Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for February 9th, 2024

Photo Credit: NGX

The domestic bourse booked its first w/w loss in 2024 as value erosion in major bellwethers - MTNN (-5.2%), BUACEMENT (-10.0%), and GTCO (-3.2%) - pulled the NGX-ASI down by 2.5% w/w to 101,858.37 points. Consequently, market capitalisation shed ₦1.8tn to ₦55.7tn, while YTD return declined to 36.2% (previously: 39.6%). Activity level decreased as average volume and value traded fell 36.6% and 49.9% w/w to 321.9m units and ₦7.4bn respectively. Top traded stocks by volume were FBNH (399.4m units), TRANSCORP (150.1m units), and JAIZBANK (136.7m units), while FBNH (₦10.6bn), GTCO (₦3.6bn), and UBA (₦2.8bn) led in terms of value.

Across the sectors within our coverage, performance was bearish as all indices closed negative. The Banking and Industrial Goods indices led the laggards, down 6.9% and 4.2% w/w respectively, driven by price depreciation in ZENITH (-6.7%), GTCO (-3.7%), BUACEMENT (-10.0%), and WAPCO (-9.6%). Trailing, the AFR-ICT and Insurance indices lost 2.3% and 1.5% w/w respectively, due to profit-taking in MTNN (-5.2%), WAPIC (-6.1%), and MANSARD (-4.9%). Losses in OANDO (-3.9%), ETERNA (-18.8%), DANGSUGAR (-10.0%), and NASCON (-9.9%) dragged the Oil & Gas and Consumer Goods indices down 0.4% and 0.1% w/w respectively.

Investor sentiment, as measured by market breadth, weakened to -0.7x (previously -0.6x) as 20 stocks gained, 66 lost, while 66 remained unchanged. Top gainers for the week were MEYER (+60.7%), JULI (+44.3%), and GEREGU (+19.0%), while ETERNA (-18.8%), ABBEYBDS (-18.4%), and UNITYBANK (-17.8%) topped the losers’ chart. In the coming week, the outcome of released earnings is expected to guide performance as well as continuous profit-taking activities.

Foreign Exchange Market: More Woes for the Naira at the NAFEM Window

Escalating tensions in the Middle East, fuelled by Israel's rejection of a Hamas ceasefire, sent oil prices surging this week as fears of potential supply disruptions mounted. As a result, oil prices rallied, with Brent crude climbing 6.3% w/w to $82.20 bbl.

On the domestic scene, the CBN's foreign reserve fell 0.6% w/w to $33.2bn (as of 07/02/2024). Meanwhile, activity level in the NAFEM window firmed up 66.7% w/w to $2.2bn spurred by intensified FX reforms by the CBN. In the currency market, the domestic fiat lost ground against the USD both at the official and parallel windows. At the official window, the Naira faltered 2.3% against the USD to close at ₦1,469.97/$1.00, while the pair closed trading at ₦1,470.00/$1.00 in the parallel market, implying an 8.2% w/w decline in Naira value. Next week, we anticipate the Naira to trade within similar band across market segments, as the CBN intensify efforts to check demand-supply imbalance.

Bonds Market: Sell Pressure Lurks in the Local Bond and SSA Eurobonds Space

The domestic bond market traded southward this week, as the significant yield repricing in the T-bills segment lured investors away. Consequently, daily trade ended in the red on all trading days save for a flat outing on Friday, pushing the average yield 96bps higher to 15.7% w/w. The sell pressure was felt across the ends as yield on all tenors rose w/w. The short-end bonds saw the most selloffs as average yield increased 156bps while yield on the mid and long-end bonds climbed 48bps and 88bps w/w, respectively.

Sentiment in the SSA Eurobonds market this week was guided by the Fed’s wariness to cut rate soon and relaxed jitters around Kenya’s repayment of maturing June 2024 paper. Nevertheless, the strong negative tone from Ghanian 2025 (3.3%) and Zambian 2024 (32.8%) instruments drove average yield up 110bps w/w to 30.9%. Notably, the Nigerian and Kenyan bonds were the toast of investors following the expected positive impact of recent reforms and the latter’s underway plans to finance its bond buyback.

A different narrative played in the Corporate Eurobonds space under our coverage as average yield dipped 2bps w/w to 0.3%. Yield decline on the Eskom Holdings 2025 and Fidelity 2026 instruments, down 13bps and 19bps majorly drove performance.

In the coming week, a muted outcome is expected due in part to likely inflows from lost bids though liquidity level is expected to remain tight in the absence of coupon or maturity inflows. For the SSA Eurobond space, we do not see a major catalyst offsetting investors’ weak sentiment in market-weakening papers though persistent interest in Nigerian and Kenya bonds as well as the outcome of Kenya’s capital raise could spur a positive performance.