SAT, SEPT 12, 2020-theGBJournal-Nigerian shares traded mixed this week as profit-taking in banking stocks for the better part of the week offset bargain buying at the end of the week.
The NSE All-Share Index and Market Capitalization depreciated by 0.05% to close the week at 25,591.95 and N13.351 trillion respectively, dragged down by sell-offs of GUARANTY (-5.8%), UBA (3.9%) and ZENITHBANK (-1.2%).
The YTD loss increased to -4.7%. Performance across sectors was broadly negative with the Banking (-2.7%), Oil & Gas (-1.3%), Insurance (-0.7%), and Consumer Goods (-0.3%) indices all closing lower. The Industrial Goods (+0.4%) index was the sole gainer.
1.226 billion shares were traded in all, worth N10.842 billion in 19,529 deals.
Trading in the top three equities -Custodian Investment Plc, Zenith Bank Plc and United Bank for Africa Plc. (measured by volume) accounted for 404.171 million shares worth N3.847 billion in 3,910 deals, contributing 32.97% and 35.48% to the total equity turnover volume and value respectively.
Nigeria’s FX reserves recorded another week of accretion, even as the CBN continued to intervene across the various foreign exchange windows. Precisely, reserves grew by USD76.42 million w/w to USD35.78 billion. Across the FX windows, the naira was flat against the US dollar at NGN386.00/USD at the I&E window but weakened by 3.3% to NGN455.00/USD in the parallel market, as the market priced in the capacity of the CBN to meet demand as international flights resume. In the Forwards market, the rates on the 3-month (+0.1% to NGN388.30/USD), 6-month (+0.2% to NGN391.02/USD) and 1-year (+0.5% to NGN400.38/USD) contracts appreciated, while the 1-month (NGN386.74/USD) contract was flat.
Despite the CBN’s stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further in the medium-to-long term, at least towards its REER derived fair value.
Our projection is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves.
The overnight (OVN) rate increased significantly by 14.25ppts to 16.5%, as outflows from OMO (NGN70.00 billion) and FX auction debits outweighed inflows from OMO maturities (NGN265.00 billion) and FX auction refunds.
With a combined NGN492.09 billion coming into the system from OMO maturities (NGN350.00 billion) and FGN bond coupon payments (NGN142.09 billion) next week, we expect the OVN to trend southwards, barring any CRR debits on banks.
The Treasury bills secondary market ended the week bullish, due to the excess liquidity in the interbank market, and as market participants covered for lost bids at Wednesday’s NTB PMA at the secondary market. The average yield across all instruments contracted by 33bps to 2.2%. Across the segments, the average yields contracted by 39bps and 22bps to 2.4% and 1.7% at the OMO and NTB secondary markets, respectively.
At the PMA, demand continued to outweigh supply, as there was an oversubscription of 2.0x on NGN128.06 billion worth of bills on offer. The auction closed with the CBN allotting NGN4.41 billion of the 91-day, NGN14.00 billion of the 182-day and NGN109.65 billion of the 364-day – at respective stop rates of 1.10% (previously 1.15%), 1.55% (previously 1.80%), and 3.05% (previously 3.34%). At the OMO auction, the CBN fully allotted NGN70.00 billion worth of bills – NGN10.00 billion of the 75-day, NGN10.00 billion of the 180-day and NGN50.00 billion of the 355-day – at respective stop rates of 4.86% (unchanged), 7.68% (unchanged), and 8.90% (previously 8.94%).
Considering the level of inflows expected in the system, we should continue to see demand for instruments in this space.
The Treasury bonds secondary market ended its bearish run this week, as the market recovered from the sell-offs that dominated most of August, and in the first week of September. We attribute the bullish market sentiment to investors’ quest to reinvest the maturities that came in during the week. Thus, average yield dipped by 39bps to 7.7%. Across the curve, investors took a keen interest in short (-99bps) end instruments, as demand was particularly heavy on the MAR-2024 (-185bps), APR-2023 (-163bps) and JAN-2022 (-119bps) bonds. Similarly, the average yield at the mid (-13bps) and long (-19bps) segments also witnessed some demand, following buying interests in the MAR-2027 (-37bps) and MAR-2036 (-39bps) instruments, respectively.
Next week, we expect demand to remain elevated as investors seek to re-invest the excess liquidity expected next week.