BY BAMIDELE FAMOOFO
Positive sentiments returned to the domestic bourse last week as investors took advantage of the moderation in share prices last week to make re-entry into sound companies with attractive dividend yields.
Thus, the All-Share Index inched higher by 0.6 percent w/w to close at 53,201.38 points.
Precisely, bargain hunting in MTNN (+4.3%), UBN (+4.0%), WAPCO (+3.7%), and PRESCO (+3.0%) drove the weekly gain.
Based on the preceding, the MTD and YTD return for the index increased to +0.4% and +24.5 percent, respectively. However, activity levels were weaker than in the prior week, as trading volume and value declined by 93.6 percent w/w and 90.7 percent w/w, respectively.
In line with expectations, the overnight (OVN) rate expanded by 700bps w/w to close at 14.0 percent as outflows for FX auctions and NTB net issuances (NGN15.37 billion) outweighed this week’s inflows and caused tighter liquidity in the system. For clarity, the average liquidity level for the week settled at NGN140.12 billion (vs NGN312.07 billion in the previous week).
This week, experts expect the system liquidity to be pressured further as the expected inflow from OMO maturities (NGN20.00 billion) is unlikely to saturate the financial system. Thus, we expect an expansion in the OVN rate in the coming week.
Activities in the Treasury bills secondary market remained bearish as average yield across all instruments expanded by 13bps to 4.2 percent, due to the intertwining impact of (1) the tight system liquidity and (2) market participants shifting their focus to Wednesday’s NTB PMA.
Consequently, the average yield was higher by 16bps to 4.1 percent at the NTB segment and expanded by 3bps to 4.4 percent at the OMO segment. At this week’s NTB auction, the CBN offered NGN167.22 billion – NGN2.33 billion of the 91-day, NGN789.10 million of the 182-day, and NGN164.11 billion of the 364-day – in bills. Ultimately, the CBN allotted NGN182.59 billion – NGN766.65 million of the 91-day, NGN1.94 billion of the 182-day and NGN179.89 billion of the 364-day bills – at respective stop rates of 2.50 percent (unchanged), 3.84 percent (previously 3.89%), and 6.44 percent (previously 6.49%).
Following our expectations of tighter system liquidity this week, we envisage a low demand for T-bills and thus, project a slight expansion in yields from current levels.
The Treasury bonds secondary market started the week quietly. However, it turned bullish towards the end of the week as investors continued to cherry-pick bonds with attractive yields at the belly of the curve amid sell-offs on the short and long ends of the curve. Consequently, the average yield across all instruments dipped by 3bps to close at 11.1%. Across the benchmark curve, the average yield expanded at the short (+6bps) and long (+1bp) ends following sell-offs of the MAR-2024 (+35bps) and JUL-2034 (+18bps) bonds, respectively; but contracted at the mid (-9bps) segment as investors demanded the NOV-2029 (-18bps) bond.
Last week, Nigeria’s FX reserve recorded its first reserve accretion in five weeks as the reserves increased by USD56.35 million WTD to USD38.52 billion (9th June 2022). Nonetheless, the Naira depreciated against the USD by 0.4 percent w/w to NGN421.25/USD at the I&E window but closed higher by 0.2 percent w/w to NGN606.00/USD in the parallel market. At the I&E window, total turnover (as of 9th June 2022) declined by 81.7 percent WTD to USD244.96 million, with trades consummated within the NGN410.00 – NGN453.55/USD band. In the Forwards market, the rate was flat on the 1-month (NGN419.75/USD) contract but contracted on the 6-month (-0.1% to NGN438.27/USD) and 1-year (-0.1% to NGN460.15/USD) contracts. Meanwhile, the rate appreciated on the 3-month (+0.1% to NGN426.19/USD) contract.
