Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for March 15th, 2024

Photo Credit: NGX

Domestic Equities Market: Bullish Outing on the Bourse… ASI up 3.7% w/w

The domestic equities market closed the week on a positive note as the NGX-ASI gained 3.7% w/w to 105,085.25 points. Resultantly, market capitalization increased 3.7% (or ₦2.0tn) w/w to ₦59.4tn, hence pushing the YTD return to 40.5% from 35.5% previously. Activity level dipped as average volume and value traded fell 17.8% and 51.4% w/w to 217.2m units and ₦5.0bn respectively. The top traded stocks by volume were TRANSCORP (303.5m units), GTCO (169.3m units), and ACCESSCORP (138.0m units), while GTCO (₦7.2bn), TRANSCORP (₦5.3bn), and ACCESSCORP (₦3.0bn) led in terms of value.

Across the sectors within our coverage, performance was bullish as five indices gained while one lost. The Banking and AFR-ICT indices led the gainers, up 12.8% and 7.4% w/w respectively, driven by price appreciation in GTCO (+17.9%), ZENITH (+16.8%), MTNN (+21.0%), and OMATEK (+23.1%). Trailing, gains in CORNERST (+10.0%), DANGSUGAR (+10.0%), and HONEYFLOUR (+10.0%) pushed the Insurance and Consumer Goods indices up 2.5% and 1.4% w/w respectively. Also, the Industrial Goods index advanced 1.4% w/w on the back of price uptick in JBERGER (+30.6%) and WAPCO (+5.3%). Conversely, the Oil & Gas index shed 0.1% w/w due to sell-offs on OANDO (-4.2%) and ETERNA (-3.2%).

Investor sentiment, as measured by market breadth, improved to 0.4x (previously -0.5x) as 52 stocks gained, 24 lost, while 75 remained unchanged. Top gainers for the week were JBERGER (+30.6%), OMATEK (+23.1%), and MTNN (+21.0%), while INTENEGI (-27.4%), SUNUASSU (-19.1%), and LASACO (-14.5%) topped the losers’ chart. In the coming week, we expect the bourse to sustain the bullish momentum barring any shock.

Foreign Exchange Market: Local Currency Appreciates Amid Market Stability

The price of benchmark Brent crude rose 3.2% this week to $84.71/bbl., fuelled in part by the lingering geopolitical crisis in the Middle East and Eastern Europe, and on the other, favourable oil demand projection by the International Energy Agency (IEA). Notably, in its latest report, the IEA raised global crude oil demand projection for 2024 by 1.3mbpd to 103.2mbpd, while expecting OPEC+ extended output cuts to impact supply output.

On the domestic front, the CBN's FX reserves appreciated 0.9% w/w to $34.4bn (as of 14/03/2024). Meanwhile, activity level in the NAFEM window decreased 37.4% w/w to $1.0bn. In the currency market, the Naira strengthened against the USD at both the official and parallel windows. At the official window, the Naira gained 1.5% w/w against the USD to close at ₦1,602.75/$1.00, while at the parallel market, the pair closed at ₦1,595.00/ $1.00, indicating a 31bps gain. In the coming week, we expect rates across FX segments of the market to follow a similar trend barring any new developments.

Money Market: Bullish Outing in the Secondary Market

This week, system liquidity dipped 48.6% w/w though primary repayments worth ₦936.7bn kept it sturdy at ₦1.6tn. As a result, the OPR and OVN rates inched higher by 46bps and 7bps respectively to 30.3% and 31.1%.

At the primary T-bills market, the CBN issued instruments to mop up maturing papers worth ₦1.1tn. Specifically, the apex bank issued 91-day (Offer: ₦728.2m; Subscription: ₦85.5bn; Sale: ₦5.7bn), 182-day (Offer: ₦918.4m; Subscription: ₦49.7bn; Sale: ₦4.9bn) and 364-day (Offer: ₦159.9bn; Subscription: ₦1.4tn; Sale: ₦150.8tn) instruments at stop rates of 16.2%, 17.0% and 21.1% respectively, relative to 17.2%, 18.0% and 21.5% in the prior session. Overall, demand was strong as the bid-offer rate reached 9.3x across all the instruments (previous: 4.9x).

In the secondary T-bills market, the average yield declined 102bps w/w to 19.4% buoyed by buy interest across the yield curve. The bullish sentiment was more pronounced on the mid-end of the curve, with a 1.3ppts w/w yield decline. Following, yield on the 364 and 91-day instruments contracted 1.1ppts and 0.7ppts w/w to 23.7% and 16.6%, respectively. Next week, we expect a modest bullish outing in the secondary market on the back of a healthy system liquidity.

Bonds Market: Negative Trading on Local and SSA Fronts

Bears extended hold in the secondary FGN bond market, as the average yield spiked 40bps w/w to 18.1%. Specifically, yields rose by 92bps, 29bps and 16bps on the short, mid and long ends respectively, signalling strong repricing across the curve.

Meanwhile, pessimism dominated the SSA region except Ghana where international creditors signed a Non-Disclosure Agreement, progressing attempts to restructure over $13.0bn debt. As such, the average sovereign Eurobonds yield across coverage markets rose 1.3ppts w/w to 22.6% with the ZAMBIA 2024 (+37.8ppts) and BENIN 2038 (+8.3ppts) as the most unattractive papers, in contrast to the rally on Ghana's 2025 (-6.4ppts).

Elsewhere, the Corporate Eurobonds space was mildly bearish evidenced by a 6bps uptick in average yield to 8.4%. The negative drift reflected bearish repricing on FIDELITY 2026 (+102bps) and OFFICE CHERIFIEN DES PHO 2025 (+16bps). Next week, the DMO has scheduled on offer up to ₦150.0bn each across three issues (fresh 3-year FGN MAR 2027 and reopening on the FGN FEB 2031 and the FGN FEB 2034). Despite inflows of ₦141.7bn from FGN bond coupons, the bears should remain in play due to firm liquidity management. In SSA, save for Ghana, sentiment should remain subdued by current macroeconomic dynamics and potential delay in rate cut timeline by advanced markets.