Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up
An Extraction of the Afrinvest Weekly Economic & Market Report for May 17th, 2024
Photo Credit: NGX
Domestic Equities: Bears Prevail… ASI down 0.1% w/w
The local bourse closed bearish on 4 out of 5 trading sessions, culminating in a 0.1% decline in the NGX-ASI to 98,125.73 points. Accordingly, market capitalisation shed 0.1% (or ₦0.8bn) w/w to ₦55.5tn while YTD trimmed to 31.2% (previously 31.4%). Activity level waned as average volume and value traded dipped 24.5% and 15.8% w/w to 330.4m units and ₦8.5bn, respectively. The top traded stocks by volume were GTCO (153.3m units), ACCESSCORP (124.6m units), and NB (120.6m units), while GTCO (₦6.4bn), NOTORE (₦4.7bn), and NB (₦2.8bn) led in terms of value.
Across our coverage sectors, performance was bearish, as four indices lost while two gained. Leading the laggards, the Oil & Gas and Banking indices lost 6.5% and 5.3% w/w respectively, owing to price decline in ETERNA (-18.3%), SEPLAT (-10.0%), UBA (-17.2%) and FBNH (-8.2%). Trailing, sell pressure on NEM (-18.4%), AIICO (-3.9%), PZ (-22.2%), and DANGSUGAR (-11.1%) dragged the Insurance and Consumer Goods indices down 4.0% and 1.3% w/w respectively. Conversely, the AFR-ICT and Industrial Goods indices rose 6.2% and 1bp respectively, due to buying interest in AIRTELAF (+9.0%), MTNN (+1.8%), and WAPCO (+0.3%).
Investor sentiment, as determined by market breadth, weakened to -0.3x (previously 0.0x) as 28 stocks advanced, 49 lost and 74 closed flat. Top gainers for the week were INTENEGI (+11.5%), MCNICHOL (+9.9%), and CUSTODIA (+9.7%), while PZ (-22.2%), NEM (-18.4%), and ETERNA (-18.3%) led the losers. Next week, we expect the negative sentiment to persist as macroeconomic headwinds continue to dampen investors' interest.
Foreign Exchange Market: Naira Depreciates across FX Segments
The price of Brent benchmark crude rose by 1.4% w/w, to close at $83.98/bbl, after U.S. consumer inflation readings came in softer than expected - boosting hopes for firmer demand as the travel-dense summer period approaches.
On the home front, CBN’s external reserves rose 0.7% w/w to $32.6bn (as of 15/05/2024). Meanwhile activity level in the NAFEM window increased by 40.1% w/w to $1.3bn. In the currency market, the Naira weakened 2.1% w/w against the base currency (dollar) to ₦1,497.33/$1.00. Similarly, at the parallel market, the Naira faltered 3.4% w/w to close at ₦1,475.00/$1.00. Looking ahead, we anticipate extended pressure on the Naira as FX supply-demand mismatch persists.
Money Market: Sell Pressure Dampens Secondary T-bills Performance
This week, system liquidity closed at ₦1.1tn, 75.3% higher than the prior week’s level supported by primary market repayment (₦858.0bn) and Standing Lending Facility (₦3.4tn). The weak liquidity in the inter-bank market caused OPR and OVN rates to close the week higher at 30.0% and 30.7% respectively from 28.0% and 28.6% in the previous week.
In the secondary T-bills market, performance was bearish as average yield rose 45bps w/w to settle at 22.0%. Across tenors, the 182 and 91-day instruments recorded the most selloffs as yield rose 108bps and 46bps w/w respectively. On the flip side, buying interest on the 364-day instrument saw yield dip by 18bps w/w. In the coming week, we expect liquidity to remain robust following inflows - coupon payments (₦17.9bn) and T-bills (₦509.0bn) - though we anticipate that inter-bank rate would remain at current levels. Also, the outcome of the MPC decision on the anchor rate could cause a repricing in the secondary market, should the committee decide to further tighten the policy rate as against our expectation of a hold stance.
Bonds Market: Non-Competitive Bidders Steal the Spotlight at May PMA
The week opened with DMO’s monthly FGN bond auction which raised ₦682.1bn, against an offer of ₦450.0bn split across the FGN APR 2029 and FEB 2031 re-openings, alongside a new 9-year bond (FGN MAY 2033). Investors' demand was 1.2x of offer (relative to 2.0x at the April auction) as appetite skewed in favour of the fresh bond (2.5x) compared to the 2029 (0.7x) and 2031 (0.5x) papers.
In consummating the auction, ₦380.8bn worth of papers (55.8% of total sales) were awarded to competitive bidders while the balance (₦301.3bn) was sold to non-competitive bidders, hence, creating the headroom for the DMO to keep yield offers at bay to the advantage of the FG. Across the respective instruments, sales-to-offer was 0.5x, 1.0x, and 3.1x while the average marginal rate dipped by 4bps to 19.6%. In the secondary market, trade closed flat w/w with yields at 18.5% owing to tepid selloffs at the start of the week and a soft recovery on Friday. Across tenors, yields expanded by 3bps and 2bps at the front and belly while a 2bps contraction was observed on the long end of the curve.
In the SSA Eurobonds market, the broad positive outing was overshadowed by steep SSA selloffs on Benin’s 2038 (+8.4%) and Ghana’s 2025 (+2.0%) instruments – owing to concerns around weak economic fundamentals and delayed debt restructuring, respectively. As such, average yield rose 11bps to settle at 16.6%. Meanwhile, the Corporate Eurobonds space was upbeat, with a 13bps decline in average yields to 8.6%. The bullish sentiment was mostly buoyed by interest in the Ecobank 2031 and Eskom Holdings 2025 instruments, with yields down 39bps and 30bps w/w.
Next week, we anticipate modest inflows of ₦17.9bn from FGN bond coupons which should support buying interest as the MPC is anticipated to keep policy parameters unchanged. Elsewhere, the SSA Eurobond space is expected to sustain investors' interest as marginally improved US inflation data coupled with the ECB’s talk of possible near-term rate cuts inspire risk-on sentiment.