Sentiment in the domestic bourse remained weak, as investors took profits on large-cap stocks.
However, significant interest in AIRTELAFRICA (+10.0%) and NESTLE (+9.6%) in the last trading session of the week led the market to marginal gain for the week.
Precisely, the All-Share Index advanced by 0.01%, WTD, to settle at 24,829.02 points. Thus, Month-to-Date and Year-to-Date losses printed -1.7% and -7.5%, respectively.
Sectoral performance reflected the overall market sentiment, as all sector indices declined – Oil & Gas (-4.8%), Industrial Goods (-2.0%), Insurance (-1.6%), Banking (-0.5%) and Consumer Goods (-0.01%).
In our opinion, 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 to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.
Fixed Income and Money Market
The overnight (OVN) rate ended the week 57bps lower, w/w, but remained elevated at 16.1% as the absence of any significant inflows led to thin system liquidity.
Next week, we expect the OVN to trend southwards, as system liquidity is improved by inflows from OMO maturities (NGN157.23 billion).
Trading in the Treasury bills secondary market was sluggish this week as strained system liquidity conditions and unattractive yields hampered demand for instruments in the space. Thus, the average yield across all instruments expanded by 17bps to 4.2%. Across the segments, yields widened at both the OMO and NTB markets, by 18bps and 7bps to 5.0% and 2.2%, respectively.
With liquidity conditions expected to improve next week, we should see a pick-up in demand for instruments in this space. At the NTB segment, we expect most of the activity at the primary market, as the CBN will roll over instruments worth NGN88.86 billion via auction.
Trading in the Treasury bonds secondary market was bullish, as the average yield across instruments contracted by 56bps to 8.8%.
This week, there was increased participation in the market following anticipated scarcity of instruments, as the DMO confirmed it is close to fulfilling its borrowing plans for the year.
Across the curve, yields contracted at the short (-83bps), mid (-41bps) and long (-63bps) segments due to demand for the MAR-2024 (-151bps), MAR-2027 (-119bps) and MAR-2050 (-72bps) bonds, respectively.
We expect the Treasury bonds secondary market to remain bullish due to relatively more attractive yields in the space.
For the fourth successive week, the CBN recorded another reserve drawdown as FX outflows outpaced inflows.
The foreign reserves dipped by USD80.98 million w/w to USD36.22 billion.
Consequently, the naira strengthened against the US dollar by 0.04% WTD to NGN386.33/USD at the I&E window, while it weakened by 1.09% to NGN460.00/USD at the parallel market.
In the forwards market, the naira depreciated against the US dollar in the 1-month (-0.11% to NGN387.95/USD), 3-month (-0.31% to NGN391.74/USD), 6-month (-0.65% to NGN396.60/USD) and 1-year (-1.38% to NGN414.02/USD) contracts.
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.