Afrinvest Weekly Update | Domestic Equities and Fixed Income Round Up

An Extraction of the Afrinvest Weekly Economic & Market Report for May 10th, 2024

Photo Credit: NGX

Domestic Equities Market: Bears Resurface… ASI down 1.4% w/w
Underwhelming trade in four of five trading sessions dragged the domestic bourse to negative territory, as the NGX-ASI shed 1.4% w/w to 98,233.76 points. Against this backdrop, market capitalisation declined by 1.4% w/w (₦761.4bn) to ₦55.6tn while YTD return trimmed to 31.4% (previously 33.2%). Gauging activity level, the average volume traded dipped 9.9% to 437.5m units while average value traded rose 24.2% to ₦10.1bn. Furthermore, the top traded stocks by volume were UBA (353.6m units), NB (326.2m units) and ACCESSCORP (205.5m units), while UBA (₦9.2bn), NB (₦7.5bn), and GTCO (₦4.7bn) led in terms of value.

Across our coverage sectors performance was bearish save for the Industrial Goods index which gained 0.1% w/w due to price uptick in WAPCO (+1.7%). The AFR-ICT and Consumer Goods indices lost 5.9% and 1.2% w/w respectively to lead laggards, owing to price depreciation in AIRTELAF (-10.3%), PZ (-27.0%) and INTBREW (-15.3%). Also, sell pressure on MANSARD (-12.9%), WAPIC (-6.8%), and ETERNA (-9.9%) pulled the Insurance and Oil & Gas indices down 1.0% and 0.3% w/w respectively. Similarly, the Banking index lost 0.1% w/w, mirroring downturn in FBNH (-7.4%) and STERLING (-8.6%).

Investor sentiment, as determined by market breadth, weakened to 0.0x (previously 0.1x) as 39 stocks gained, 37 lost and 75 closed flat. Top gainers of the week were TANTALIZ (+27.8%), FTNCOCOA (+20.0%), and PRESCO (+15.3%), while PZ (-27.0%), MCNICHOL (-20.2%), and NSLTECH (-16.9%) led the losers. Next week, we expect the negative sentiment to linger as lacklustre earnings performance in the non-banking sectors and elevated fixed-income yields force bearish repricing.   

Foreign Exchange Market: Naira Declines to Seven-Week Low as China Oil Imports Support Oil Price.
The Brent Crude price rose 1.4% w/w to settle at $84.15/bbl following data from China indicating stronger demand for oil in the region. China’s customs agency had disclosed that oil imports for April rose to 10.9mbpd (up 5.5% from 10.4mbpd in corresponding period). Also, data from US Energy Information Administration shows that its oil stockpiles declined by 1.4m barrels to 459.5m barrels last week indicating stronger demand on the back of rise in refining and oil exports activities.

On the domestic scene, CBN foreign reserves rose 0.4% w/w to settle at a four-week high of US$32.4bn (as of 08/05/2024). Meanwhile, activity level waned as average turnover in the NAFEM segment declined 31.0% w/w to close at $894.3m (as at 09/05/2024).

At the currency market, the domestic currency depreciated further (to its lowest rate since mid-March) against the greenback at both the NAFEM and parallel market windows. Naira weakened in the parallel market segment, depreciating 3.2% w/w against the USD to settle at ₦1,425.00/$1.00. Following suit, at the NAFEM window, Naira depreciated by 4.5% w/w against the base currency (USD) to exchange at ₦1,466.31/$1.00. In the coming week, we expect the Naira to extend its decline barring any interventions.

Money Market: Bullish Outing in the Secondary T-bills Market
System liquidity advanced 9.9% w/w to ₦655.3bn as inflows from SLF (₦888.5bn), outweighed OMO (₦21.5bn) and T-bills auctions (₦179.4bn). Nonetheless, OPR and OVN rates rose 1.8ppts and 1.6ppts w/w to 28.0% and 28.6%, respectively.

In the primary market, the CBN conducted T-Bills auction with an offer of ₦179.4bn across the 91, 182, and 364-day papers. Given the high liquidity environment, investors’ appetite remained upbeat with the overall bid-to-offer ratio at 5.1x (bid: ₦179.4bn). The 364-day instrument saw the most interest with a bid-to-offer ratio of 6.6x (bid: ₦879.7bn, offer: ₦134.0bn). The 182-day papers followed suit with a bid-to-offer ratio of 2.4x. Meanwhile, the 91-day instrument met with cold shoulders from investors with a bid-to-offer ratio of 0.5x. Nonetheless, stop rates for the 91, 182, and 364-day instruments remained at 16.2%, 17.0% and 20.7% respectively. Also, the apex bank held an OMO auction, offering ₦150.0bn across two offerings (99-day: ₦75.0bn, and 183-day: ₦75.0bn). Demand was underwhelming with a bid of ₦21.5bn (bid-to-offer: 0.1x), and following, the CBN allotted ₦21.5bn across all tenors.

In the secondary T-Bills market, average yield fell 79bps w/w to 21.5%, following buy interest across the curve – yield on 91 (-0.1ppt to 19.0%), 182 (-1.1ppts to 20.3%), and 364-day bills (-1.2ppts to 25.5%). Next week, system liquidity is expected to be sapped by upcoming FGN bond auction (up to ₦450.0bn) as no inflow is anticipated from maturities and coupon payments. As a result, we foresee a muted outing in the secondary market.

Bonds Market: Bulls Prevail in Domestic Bond Space
This week, bulls dominated proceedings in the secondary market segment for domestic bond instruments, as buying interest dominated in three of the five trading sessions. Consequently, average yield across tenors contracted 24bps w/w to 18.47%. Across the benchmark curve, strong demand was observed on the long end of the curve as average yield dipped 54bps w/w. However, average yields on the short (up 3bps) and mid (up 4bps) end of the curve inched higher due to profit taking activities on MAR 2025 and APR 2029 papers.

Meanwhile, bearish sentiment pervades the SSA Eurobond market as expectation of carry trade opportunities dampened amid delay in rate cuts by global systemic central banks. As a result, average yield rose by 0.3ppts w/w to 16.9%. Notably, the Benin 2038 paper saw the most selloff. Likewise, investors were averse to Nigeria's Eurobonds notes, evidence by the broad-based selloff route on all papers under our coverage. Conversely, average yield in the Corporate Eurobonds segment shed 6bps w/w to 8.7%, lifted by buying interest on ACCESS BANK PLC 2026 instrument which posted a decline of 1.0ppts w/w.  

Next week, the DMO has scheduled FGN bond sales of up to ₦450.0bn on the APR 2029 and FEB 2031 (reopening), as well as a new 9-year paper (May 2033). As such, we expect the trading week to be largely influenced by the outcome of the PMA. For SSA market, we anticipate an extended bearish sentiment, due in part to extended hawkish cycle in advanced markets and on the other, pressured macroeconomic fundamentals in SSA.