Trading on the local bourse last week was steered by negative news flow as well as weak Q3 numbers reported by market heavyweights. Heavy losses and regulatory-compliance issues from Oando (-39.6%), CBN’s fine on two (2) tier-one banks: FBNH (-14.0%) and UBA (-13.6%), FRC’s conclusion of investigation on Stanbic (-17.8%), and weak earnings releases by UACN (-8.7%), Honeyflour (-7.5%), among others weighed negatively on investor sentiment. Consequently, the equities market traded south on four (4) out of the five (5) trading days, losing 2.7% week-on-week, and 6.5% month-on-month to close at 29,190.54pts. Market capitalization also lost N370.1bn to close the week at N9.9trn. Reflecting the weak sentiment was the market breadth which settled at 0.2x (previous week 0.7x), given that 12 stocks appreciated in price while 51 stocks declined.
Resonant liquidity levels buoyed buying interest in fixed income last week. Demand was somewhat slow at the start of the week but heaped on by mid week. The mood was sustained till the close of the week. Buy bias was tilted towards short to medium term instruments reiterating the liquidity driven demand. Average Treasury Bill and bond yields declined by 380bps and 6bps to close the week at 8.1% and 13.6% respectively.
Sell pressure in equities is likely to be sustained this week as unfolding events in the market compel the need for caution. However, we expect the pressure to wane slightly in the week given current low prices and attractive valuations (Market P/E now 8.8x vs 12.4x or MSCI EM Index). Thus, we see the equities market closing the week marginally negative.
Global and Domestic Macro-Economic Updates
US Q3 GDP disappoint, but global markets still bullish on extended QE theme.
In the past week, data released showed that the US GDP grew by 1.5% y/y, significantly behind the 3.9% growth seen in Q2. The slowdown stemmed mostly from the biggest drawdown in inventories in three years even as Corporates also cut spending over the period. However, while businesses showed caution, consumers continued to spend money at a steady clip. Consumer spending, the single largest determinant of U.S economic growth, rose at a 3.2% annual pace following an even larger gain in the second quarter. It was the latter that drove sentiments especially towards the end of the week, ensuring equities closed in the green.
Inflation continued to slow in the Eurozone for the second successive month. Data released showed Consumer prices were unchanged in October from a year earlier, a trend that has boosted expectations that the European Central Bank will likely provide additional stimulus in the coming months in a fresh effort to meet its target for price rises. Nevertheless, equities closed the week higher as Employment numbers released were more upbeat. The EU’s statistics agency jobless figures showed that the unemployment rate fell to 10.8% from 10.9% in August to reach its lowest level since January 2012. The number of people without work also fell by 131,000 during the month, to 17.323 million, driven by significant falls in Italy and Spain.
Asian markets also ended the week lower, despite hopes that central banks around the world will inject stimulus into their economies. The week’s bearish close was majorly from The Bank of Japan’s decision to refrain from introducing further easing in the past week, keeping its annual asset purchase target at 80 trillion yen ($660 billion), despite building expectations of stimulus amid disappointing economic data.
On the domestic scene, the 2014 IGR figures released last week by the National Bureau of Statistics showed that most states were still not generating enough fund internally, a development which warranted their acceptance for bailout by the Debt Management Office and the Central Bank of Nigeria. Although the total IGR made by the 36 states in the year under review grew by N45.82bn, as against the N662.04bn recorded in 2013, growth was heavily skewed towards a handful of states, which is creating a worrying pattern.
Equities Market Review and Outlook
Equities impacted by off-putting events & weak earnings
Trading on the local bourse last week was steered by negative news flow as well as weak Q3 numbers reported by market heavyweights. Heavy losses and regulatory-compliance issues from Oando (-39.6%), CBN’s fine on two (2) tier-one banks: FBNH (-14.0%) and UBA (-13.6%), FRC’s conclusion of investigation on Stanbic (-17.8%), and weak earnings releases by UACN (-8.7%), Honyflour (-7.5%), among others weighed negatively on investor sentiment. Consequently, the equities market traded south on four (4) out of the five (5) trading days, losing 2.7% week-on-week, and 6.5% month-on-month to close at 29,190.54pts. Market capitalization also lost N370.1bn to close the week at N9.9trn. Market activity as measured by average volume and value of trades increased by 35.9% and 9.8% to 269.7mn units and N2.9bn accordingly. Reiterating the weak sentiment was the market breadth which settled at 0.2x (previously 0.7x), given that 12 stocks appreciated in price and 51 stocks depreciated in price.
Performance across sectors epitomised the direction of the equities market as all sectors trended south save for the Insurance sector which gained 0.2% week-on-week. The Oil & Gas sector topped the chart losing 6.0% on the back of losses in Oando. Sell pressure in FBNH, Stanbic and UBA largely drove the banking sector to the red, losing 3.4% week-on-week. Furthermore, the Consumer and Industrial sectors lost 2.0% and 0.7% despite reticent earnings by a few companies. Company results continued to flow into the market with mixed performance seen across board. In the banking space, Nine-month result of ETI, FBNH, Fidelity, Skyebank, Stanbic, Sterlnbank and UBN were reported last week. While EPS of ETI, Skyebank and Sterlnbank grew by 15.1%, 21.5% and 6.9% respectively; FBNH and Stanbic declined by 19.2% and 52.6% accordingly. However, top-line growth was recorded across counters. For the consumer sector, Dangsugar and Nestle recorded modest earnings showing profit growth of 2.1% and 2.2% in that order. On the flip side, Honyflour and Unilever posted weak numbers as revenue declined by 2.1% and 2.5%, while profit dropped by 92.1% and 17.5% respectively. Nestle declared an interim dividend of N1.0/share (dividend yield = 1.2%); closing and payment dates are 23rd November and 7th of December 2015.
Sell pressure in equities is likely to be sustained this week as unfolding events in the market compel the need for caution. However, we expect the pressure to wane slightly in the week given current low prices and attractive valuations (Market P/E now 8.8x vs 12.4x or MSCI EM Index). Thus, we see the equities market closing the week marginally negative.
System remains comparatively liquid; rates trend lower
Money market was somewhat liquid last week thus keeping rates at low levels. CBN Naira refunds for ‘unfulfilled’ demand at the currency auction held the preceding week keep the market relatively liquid at the start of the week as opening balance on Monday stood at N494.7bn compared to N329.2bn previously. The effect of this was an N40.5bn drop in bank’s borrowings at the CBN discount window to N33.6bn. System liquidity however squeezed on Wednesday as banks sourced for funds to meet the FX auction on Thursday, which drove rates to the north. Maturing OMO bills worth N187.0bn which came in Thursday coupled with FAAC allocation which hit the system on Friday geared liquidity levels for the rest of the week. Consequently, the Open Buy Back and the Overnight rate declined by 4.8% and 3.9% week-on-week to close the week at 0.9% and 1.3% in that order. Barring any external shocks to the system and with expectation of no major inflow, we expect rates to remain at current levels this week. On the other hand, we note the CBN naira refunds last week to the banks and will study this trend going forward. Should this persist this week, rates will trend lower this week.
Domestic Buying interest put FI yields lower
Resonant liquidity levels in the market buoyed buying interest in fixed income last week. Demand was somewhat slow at the start of the week but heaped on by mid week and sustained the mood till the close of the week. Buy Bias was tilted towards short to medium term instruments reiterating the liquidity driven demand. Average Treasury Bill yields declined by 380bps to close the week at 8.1%.
The bond market rode on mixed sentiment last week mirroring the boost in liquidity and local demand on one hand, and the final phase of JP Morgan exclusion of Nigerian bonds, coupled with current macro weaknesses. The buy interest offset the sell pressure, pushing average yields down by 6bps to 13.6%. Demand in the Jul-2034 and the mid tenured bonds were more pronounced while the other phased out bonds from the JP morgan index (Jan-2022 and Mar-2024) recorded some level of sell pressure.
Cautious approach towards equities and sustained liquidity levels will sustain demand in the FI market this week, more tilted towards short to medium term assets. However, FPIs will still remain on the sideline pending a more concise outlook on the FX.
Naira up marginally against the Greenback w/w
In line with on-going patterns, activities in the FX market remained relatively calm in the past week, as stakeholders continue to respond to active FX management by the apex body. The Naira gained 2bps against the dollar on a w/w basis, to close the week at N197.47, as the portfolio re-balancing by foreign money managers from JP Morgan exclusion of naira FI instruments came to a close. We expect recent stability in the USD/NGN to extend into this week, as the Central bank continues to intervene and lend support to the domestic currency.
