Afrinvest Weekly Update | Domestic Equities and Fixed Income Market Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for August 16th, 2024

Photo Credit: NGX

Domestic Equities Market: Bears Pervade Customs Street… ASI down 1.5% w/w

The bourse closed four of the five trading sessions negative, culminating in a 1.5% w/w loss. As a result, the NGX-ASI and market capitalisation fell to 97,100.31 points and ₦55.1tn sequentially, while YTD return dipped to 29.9% (previously 31.9%). Similarly, activity level waned as average volume and value traded fell 24.1% and 14.0% w/w to 406.6m units and ₦8.4bn respectively. The volume chart was led by GTCO (248.2m units), VERITASK (172.0m units), and ACCESSCORP (124.2m units) while GTCO (₦11.3bn), OANDO (₦3.8bn), and NESTLE (₦2.5bn) led in terms of value traded.

Across the sectors within our purview, performance was mixed as three indices gained while the other three lost. Topping the gainers, the Oil & Gas index advanced 5.3% w/w spurred by price appreciation in TOTAL (+19.7%) and ETERNA (+11.1%). Following, the Insurance and Consumer Goods indices rose 80bps and 40bps w/w respectively, buoyed by gains in MANSARD (+8.5%), AIICO (+2.8%), NASCON (+11.6%), and DANGSUGAR (+10.8%). On the flip side, the Industrial Goods index led the laggards, down 5.2% w/w following selloffs in CUTIX (-17.5%) and BUACEMENT (-14.8%). Trailing, the Banking and AFR-ICT indices shed 2.3% and 2bps w/w sequentially, following losses in FBNH (-6.9%), ETI (-6.2%), CHAMS (-10.2%), and CWG (-8.7%).

Investor sentiment, as measured by market breadth, weakened to -0.1x (previously 0.1x) as 37 stocks advanced, 46 lost, and 67 closed flat. RTBRISCO (+33.9%), TOTAL (+19.7%), and JBERGER (+18.2%) were the top performing stocks for the week while CUTIX (-17.5%), BUACEMENT (-14.8%), and OANDO (-11.7%) were the most underperforming stocks for the week. Next week, we anticipate an extended bearish outing, fuelled by cautious reaction to the mixed H1 earnings performances and improved valuation of the FI instrument owing to the modest decline in the headline inflation rate in July.

Foreign Exchange Market: Divergent Outing in the Currency Market

This week, oil price was relatively steady amid concerns over reduced expectations of demand growth from China (top oil importer) and optimism buoyed by stronger-than-expected U.S. economic data. Specifically, retail sales in the U.S. rose by 1.0% (projected: 0.3%), while weekly jobless claims declined by 7,000 (below expectations), thereby alleviating concerns over economic downturn in the U.S. and potentially boosting oil demand. Overall, Brent crude oil price closed at $79.68/bbl. (previously $79.66/bbl.).

Domestically, the CBN’s 30-day moving average FX reserve balance depreciated 0.9% w/w to $36.7bn (as of 15/08/2024). Meanwhile, the activity level in the NAFEM window increased 64.0% w/w to $1.1bn. At the official window, the Naira fell 0.4% w/w against the USD to close at ₦1,579.89/$1.00, while at the parallel market, the Naira rose 0.6% w/w to close at ₦1,585.00/ $1.00. In the coming week, we expect rates across FX segments of the market to follow a similar trend, barring any market shock.

Money Market: Positive Outing in the Secondary T-bills Market

This week, system liquidity closed at ₦201.1bn, 53.7% lower than prior week’s level, though minute inflow from primary market repayment (₦1.4bn) hit the system. Despite the weak liquidity, the interbank market rates OPR and OVN closed the week lower at 32.3% and 33.0% respectively from 33.4% and 34.0% in the previous week.

Deferring previous week’s bearish momentum, the secondary T-bills market returned positive as average yield declined 79bps w/w to 25.0%. This was influenced by buying interest in the mid and long tenors as yield dipped 178bps and 98bps to 20.3% and 25.7%, respectively. Conversely, yield on the 91-day instrument rose 39bps to 24.0%. 

In the coming week, barring excess CRR deduction by the apex bank, we estimate a net inflow of ₦508.0bn due to offsetting impact of inflows from paper maturities (₦741.0bn) and coupon payment (₦366.5bn) over estimated outflows from scheduled PMAs (Bonds: ₦190.0bn, NT-Bills: ₦410.0bn). In the secondary market, activity would likely be muted ahead of the auction while buy interest from lost bids should spur interest at the end of the week.

Bonds Market: Bullish Momentum Dominates Domestic Bonds and SSA Eurobonds Markets

This week, the DMO held an investor roadshow for the planned FG's debut domestic-issued FCY bond worth $500.0m as part of efforts to shore up fiscal capacity. Although the offer's comprehensive prospectus is yet to be released to the public, the coordinating minister of the economy, Mr. Wale Edun has hinted that total issuance could expand to $2.0bn should the initial offer ($500.0m) be met with healthy demand beginning from next Monday. Additionally, the instrument would be listed on both the NGX and FMDQ platforms to enhance liquidity and accessibility while also appealing to a diverse investor base.

Meanwhile, in the secondary bonds market, bullish sentiment prevailed with strong buying interest across all five trading sessions. Consequently, the average yield across tenors contracted by 37bps w/w to 19.5%. The short-dated bonds attracted the most buying interest, with average yield declining by 55bps, driven by demand for the APRIL 2029 and MAY 2029 papers. Also, the mid and long-dated bonds saw gains, with average yields dipping by 50bps and 20bps, respectively.

In the SSA Eurobonds market, sentiment was shaped by widespread expectations that the Fed will ease its grip on interest rates following the release of softer inflation data in the US. Consequently, all papers in this market segment witnessed yield decline save the Gabon 2024 (+0.3%) and Benin 2038 (+8.6%) papers.  Specifically, the strong performance of Ghana 2025 (-7.2%) and Ghana 2026 (-1.5%) instruments drove the average yield down 21bps w/w to 19.8%. Similarly, the average yield on Corporate Eurobonds under our coverage dipped 1bp w/w to 8.2%. Yield decline on the Office Cherifien Des Pho 2025 (-11bps) and Eskom Holdings 2025 (-9bps) instruments majorly drove performance.

Next week, the DMO has scheduled FGN bond sales of up to ₦190.0bn on the APR 2029, FEB 2031 and MAY 2033 instruments. As such, we anticipate next week’s trading to be largely influenced by the outcome of the PMA. For the SSA market, we expect bullish sentiment to persist as investors continue to price in the possibility of a rate cut in September.

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