BY BAMIDELE FAMOOFO
The bears dictated proceedings in the local bourse last week on the Nigerian Exchange Limited as investors booked profits on bellwether stocks.
Precisely, the All-Share Index shed 0.2 percent to close at 52,979.96 points.
Particularly, profit-taking activities witnessed in the shares of FLOURMILL (-10.7%), WAPCO (-8.3%), INTBREW (-6.8%), and MTNN (-4.8%) led the weekly loss.
Consequently, the Month to Date and Year to Date returns for the index moderated to +6.7 percent and +24.0 percent, respectively. Elsewhere, activity levels were upbeat, as trading volume and value increased by 66.4 percent week on week (w/w) and 16.9 percent w/w, respectively.
Sectoral performance was mixed as the Insurance (+3.6%) and Oil and Gas (+0.3%) indices advanced, while the Banking (-1.2%), Consumer Goods (-1.0%) and Industrial Goods (-0.6%) indices declined.
Analysts are of the opinion that investors will be focused on the outcome of the MPC meeting scheduled to hold this week to gain further clarity on the movement of yields in the fixed income market.
As a result, experts at Cordros Research envisage cautious buying actions from investors interested in cyclical stocks with attractive dividend yields.
“Notwithstanding, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings,” they warned.
Meanwhile, in the money market, the overnight (OVN) rate expanded by 333bps w/w to 12.5 percent in the review week, as debits for Cash Reserve Ratio (CRR), FGN bond (N378.41 billion) and CBN’s weekly auctions (OMO and FX) pressured the system and offset inflows from OMO maturities (N35.00 billion), FGN bond coupon payments (N8.50 billion) and FX retail refunds.
“We expect system liquidity to remain strained this week, as expected inflows worth a combined N39.37 billion from OMO maturities (N30.00 billion) and FGN bond coupon payment (N9.37 billion) may not be sufficient to saturate the system,” Cordros Research hinted.
Trading activities in the Nigerian Treasury Bill (NTB) secondary market were mixed albeit with a bearish bias, following the uncertainty in the direction of yields at the recent primary market auctions.
Thus, the average yield across all instruments expanded slightly by 1bp to 3.8 percent. Across the segments, the average yield contracted by 7bps to 4.0 percent at the OMO segment but expanded by 3bps to 3.7 percent at the NTB segment.
Considering the relatively lower inflows expected in the system this week, low demand for T-bills and a slight expansion in yields from current levels is expected.
However, at the NTB segment, experts expect market focus to be shifted to the PMA on Wednesday, where the CBN is expected to roll over N153.03 billion worth of instruments.
The bulls dominated the Treasury bonds secondary market as the average yield across instruments declined by 10bps to 11.2 percent. Cordros Research attributes the bullish sentiment to investors covering for lost bids at the FGN bond auction which was held on Monday (16 May).
At the auction, the DMO offered instruments worth N225.00 billion to investors through re-openings of the 13.53 percent MAR 2025 bond (Bid-to-offer: 1.7x; Stop rate: 10.0%), 12.50 percent APR 2032 (Bid-to-offer: 1.5x; Stop rate: 12.5%) and 13.00 percent JAN 2042 (Bid-to-offer: 4.5x; Stop rate: 13.0%) bonds.
Demand was moderate, with a subscription level of N575.62 billion, translating to a bid-to-offer ratio of 2.6x.
The DMO eventually over-allotted instruments worth N378.41 billion (competitive allotments: N345.27 billion and non-competitive allotments: N33.15 billion), resulting in a bid-to-cover ratio of 1.5x.
Across the benchmark curve, the average yield contracted at the short (-2bps) and mid (-27bps) segments as investors sold off the MAR-2027 (-17bps) and NOV-2029 (-34bps) bonds, respectively; but expanded at the long (+2bps) end following investors’ profit-taking activities on the APR-2037 (+27bps) bond. “We maintain our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply,” Cordros disclosed.
