Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for March 8th, 2024

Photo Credit: NGX

Domestic Equities Market: Bullish Outing on Customs Street… ASI up 2.6% w/w

The domestic equities market performance was guided by a mix of resilient corporate earnings releases and the listing of TRANSPOWER on the exchange. As such, the NGX-ASI rose 2.6% w/w to 101,330.90 points. Likewise, market capitalisation rose by 2.5%, translating to a ₦3.3tn gain to ₦57.3tn, while YTD return strengthened to 35.5% (previously 32.1%).

Activity level improved as average volume and value traded increased 13.6% and 218.2% w/w to 427.6m units and ₦21.7bn, respectively. Top traded stocks by volume were TRANSCORP (600.1m units), FBNH (96.9m units), and UBA (90.9m units), while TRANSCORP (₦11.3bn), DANGCEM (₦4.4bn), and FBNH (₦3.0bn) led by value.

Across our coverage sectors, performance was mixed with a negative tilt, as three indices closed negative, two gained, while the Oil & Gas index closed flat. The Insurance index led the laggards with a weekly loss of 5.2%, driven by price depreciation in AIICO (-9.3%), and MBENEFIT (-9.2%). Following suit, the Banking and Consumer Goods indices shed 1.4% and 1.2% w/w respectively, due to losses in ACCESSCORP (-4.3%), ZENITH (-4.2%), NB (-10.8%), and VITAFOAM (-10.0%). Meanwhile, the AFR-ICT and Industrial Goods indices gained 3.4% and 1.6% w/w respectively due to price uptick in MTNN (+10.3%), BUACEMENT (+4.4%), and WAPCO (+3.0%).

Investor sentiment, as measured by market breadth, worsened to -0.5x (previously -0.3x) as 20 stocks gained, 55 lost, while 76 remained unchanged. Top gainers for the week were JULI (+32.5%), INTENEGI (+20.9%), and TRANSCORP (+19.0%), while GUINNESS (-17.5%), ETI (-17.0%), and NEM (-16.7%) topped the losers’ chart. Next week, we expect the bourse to sustain the positive momentum as investors cherry-pick on stocks with attractive valuations.

Foreign Exchange Market: NAFEM Rate Maintains Spread Over Parallel Rate Amid a Stable Market

At the start of the week, OPEC+ members extended its voluntary production cuts of 2.2mbpd into Q2:2024 to support the oil market amid concerns over demand and rising oil output from non-members. The expected positive impact on price from the cut coupled with positive trade data from China and uptick in India’s oil demand, was offset by skepticism around the supply cut and increase in US crude inventories. Consequently, Brent crude oil dipped 1.8% w/w to $82.08/bbl.

On the domestic scene, we saw a 1.0% w/w accretion in the foreign reserves to $34.0bn as of March 6th, 2024, owing to foreign capital inflow (evident in the YTD foreign net inflows of $822.6m through the NAFEM window) following CBN’s drive to attract FX. Across the FX market this week, the Naira remained stable and traded within a similar band as the previous week. At the NAFEM Window, activity level improved 41.4% ($473.1m) to $1.6bn and the price currency (naira) fell 4.9% w/w against the base currency (dollar) to ₦1627.40/$1.00.

Similarly, the price currency (naira) dipped 5.3% w/w against the base currency (dollar) to ₦1600.00/ $1.00 at the parallel market. We note that the spread between the NAFEM and parallel rates sustained its streak for the second week though weekly average declined 98.8% to ₦27.40. In the week ahead, the Naira is likely to trade within a similar band across FX segments, supported by intensified regulatory spotlight.

Money Market: Buy Interest Dominate Yields Tighten Further on Liquidity Curb

This week, system liquidity rose 4.5x to ₦2.6tn buoyed by borrowings at the Standing Lending Facility (₦8.0tn) as paper sales outstripped repayments by ₦2.0tn. Consequently, the OPR and OVN rates expanded by 2.7ppts and 2.8ppts respectively to 29.8% and 31.0%. At the primary T-bills market, the CBN issued papers to mop-up ₦337.9bn maturing bills. Precisely, the CBN issued 91-day (Offer: ₦14.4bn; Subscription: ₦66.6bn; Sale: ₦14.4bn), 182-day (Offer: ₦10.6bn; Subscription: ₦51.5bn; Sale: ₦10.6bn) and 364-day (Offer: ₦312.9bn; Subscription: ₦1.5tn; Sale: ₦1.3tn) instruments at stop rates of 17.2%, 18.0% and 21.5% respectively, relative to 17.0%, 17.5% and 19.0% previously. Overall, demand was healthy as bid-offer rate cleared at 4.9x across all the instruments (previous: 8.4x).

In the secondary T-bills market, the average yield rose 191bps w/w to 20.4% owing to strong repricing across the yield curve. The bearish pressure on yields was steepest on the long-end of the curve, with a 2.9ppts upsurge w/w. Also, sell pressure on the 91-day and 182-day instruments was noticeable as yields expanded 1.6ppts and 1.3ppts w/w to 15.3% and 21.3%, respectively. Next week, we anticipate sizable inflows (NT-bills: ₦161.5bn; FGN Bond coupon: ₦51.1bn; FGN Bond maturity: ₦720.0bn) to hit the system. Nonetheless, we expect CBN’s tight liquidity management to keep yields firm across market segments.

Bonds Market: Sell-off Persists as Investors Hunt for Better Returns

Investors' appetite dwindled this week, following the shift in focus to T-bills and Savings bonds. This led to negative performance across all trading days, except for a positive showing on Friday, pulling the average yield higher by 59bps w/w to 17.7%. The bearish outing reflected across all tenors, leading to a yield uptick across the curve, with selloffs more pronounced on the long-end as yield advanced 93bps, while the short and mid-end bonds notched gains of 36bps and 24bps w/w, respectively.

Moving on, sentiment in the SSA Eurobonds market was poor as average yield climbed 2.8ppts to print at 32.7%. This bearish performance was mostly fuelled by sell pressure on the ZAMBIA 2024 and BENIN 2038 instruments with yields surging 94.1ppts and 8.2ppts w/w following ongoing discussions in the former’s quest to restructure its debt burden with maturity in April.

Similarly, the SSA Corporate Eurobonds continued the bearish trends as average yield increased 4bps w/w to 8.4%. Yield uptrend on the ECOBANK 2024 and ESKOM HOLDINGS SOC LTD 2025 instruments, up 82bps and 17bps majorly influenced performance.

Next week, we expect the sell-off in the domestic secondary bonds market to persist, as investors realign their portfolio on more attractive short-dated papers. This move is driven by expectations of yield repricing in the long-dated papers in the near term. For the SSA space, expectations on the outcome of discussions around Zambia debt restructuring and macroeconomic dynamics in Nigeria should guide investment play in the market.