BY BAMIDELE FAMOOFO
T he Nigerian equities market closed in the green territory amid bouts of profit-taking. Specifically, gains in PRESCO (+19.6%), GTCO (+3.9%), INTBREW (+4.0%), and OKOMUOIL (+3.7%) stocks pushed the All-Share Index higher by 0.4 percent to 47,437.48 points.
Based on the preceding, the month to date (MTD) return turned positive +0.1 percent, while the year to date (YTD) return increased to +11.1 percent.
Activity levels mirrored the overall market’s board gauge as trading volumes surged by 103.7 percent week to week (w/w) while trading value edged up by 0.3 percent w/w. Performance across sectors was mixed, as the Insurance (+2.7%) and Banking (+1.3%) indices recorded gains, while the Oil and Gas (-2.2%), Consumer Goods (-0.5%), and Industrial Goods (-0.1%) indices closed in the red.
It is expected that market performance will be dominated by the bulls this week, as yield-seeking investors are expected to take positions in stocks with attractive dividend yields amid the negative real returns in the fixed income market.
However, intermittent profit-taking activities are not ruled out. “Overall, investors are advised to seek trading opportunities in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings,” Analysts at Cordros Research hinted.
In the money market, however, the overnight (OVN) rate contracted by 883bps w/w to 5.0 percent as the healthy system liquidity position from last week coupled with this week’s inflow from OMO maturities (N106.22 billion) outweighed debits for net NTB issuances (N142.53 billion), OMO (N40.00 billion) and FX auctions.
This week, the expectation is for improved system liquidity as inflows from FGN bond coupon payments (N142.09 billion) and OMO maturities (N105.00 billion) are likely to offset funding pressures for CBN’s auctions. Thus, we expect the OVN to trend downwards.
Trading in the Treasury bills secondary market reversed recent demand trends and closed on a bearish note last week, largely driven by the expiration of actively traded OMO instruments. Consequently, the average yield across all instruments expanded by 7bps to 3.5 percent. Across the market segments, the average yield expanded by 61bps to 3.9 percent at the OMO segment.
On Thursday, the CBN offered and allotted N40.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors (96DTM – 7.0%, 187DTM – 8.5% and 362DTM – 10.1%), as with prior auctions. Elsewhere, the average yield at the NTB segment was unchanged at 3.4 percent.
At Wednesday’s NTB auction, the CBN offered N94.00 billion for sale and recorded significant demand with a total subscription amount of N482.90 billion (bid-to-offer ratio: 5.1x).
Eventually, the CBN allotted N2.32 billion of the 91-day, N21.29 billion of the 182-day and NGN212.92 billion of the 364-day bills – at respective stop rates of 1.75 percent (previously 2.24%), 3.28 percent (previously 3.30%), and 4.10 percent (previously 4.35%).
Stock market pundits expect the outcome of the NTB auction to shape the direction of yields in the T-bills market this week as the CBN is set to roll over N58.04 billion worth of maturities to market participants at the auction.
Meanwhile, the Treasury bonds secondary market sustained its bullish trading last week, as investors continued to take positions in attractive instruments ahead of further anticipated yield declines.
Accordingly, the average yield contracted by 17bps to 10.4 percent. Across the benchmark curve, the average yield declined at the short (-22bps), mid (-27bps) and long (-8bps) segments as investors demanded the APR-2023 (-154bps), JUL-2034 (-45bps) and MAR-2036 (-33bps) bonds, respectively.
“We envisage the reinvestment of coupon payments will support demand from investors and push yields lower next week. Nonetheless, we are maintaining our medium-term view that the FG’s significant frontloading of borrowings for the year in H1-22 will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply,“analysts disclosed.
Nigeria’s FX reserves position reversed last week’s accretion as it declined by USD102.51 million w/w to USD39.77 billion (9th March 2022).
Meanwhile, the naira was flat at N416.50/USD at the I&E window (IEW) but depreciated by 0.3 percent w/w to N579.00/USD at the parallel market. At the IEW, total turnover (as of 10th March 2022) declined marginally by 0.4 percent WTD to USD550.64 million, with trades consummated within the N410.00 – N453.15/USD band. In the Forwards market, the naira was flat at the 1-month (N418.50/USD), 3-months (N424.52/USD), and 6-months (N433.31/USD) contracts but appreciated at the 1-year (+0.1% to N448.46/USD) contract.
Cordros Research in a report stated: “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 pretty 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.”
