Investor

Hopes of sustained recovery drive momentum in equities

by Editor

September 14, 2017 | 12:11 am
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The equities market opened last week hesitant, but picked up in the last three trading sessions, on the backdrop of improved economic data.

Accordingly, the All Share Index (ASI) advanced 1.3% w/w to settle at 35,957.24 points, spurring YTD return to 33.8% as market capitalization added another N156.0bn to settle at N12.4tn. The opening balances of Banks/Discount Houses at the beginning of the week stood at N108.7bn, even as OBB and O/N rates settled at 12.2% and 12.7% respectively.

By mid-week, N135.4bn maturing bills helped to drive the OBB and O/N borrowing rates to 8.8% and 9.3% respectively, from single digit levels in the preceding day. As expected, the CBN maintained its liquidity tightening stance, mopping up a total of N101.4bn in the form of OMO auctions that were carried out on all trading days of the week. As such, rates edged higher at the close of the week: OBB (up 13.1% to 29.2%) and O/N (up 15.4% to 30.9%) w/w.

Data release from NBS, which indicated that the economy was out of recession helped to buoy offshore interests in yields that were still near all-time highs. Additionally, the absence of long tenured bills in OMO auctions that were carried out at the beginning of the week exacerbated the buy-side theme in the fixed income space. In the week ahead, we expect the broader index to close on a positive note as investors anticipate the release of improved inflation figure. A total of N246.4bn OMO bills are expected to mature into the system on Thursday, as well as likely OMO auctions, given the monetary authority’s tightening stance.

Global and Macroeconomic market update

Markets wary amid geopolitical and weather worries

Equity benchmarks in the U.S. market logged a bearish return in the week to 8th September. September didn’t waste any time reminding investors of its reputation as the worst month for markets. Just as Hurricane Harvey petered out, Irma took aim at the Caribbean and Florida as North Korea’s largest yet nuclear test sent investors scurrying for safe havens. Consequently, the S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index all plummeted, losing 0.4%, 0.7% and 1.1% w/w respectively.

European stocks closed under pressure in the prior week, chalked mixed-to-bearish returns, as the ECB kept its benchmark interest rate unchanged and suggested that it could begin to withdraw its stimulus as soon as October. Overall, UK’s FTSE (-0.7%) underperformed fellow index as Germany’s DAX (+2.1%), CAC (+0.5) and the pan-European STOXX 600 (+0.4%) eked out gains for the week.

Performance across the BRICS classification was bullish. Save for South Africa’s JSE (-5.4%) which declined, Brazil’s IBOV (+3.2%), Russia’s RTSI (+2.2%), China’s SCHOMP (+0.1%) and India’s BSE Sensex (+2.3%) all closed the week on a bullish note.

Domestic Financial Markets Review and Outlook

Equities: ASI Rebounded, Gains 1.3% on Improved Economic Data.

The equities market opened the week hesitant but picked up in the last three trading sessions, on the backdrop of improved economic data. Accordingly, the All Share Index (ASI) advanced 1.3% w/w to settle at 35,957.24 points, spurring YTD return to 33.8% as market capitalization added another N156.0bn to settle at N12.4tn.

Sentiment was mixed as 3 of 5 sectors trended northward. The Industrial Goods (+0.8%) led sector gainers on account of price appreciation in DANGCEM (+4.9%), followed by Consumer Goods (+2.4%) and Insurance (+0.1%) sector indices amid heightened demand for NB (+2.5%) and AIICO (+5.4%). On the flip side, Oil & Gas index (-4.8%) underperformed while Banking index (-2.3%) also stayed downbeat amidst profit taking in SEPLAT (-6.7%), TOTAL (-4.9%), UBA (-3.2%) and GUARANTY (-1.7%).

Market breadth improved 0.8x (relative to 0.4x in the previous week) as 28 stocks advanced against 35 decliners. However, activity level for the week was mixed as average value traded advanced 28.6% w/w to N3.7bn while average volume traded fell 17.7% w/w to 205.5mn units. In the week ahead, we expect the broader index to close on a positive note as investors anticipate the release of improved inflation figure.

Money Market: Rates price in liquidity dynamics

At the beginning of the holiday-shortened week, the opening balances of Banks/Discount Houses stood at N108.7bn, even as OBB and O/N rates settled at 12.2% and 12.7% respectively. By mid-week, N135.4bn maturing bills helped to drive the OBB and O/N borrowing rates to 8.8% and 9.3% respectively, from single digit levels in the preceding day. As expected, the CBN maintained its liquidity tightening stance, mopping up a total of N101.4bn in the form of OMO auctions that were carried out on all trading days of the week. As such, rates edged higher at the close of the week: OBB (up 13.1% to 29.2%) and O/N (up 15.4% to 30.9%) w/w. In the week ahead, we expect the FGN’s bi-weekly Nigerian Treasury Bills auction to take place on Wednesday, even as the apex bank releases the Q4 2017 NTB issuance calendar. Additionally, N246.4bn OMO bills are expected to mature into the system on Thursday, as well as likely OMO auctions, given the monetary authority’s tightening stance.

Fixed Income Market: Absence of long tenured bills in OMO auctions spur bullish theme

Sentiment was bullish across tenor bills last week. At the beginning of the week, data release from NBS which indicated that the economy was out of recession helped to buoy offshore interests in yields that were still near all-time highs. Additionally, the absence of long tenured bills in OMO auctions that were carried out at the beginning of the week exacerbated the buy-side theme. Overall, average T-bill yield decreased by 84bps w/w to close the week at 19.6%. (91-day (down 103bps to 18.6%), 182-day (down 44bps to 19.1%) and the 364-day (down 105bps to 21.0%). Similarly, average bonds yield edged lower by 7bps to end the week at 16.6%, driven by sell-offs in the 3-year, 7-year and 10-year maturities (where yields shrunk 4bps, 10bps and 14bps respectively. In the interim, we expect mixed sentiments to dictate proceedings in the T-bills space, even as the bonds space stays tepid in the absence of any system shocks that will catalyze activity.

Currency Market: Naira appreciates in the Investors and Exporters FX window

In the Foreign exchange market, the naira depreciated by 3bps to close the week at N306.0/$1 at the official market. However, the domestic currency saw a 14bps appreciation in the Investors and Exporters FX window, to settle at N358.5/$1USD. On the other hand, the naira traded sideways in the parallel market to end the week at N364.0/$1. In the oil market, prices inched higher from $50.9/b to $54.3/b, after U.S. crude production was hit harder by Hurricane Harvey than expected. The outlook of the naira remains tied to the spate of CBN’s intervention in the spot and forward markets as well as the better price discovery in the I&E FX window.


by Editor

September 14, 2017 | 12:11 am
  |     |     |   Start Conversation

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