Renewed interest in blue-chip stocks MTN Nigeria Plc, Oando Plc, UBA Plc and Zenith Bank Plc created wealth for equity investors on the Nigerian bourse in the week ended August 9, 2024 as year-to-date returns on investment surged to 31.9 percent.
The implication of this is that average return on investment on the local bourse stands at about 32 percent which outwits inflation at 26.75 percent, yielding a real return on investment of 5.15 percent.
A review of activities on the NGX showed that the bears took a back seat as positive sentiments resurfaced in the Nigerian equities market following investors’ interest in MTNN (+5.2%), OANDO (+60.5%), UBA (+14.7%), and ZENITHBANK (+7.9%), which drove the All-Share Index higher by 0.9% to 98,605.79 points.
Thus, the Month-to-Date and Year-to-Date returns increased to +0.9 percent and +31.9 percent, respectively.
However, activity levels remained weak, as the total trading volume and value declined by 21.0 percent and 6.3 percent w/w, respectively.
Sectoral performance was largely positive, with gains recorded in the Banking (+5.1%), Consumer Goods (+2.3%), Insurance (+1.8%) and Oil and Gas (+1.0%) indices. The Industrial Goods (-3.7%) was the sole loser for the week.
Analysts at Cordros Research believe earnings from the Tier-1 banks in the coming week(s) will support positive sentiments in the near term, especially given the anticipation of interim dividends.
“In the medium term, we expect investors’ sentiments to be influenced by developments in the macroeconomic landscape and the movement of yields in the fixed-income market,” Cordros said.
In the money market, overnight (OVN) rate expanded significantly by 792bps w/w to 34.0 percent, following the debits for the CBN’s FX Retail Dutch Auction (N1.31 trillion) on Thursday.
Notwithstanding, average system liquidity settled at a net long position of N10.61 billion (previous week: net short position of N132.33 billion) reflecting DMBs’ activities at the CBN SLF window (N419.87 billion).
Money market analysts anticipate sustained dearth in system liquidity this week, “as we believe that the sole inflow from OMO maturities (NGN20.50 billion) would be insufficient to support financial system liquidity. Thus, we expect the OVN rate will likely maintain its uptrend.”
Meanwhile, bearish sentiments persisted in the Treasury bills secondary market in the review week, as the average yield across all instruments expanded by 51bps to 25.9 percent.
Across the market segments, the average yield advanced by 32bps to 25.8 percent in the NTB segment and increased by 87bps to 26.1 percent in the OMO segment.
At last week’s NTB auction, the DMO offered N216.09 billion – N16.59 billion for the 91-day, N51.35 billion for the 182-day and N148.15 billion for the 364-day bills – worth of instruments to investors.
Demand at the auction settled at N486.87 billion (previous: N373.95 billion), with a bid-to-offer of 2.3x.
The auction closed with the DMO allotting exactly what was offered at respective stop rates of 18.50 percent (unchanged), 19.50% (unchanged) and 21.89 percent (previous: 22.10%).
“We believe the lackluster demand for instruments in the T-bills secondary market will likely remain sticky next week, further supported by the continuous dearth in system liquidity. As a result, we expect yields to rise further from current levels,” the experts disclosed.
Similarly, activities in the Treasury bonds secondary market remained bearish, driven by sell pressures on short- and mid-dated papers. Thus, the average yield across instruments advanced by 28bps to 20.1 percent. Across the benchmark curve, the average yield expanded at the short (+64bps) and mid (+21bps) segments, as investors sold off the MAR-2025 (+158bps) and JUL-2030 (+39bps) bonds, respectively. Meanwhile, the average yield contracted at the long (-6bps) end following demand for the JUL-2034 (-41bps) bond.
Following the reschedule of the August 2024 FGN bond auction to 19 August by the DMO on Thursday, Cordros expect players in the secondary market to likely reshuffle their portfolio next week ahead of the new auction date.
“Elsewhere, we maintain our medium-term expectation of yields remaining elevated consequent to (1) domestic monetary policy administration and (2) sustained imbalance in the demand and supply dynamics due to significant fiscal deficit,” the experts said.
Also in the review week, Nigeria’s FX reserves improved further, albeit at a slower pace, as the gross reserves level grew by USD12.06 million w/w to USD36.85 billion (08 August).
Meanwhile, experts highlight that the Retail Dutch Auction by the apex bank on Tuesday eased pressure on the currency, with the naira appreciating by +2.7 percent w/w to NGN1, 574.20/USD at the NAFEM.
Total turnover at the window (as of 08 August) decreased by 58.7 percent WTD to USD472.67 million, with trades consummated within the N1, 520.00/USD – N1, 628.00/USD band. In the forwards market, the rate recorded on the 1-month (+0.2% to N1, 622.10/USD) contract increased, but was unchanged on the 3-month (N1, 684.56/USD) contract. Elsewhere, the rates declined on the 6-month (-0.9% to N1, 773.76/USD) and 1-year (-1.9% to N1, 959.58/USD) contracts.
