adjusting their portfolios towards the fixed-income market due to higher yields.
Particularly, selloffs of Dangote Cement Plc (-10.0%) and MTN Nigeria Plc (-10.0%) were the major drivers of the weekly loss. Thus, the All-Share Index declined by 4.2 percent week on week to close at 101,088.07 points.
Consequently, the month-to-date and year-to-date returns moderated to +0.9 percent and +36.5 percent, respectively. Activity levels remained subdued as trading volume and value decreased by 11.2 percent w/w and 13.0 percent w/w, respectively.
Sectoral performance was mixed, with declines observed in Insurance (-8.9%), Industrial Goods (-7.9%) and Banking (-2.1%) indices while the Consumer Goods (+2.0%) index advanced. The Oil and Gas index closed flat.
This week, stock market analysts anticipate cautious trading in stocks due to uncertainty surrounding the upcoming MPC meeting scheduled for February 26 and 27.
“We expect limited bargain-hunting activity in the near term due to prevailing negative sentiments driven by movements in fixed income market yields and uninspiring earnings releases,’’ Cordros Research said.
At the money market and fixed income, the overnight (OVN) rate expanded by 882bps w/w to 25.8 percent, as the settlements for the FGN bond auction (N1.49 trillion) and net NTB issuances (N1.32 trillion) outstripped inflows from CRR refunds (N1.23 trillion) and FGN bond coupon payments (N112.67 billion).
However, banks’ exposure at the CBN’s SLF window on Friday (N1.18 trillion) buoyed the average system liquidity to close at a net long position of N373.34 billion (vs. a net long position of N302.20 billion in the previous week).
Barring any significant outflows this week; money market experts envisage the OVN rate will likely decline as they said the inflows from FAAC disbursements (N742.54 billion) will support system liquidity.
Proceedings in the T-bills secondary market remained bearish in the review week, driven by the tight system liquidity last week.
As a result, the average yields across the market expanded by 91bps to 16.9% – average yield increased by 119bps to 16.7% in the NTB segment but declined by 6bps to 17.8% in the OMO secondary market. At this week’s NTB auction, the CBN offered instruments worth NGN265.50 billion – NGN11.96 billion for the 91-day, NGN10.21 million for the 182-day and NGN243.33 billion for the 364-day – to market participants. Demand at the auction was higher than the previous PMA, as the total subscription level settled at NGN2.24 trillion (previous auction: NGN1.98 trillion). The auction ended with the CBN allotting bills worth NGN1.59 trillion – NGN331.01 billion for the 91D, NGN66.25 million for the 182D and NGN1.19 trillion for the 364D – at respective stop rates of 17.00% (previously: 17.24%), 18.00% (previously: 17.50%), and 19.00% (previously: 19.00%).
Financial experts at Cordros Research anticipate higher demand for instruments in “the Treasury bills secondary market this week following our expectation of surplus liquidity in the financial system. Thus, we believe yields in the market would likely trend lower.”
Similarly, the FGN bonds secondary market closed on a bearish note, as the average yield across all instruments advanced by 68bps to 16.8%.
Across the benchmark curve, the average yield increased at the short (+89bps), mid (+480bps), and long (+15bps) segments, following sell pressures on the MAR-2025 (+392bps), FEB-2031 (+1841bps), and MAR-2036 (+154bps) bonds, respectively.
At this month’s auction, the DMO offered instruments worth NGN2.50 trillion to investors through new issuances of the 18.50% FGN FEB 2031 (Bid-to-offer: 0.9x; Stop rate: 18.50%) and 19.00% FGN FEB 2034 (Bid-to-offer: 0.7x; Stop rate: 19.00%) bonds. The subscription level settled at NGN1.90 trillion, translating to a bid-to-offer ratio of 0.8x (vs bid-to-offer ratio of 1.7x at last month’s auction). Eventually, the DMO allotted instruments worth NGN1.49 trillion, resulting in a bid-to-cover ratio of 1.3x.
Cordros Research said, ‘’Based on our analysis of the factors expected to influence the market direction in 2024E, including (1) expected money policy administration globally and domestically, and (2) sustained imbalance in the demand and supply dynamics, we anticipate yields in the FGN bonds secondary market will remain elevated over the short term.’’
At the foreign exchange market, Nigeria’s FX reserves recorded further accretion this week, as the gross reserves level increased by $151.79 million w/w to close at $33.45 billion (21 February).
Meanwhile, the naira depreciated by 7.7 percent to N1, 665.50/USD at the Nigerian Autonomous Foreign Exchange Market.
