BY BAMIDELE FAMOOFO
Although the local bourse opened the week on a strong footing, the bullish momentum lost steam as investors took a breather later in the week to digest corporate earnings released thus far. Midweek selloffs undermined the market performance as the All-Share Index settled 0.1 percent lower to close at 47,268.61 points.
Particularly, intense profit-taking activities witnessed in International Breweries Plc, whose share price dropped by -9.1 percent, WAPCO (-8.8%), NASCON (-8.3%), DANGSUGAR (-7.7%), UBA (-5.2%), and GUINNESS (-4.4%) drove the weekly loss.
Consequently, the month to date (MTD) and year to date (YTD) return for the index moderated to -0.3 percent and +10.7 percent, respectively. In terms of activity levels, trading volume declined by 17.2 percent w/w, while trading value grew by 22.8 percent w/w. On sectors, the Oil and Gas (+10.6%) index was the lone advancer while the Banking (-2.7%), Consumer Goods (-1.7%), Industrial Goods (-0.7%), and Insurance (-0.2%) indices declined.
Analysts at Cordros Securities said they expect investors to take advantage of the significant moderation in the share prices to make a re-entry in dividend-paying stocks in the week ahead. “However, we envisage a zig-zag pattern as intermittent profit-taking activities will likely persist due to medium-term expectations on the direction of yields in the fixed income market. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”
In the money market, the overnight (OVN) rate contracted by 117bps w/w to 13.8 percent last week, as inflows from the Federation Accounts Allocation Committee (FAAC) disbursements (N370.01 billion) and OMO maturities (N70.00 billion) outweighed funding pressures for CBN’s weekly OMO (N30.00 billion) and FX auctions.
“This week, we expect the OVN rate to remain in the double-digit territory as funding pressures for CBN’s (NTB, OMO and FX) auctions are likely to offset the sole expected inflow from OMO maturities (N110.00 billion),” stock market Analysts hinted.
Meanwhile, the Treasury bills secondary market continued its bullish run for the fourth consecutive week, following the significant improvement in system liquidity (last week’s net average position stood at N326.39 billion as against N69.72 billion recorded in the preceding week. Another factor was the local banks’ objective to re-invest idle cash. Consequently, the average yield across all instruments declined by 37bps to 3.4 percent. Across the market segments, the average yield contracted by 129bps to 3.3 percent at the OMO segment.
At last week’s OMO auction, the CBN offered and allotted N30.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors (89DTM – 7.0%, 173DTM – 8.5% and 348DTM – 10.1%), as with prior auctions. Similarly, the average yield at the NTB segment moderated by 18bps to 3.4% as participants sustained buying activities following consistent moderation in stop rate at the last few PMAs.
This week, it is expected that the outcome of the NTB auction will shape the direction of yields in the T-bills market. The CBN is set to roll over N94.00 billion worth of maturities to market participants at the auction.
Trading in the treasury bonds secondary market ended the week on a bullish note, still mirroring sentiments at recent primary market auctions. Consequently, the average yield contracted by 50bps to 10.6 percent. We highlight that the buying activity was spread across the benchmark curve, as the average yield declined at the short (-41bps), mid (-84bps), and long (-18bps) segments following interests in attractive yields of the MAR-2024 (-68bps), JUL-2030 (-153bps) and MAR-2035 (-54bps) bonds, respectively.
“We envisage reinvestment of funds from maturities will continue to drive 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,” stock experts said.
Nigeria’s FX reserves recorded its second consecutive week of accretion as it closed higher by USD25.56 million w/w to USD39.87 billion (2nd March 2022). Meanwhile, the naira depreciated by 0.2 percent and 0.5 percent w/w to N416.67/USD and N577.00/USD at the I&E window (IEW) and the parallel market, respectively. At the IEW, total turnover (as of 3rd March 2022) declined by 24.9 percent WTD to USD433.45 million, with trades consummated within the N408.00 – 453.15/USD band. In the Forwards market, the naira appreciated at the 1-month (+0.1% to N418.80/USD), 3-months (+0.2% to N424.34/USD), 6-months (+0.4% to N433.42/USD) and 1-year (+1.3% to N449.67/USD) contracts.
Cordros Research disclosed in its report on the performance of the market last week and its outlook for this week: “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.”
