BY BAMIDELE FAMOOFO
There was a keenly contested battle between the bulls and the bears on the Nigerian Exchange Limited last week as mixed sentiments dominated trading activities on the local bourse.
Pertinently, the NGX All-Share Index shed 0.1% week-on-week (w/w) to close at 47,140.48 points. Notably, profit-taking in SEPLAT (-5.9%), GTCO (-1.5%), ACCESS (-1.4%), AIRTELAFRI (-0.9%) and DANGCEM (-0.5%) drove the weekly loss.
Accordingly, the month-to-date (MTD) and year-to-date (YTD) return settled at +1.1% and +10.4%, respectively. However, activity levels were stronger than in the prior week, as trading volumes and value rose by 28.7% w/w and 35.5% w/w, respectively.
Performance across sectors was mixed, as the Consumer Goods (+2.3%) and Insurance (+1.0%) indices posted gains, while the Oil and Gas (-3.4%), Banking (-0.7%) and Industrial Goods (-0.3%) indices closed in the red.
It is expected that the NGX floor will be flooded with corporate earnings as more companies publish their audited 2021FY numbers, accompanied by dividend declarations. Analysts believe this would provide a catalyst for buying activities even as risk-averse investors are likely to remain cautious due to medium-term expectations of an uptick in FI yields. 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.
In the money market, overnight (OVN) rate expanded by 10.00ppts w/w to 14.0% last week, as elevated funding pressures for CRR debits, FGN bond auction settlement (N297.39 billion), CBN’s weekly OMO (N60.00 billion), and FX auctions outweighed inflows from OMO maturities (N135.90 billion) and FX retail refunds.
This week, analysts envisage that the OVN will remain relatively range bound in the double-digit region, as the expected inflows from OMO maturities (N230.00billion) and FGN bond coupon payments (N49.89 billion) support liquidity positions amid CBN’s weekly auctions.
Bullish trading sentiments continued in the Treasury bills secondary market, fueled by the downward direction of yields at the bonds primary market. Thus, the average yield across all instruments declined by 16bps to 4.4%. Across the market segments, the average yield contracted by 36bps to 5.3% at the OMO segment. Similarly, the average yield moderated by 6bps to 4.2% at the NTB segment as local banks rerouted idle funds to the long-dated instruments. At last week’s OMO auction, the CBN offered and allotted N60.00 billion worth of bills to participants, maintaining stop rates across the three tenors, as with prior auctions.
“In the coming week, we expect the outcome of the NTB auction to shape the direction of yields in the T-bills market. The CBN is set to roll over NGN115.28 billion worth of maturities to market participants at the auction,” Cordros Capital said in a report.
The Treasury bonds secondary market also closed the week on a bullish note, as (1) yields adjusted to reflect the unexpectedly lower rates at Wednesday’s auction, and (2) market participants looked to the secondary market to fill unmet demand from the auction. Consequently, the average yield contracted by 36bps to 11.2%. Across the benchmark curve, the average yield moderated at the short (-50bps), mid (-60bps) and long (-11bps) segments due to investor’s demand for the MAR-2025 (-114bps), FEB-2028 (-90bps) and JUL-2034 (-27bps) bonds, respectively. At this month’s bond auction, the DMO offered instruments worth N150.00 billion to investors through re-openings of the 12.50% FGN JAN 2026 (Bid-to-offer: 4.3x; Stop rate: 10.95%, previously 11.50%) and 13.00% FGN JAN 2042 (Bid-to-offer: 3.1x; Stop rate: 13.00%, unchanged) bonds. As anticipated, demand was higher (subscription: N557.72 billion; bid-to-offer: 3.7x) than January’s auction (Subscription: N325.24 billion; Bid-to-offer: 2.2x). The DMO eventually over-allotted instruments worth N415.42 billion across the competitive (N297.39 billion) and non-competitive (N118.03 billion) bids.
In the medium term, experts expect frontloading of significant borrowings for the year by the FG to result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply.
At the foreign exchange market in the review week, Nigeria’s FX reserves sustained its descent as it closed lower by USD72.14 million w/w, to USD39.78 billion (15th February 2022). Meanwhile, the naira depreciated by 0.1% w/w to N416.75/USD at the I&E window (IEW) but was unchanged at N576.00/USD at the parallel market. At the IEW, total turnover (as of 17th February 2022) declined by 24.5% WTD to USD429.70 million, with trades consummated within the N410.00 – 453.11/USD band. In the Forwards market, the naira rate appreciated at the 1-month (+0.1% to N418.34/USD), 6-months (+0.1% to N433.45/USD) and 1-year (+0.1% to N448.06/USD) contracts but was flat at the 3-months (N424.15/USD) contract.
“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 significantly attract foreign inflows back to the market,” Cordros Capital noted.
