SAT, JULY 04 2020-theG&BJournal- Nigerian stocks suffered another week of losses on rising COVID-19 cases in the country and the persisting FX illiquidity in the market. The ASI declined by 2.0% w/w, led by selloffs in BUACEMENT (-2.3%), MTNN (-1.3%), UNILEVER (-18.8%) and the banking stocks. Accordingly, the Month-to-Date and Year-to-Date losses printed -0.6% and -9.3%, respectively.
Sectoral performances were negative, with the Banking (-7.5%), Industrial Goods (-6.4%), Insurance (-2.2%), Oil & Gas (-1.2%) and Consumer Goods (-0.5%) indices on recording weekly losses.
In all, a total turnover of 961.833 million shares worth N9.181 billion in 20,058 deals were traded this week by investors on the floor of the Exchange, in contrast to a total of 739.375 million shares valued at N8.563 billion that exchanged hands last week in 17,248 deals.
The Financial Services industry (measured by volume) led the activity chart with 618.714 million shares valued at N4.338 billion traded in 9,669 deals, contributing 64.33% and 47.25% to the total equity turnover volume and value respectively.
The Consumer Goods industry followed with 91.119 million shares worth N2.227 billion in 3,703 deals. The third place was the Conglomerates industry, with a turnover of 60.640 million shares worth N62.779 million in 556 deals.
Trading in the top three equities namely FBN Holdings Plc, Guaranty Trust Bank Plc and United Bank for Africa Plc. (measured by volume) accounted for 275.099 million shares worth N2.818 billion in 3,497 deals, contributing 28.60% and 30.69% to the total equity turnover volume and value respectively.
Analysts at Cordros Research continues to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks as ‘’risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue.’’
The overnight (OVN) rate jumped by 740bps w/w, to 23.5% as outflows from CRR and OMO auction (NGN100.00 billion) debits outweighed the inflows from OMO maturities (NGN333.31 billion) and retail FX refunds.
We expect a modest contraction in the OVN, with system liquidity receiving a slight boost from OMO maturities (NGN16.00 billion).
In the Treasury bills secondary market, trading remained at moderate levels following pressured system liquidity, low rates and shift in focus to the primary markets of both segments. Nonetheless, the average yield across all instruments pared by 2bps to 4.2%.
Across the segments, average yield expanded by 14bps to 5.2% at the OMO segment as activity in the space remained frail; yields contracted by 15bps to 2.1%, on average, at the NTB segment, as market participants covered for lost bids at the PMA. At the PMA, demand remained heavy, as there was an oversubscription of 3.7x for the NGN88.86 billion worth of bills on offer.
The auction closed with the CBN rolling over NGN10.00 billion of the 91-day, NGN20.00 billion of the 182-day and NGN58.86 billion of the 364-day – at respective stop rates of 1.79% (previously 1.80%), 1.91% (previously 2.04%), and 3.39% (previously 3.75%). At the OMO auction, stop rates were unchanged as the CBN mopped up NGN100.00 billion of maturating bills across all tenors.
‘’We expect demand for T-bills to remain at current levels amidst tight system liquidity and low yields,’’ Cordros Research says.
Trading in the Treasury bonds secondary market ended the week on a bullish note due to particular interest in instruments at the head and belly of the curve. This is as investors looked to reinvest OMO maturities and lost bids at the NTB auction.
Thus, average yield across instruments contracted by 69bps to 8.1%. Across the curve, yields contracted at the short (-69bps), mid (-128bps) and long (-30bps) segments following demand for the JAN-2026 (-133bps), JUL-2030 (-203bps) and JUL-2034 (-53bps) bonds, respectively.
We expect the Treasury bonds secondary market to remain bullish due to the relatively attractive yields in the space.
The Nigerian Stock Exchange (NSE) data shows a total of 4,590 units valued at N5.515 million were traded this week in 14 deals compared with a total of 9,284 units valued at N10.180 million transacted last week in 8 deals.
For the fifth straight week, the Central Bank of Nigeria’s (CBN) foreign reserves declined as FX outflows outpaced inflows. Specifically, the foreign reserves dipped by USD52.10 million w/w to USD36.16 billion.
Consequently, the naira strengthened against the US dollar by 0.09% WTD to NGN386.00/USD at the I&E window, while it weakened by 0.22% to NGN461.00/USD at the parallel market. In the forwards market, the naira appreciated against the US dollar across all contracts.
Pointedly, the 1-month (+0.2% to NGN387.31/USD), 3-month (+0.3% to NGN390.33/USD), 6-month (+0.5% to NGN394.66/USD) and 1-year (+0.8% to NGN410.56/USD) contracts, all gained ground against the USD in the review period. Elsewhere, the CBN increased the bid price for FX at its Secondary Market Intervention Sales (SMIS) window by 5.6% to NGN380.00/USD. This we regard, is in line with the apex bank’s intention to unify the exchange rate towards the NAFEX rate.
Cordros Research says; ‘’for us, the widening current account (CA) position suggests that odds are stacked against the naira. Beyond that, as the economy gradually reopens, the resumption of FX sales to the BDC segment of the market will place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.’’