Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for March 22nd, 2024

Photo Credit: NGX

Domestic Equities Market: Profit-taking Weighs on Performance… ASI down 0.4% w/w

The domestic equities market closed the week on a bearish note as the NGX-ASI recorded a w/w loss of 0.4% to close at 104,647.37 points. Consequently, market capitalisation shed 42bps (₦247.6bn) to ₦59.2tn, while YTD return declined to 40.0% (previously 40.5%). Activity level dipped as average volume and value traded fell 2.1% and 7.8% w/w to 347.0m units and ₦9.8bn respectively. The top traded stocks by volume were UBA (176.1m units), FBNH (112.1m units), and ACCESSCORP (92.5m units), while UBA (₦4.6bn), FBNH (₦4.5bn), and GTCO (₦3.4bn) led in terms of value.

Across our coverage sectors, performance was positive as four indices gained while two lost. The Insurance and Banking indices led the gainers, up 8.9% and 4.2% w/w respectively, driven by buy interest in NEM (+45.1%), MANSARD (+11.8%), UBA (+11.1%), and ETI (+11.6%). Trailing, gains in BUACEMENT (+1.6%), WAPCO (+1.0%), OANDO (+6.5%), and JAPAULGOLD (+6.2%) pushed the Industrial Goods and Oil & Gas indices up 0.6% and 0.3% w/w, respectively. Conversely, the AFR-ICT and Consumer Goods indices shed 4.8% and 0.4% w/w respectively, due to sell pressure on MTNN (-12.2%), CWG (-2.5%), PZ (-10.0%), and NASCON (-7.8%).

Investor sentiment, as measured by market breadth, declined to 0.3x (previously 0.4x) as 49 stocks gained, 30 lost, while 72 were unchanged. Top gainers for the week were JULI (+46.1%), NEM (+45.1%), and INTENEGI (+23.0%), while JBERGER (-17.1%), DAAR (-14.1%), and UPDC (-12.7%) topped the losers’ chart. In the coming week, we expect the market performance to be influenced by the outcome of the upcoming MPC meeting.

Foreign Exchange Market: A Glimmer of Hope for the Naira or a Stopgap?   

The waning hopes of a ceasefire in the ongoing Israel-Hamas war resulted in a w/w uptick of 0.3% in the benchmark crude oil price to $85.63/bbl. Relatedly, news of Ukrainian drone attacks on Russia oil plants have stoked concerns about potential disruptions to oil supplies, given OPEC's subsisting output cuts.

On the home front, CBN's external reserves fell 0.4% w/w to $34.3bn (as of 21/03/2024). In other development, the CBN announced that it has fully cleared verified FX backlog following recent payment of $1.5bn. Meanwhile, activity level in the NAFEM window increased 47.2% w/w to $1.5bn. In the currency market, the Naira appreciated 12.0% w/w against the base currency (dollar) to ₦1,431.49/$1.00. Similarly, the pair gained 6.7% w/w against the greenback to ₦1,495.00/$1.00 at the parallel market. Looking ahead, we expect rates across FX segments of the market to follow a similar trend barring any negative shock. 

Money Market: Bullish Performance in the Secondary Market 

This week, system liquidity closed at ₦575.9bn, 57.6% lower than the previous week. This was supported by standing lending facility worth ₦266.8bn and opening balance of banks at ₦314.3bn. Nonetheless, OPR and OVN rates declined 4.1ppts and 3.8ppts w/w to close at 26.2% and 27.3%, respectively.

In the secondary T-bills market, performance was bullish as average yield dipped 68bps w/w to 18.7% following buying interest across the yield curve. Yield on the short-end of the curve felt the most impact as it contracted 1.1ppts w/w to 15.5%. Meanwhile, yields on the 364- and 182-day instruments declined 90bps and 5bps w/w to 22.8% and 17.7%, respectively. In the coming week, we expect inflows from primary market repayments (₦1.6tn) and expectations of a hawkish stance by the MPC to guide yields in the secondary market.

Bonds Market: DMO Issues a New Benchmark Bond

On Monday, the Debt Management Office (DMO) conducted its March 2024 Bond auction with a total offer of ₦450.0bn for three instruments – 19.94% FGN MAR 2027 (new issue) and reopening of 18.50% FEB 2031 and 19.00% FEB 2034. The FEB 2031 bond was undersubscribed with bid-to-offer ratio clearing at 0.3x (offer: ₦150.0bn, subscription: ₦51.8bn, allotment: ₦47.9bn, stop rate: 20.0%). On the other hand, the new 3Y benchmark bond was 1.8x oversubscribed (offer: ₦150.0bn, subscription:  ₦264.6bn, allotment: ₦151.9bn, stop rate: 19.9%) while the FEB 2034 bond was 2.0x oversubscribed (offer: ₦150.0bn, subscription:  ₦298.6bn, allotment: ₦275.9bn, stop rate: 20.5%). Meanwhile, performance in the secondary market was negative as the average yield increased by 68bps w/w to settle at 18.8%. We adduce the bearish performance during the week to investors aligning portfolios to take position in the new benchmark bond which was issued on the 18th of March.

Performance in the Sub-Saharan Africa (SSA) sovereign Eurobonds market mirrored the sovereign Naira market, as average yield on instruments rose 5.5ppts w/w to 38.9%. Despite the general sentiment in the market being bullish with most bonds recording yield decline, the Zambian 2024 instrument surged 172.1ppts w/w to drag the market southward. On the other hand, the Nigerian 2027, 2025 and 2028 instruments recorded the most buying interest with yields declining 90bps, 79bps and 79bps w/w respectively.

In the corporate Eurobonds market, performance was bullish as the average yield pared 25bps w/w to 8.1%. The largest decline in yield was recorded on the Ecobank Transnational 2024 instrument, which shed 1.7ppts w/w, as the paper nears maturity (18th of April 2024). Also, the yield on the Access Bank 2026 and EBN Finance CO BV 2026 instruments fell by 40bps and 31bps w/w respectively. In the coming week, we anticipate the market would be relatively calm on the domestic secondary bonds market. In the Eurobonds space, we expect appetite for higher yield on the emerging market instruments would change market direction given the recent dovish stance of some systemically important central banks.