Bearish sentiments continued to permeate the equities market in the week ended, as the All Share Index pared on three (3) of five (5) trading days, to settle at 27,617.45pts.
The NSEASI shed 1.83% WoW, as the Year-to-date return of the index fell further to -20.31%. The volume and value of transactions for the week advanced by 31.14% and 81.87% correspondingly, with21counters advancing against 43 decliners in the week.
IKEJAHOTEL, UNILEVER, CAVERTON, FBNH, and ETRANZACT were the top gainers in the week, appreciating by 12.27%, 9.68%, 9.28%, 9.00%, and 8.53% accordingly. Conversely, UNITYBNK, MAYBAKER, HONYFLOUR, ETERNA, and OANDO led the laggards, paring by 11.30%, 10.48%, 9.57%, 8.11%, and 8.06% respectively.
The Monetary Policy Committee in its last meeting for the year, which concluded on the Tuesday 24thNovember 2015, made significant decisions. Key decisions included; the reduction of the Monetary Policy Rate (MPR) to 11% from 13% (with an asymmetric corridor of +2% and -7%), as well as a conditional reduction of the Cash Reserve Ratio (CRR) to 20%from 25%.We note that the decisions were made in a bid to spur economic growth.
We anticipate a resultant reduction in cost of borrowing for companies, as well as increased funding for the real sector. However, we note that the success of this drive is largely dependent on the effectiveness of the process, which will be linked to banks boosting credit growth to the key sectors identified (including Manufacturing, Mining, and Agriculture, amongst others).
Fixed Income: Market rates pare further following MPC decisions
NIBOR declined across tenors by 2.13% WoW, to settle at 8.25%, as system liquidity increased due to OMO maturities worth NGN162bn which flowed in at the tail end of the week. A similar trend was witnessed in the money market space, as rates trimmed by 20bps on the average WoW, with the OBB and OVN rates pegging at 0.71% and 1.08% accordingly.
Treasury bills declined by 2.12% on the average, pegging at 3.08% across instruments at the close of the week. While it is anticipated that the lower yield environment will be unattractive to investors, the improved liquidity in the system and lack of alternative risk free investments, have seemingly compelled investors’ to take position.
The Treasury bonds market mirrored the performance of the T-bills space, as yields remained pressured. Yields across tenors moderated by 2.08% to peg at 9.02% across instruments. In our opinion, the decline in yields was due to re-pricing of risk across the segment which partnered the revision of the benchmark interest rate.
Following a volatile trading week, accompanied by news inflows and liquidity injections into the system, the Naira remained fairly resilient against the US dollar, depreciating by 0.25% WoW to close its mid-price at NGN198.99/USD at the inter-bank. Also, the spread in the parallel market continued to advance following news inflows regarding curbs on supply to the market from the CBN, which will now be curbed by the extent of funds received from oil receipts. The naira closed the week at NGN243/USD (depreciating by 4.29%) at the parallel market, representing a22.12% spread between markets.
Agric. Sector: To be further bolstered by MPC decisions
The Agric. sector enjoyed positive sentiments despite the overall southward movement of the market during the week. As measured by our MERI-AGRI index, the sector’s performance peggeed +1.88% WtD and +16.24% YtD, however, MtD showing of -2.57% reveals a poor outcome in the month thus far.
LIVESTOCK, OKOMUOIL and PRESCO witnessed WoW respective gains of 2.72%, 2.16% and 1.64% to settle at NGN1.51, NGN26.90, and NGN31.00 in that order, while ELLAHLAKES and FTNCOCOA remained unchanged over the week.
At the just concluded MPC meeting, the Agric sector was mentioned as one of the key sectors which may benefit from increased banking sector liquidity. We opine that this will further boost the sector’s productivity, thereby translating to even better performance into the medium to long-term.
Banking Sector: MPC reduces CRR to 20%
The banking sector remained under pressure, paring by 4.06% to bring the YtD return of our MERI-BNK index to -21.16%. There were 10 decliners and 4 advancers to peg the sector’s index at 0.40x.
The last MPC meeting for the year was concluded on Tuesday, the 24th of November 2015, with the committee’s decisions clearly denoted above. The implications for the banking sector, while not being wider ranging than on the economy at large, may be expected to have an immediate impact. The reduction in the cash reserve ratio to 20% from 25% should ordinarily increase liquidity to the banks, which could be channeled to either risk assets or financial assets. However, this increased liquidity is conditional, predicated on channeling such liquidity to key growth segments of the economy.
The process for the dissemination of this liquidity is also predicated on a process which requires that proposals are submitted to the CBN before funds are channeled. This means that there will probably be a delayed impact of the money multiplier effect on the deposit base across the industry which currently precludes some banks close to the statutory LDR limit from creating risk assets. Also, the reduction in the Monetary Policy Rate (MPR) will affect the yield environment, pressuring yields across assets downwards (i.e. lending rates decline and financial assets yields), which has an impact on DMBs income generation.
Generally, the impact on the banking sector should be minimal, after factoring out the impact of the excess liquidity, which we have done because growth will be heavily predicated on how the granularities of the processes for access are addressed. And so, our optimism remains tempered, and we preach cautious trading by all investors.
Consumer Goods: Restrained by strong negative sentiments
Bearish sentiments continue to dominate activities within the Consumer Goods sector, as denoted by the sector’s breadth of (0.25x), reflecting three (3) advancers against twelve (12) decliners. According to the NSEFBT10 sector index, the sector trimmed by 0.22% WoW, resulting in a YtD return of -22.41%.
UNILEVER (9.68%) topped the gainer’s list to close at NGN39.90, with PZ (3.35%) and 7UP (0.25%) following to make up the only advancers for the week. Continuing from the previous week, DANGFLOUR pared by 17.65% to retain its position as the worst performer. HONYFLOUR, VITAFOAM, AGLEVENT, and UACN also saw respective declines in value of 9.57%, 4.82%, 4.71%, and 4.45%.
While we acknowledge the possible impact of reduced borrowing costs on the sector, which it is anticipated may partner the cut the MPR by 200bps, we note that addressing of the current FX issues would have had a greater effect. Considering the price levels in the market we advise investors to take position in fundamentally justified tickers, and take a mid to long-term view when making investment decisions at this time.
Health Care: MAYBAKER slumps by 10.48%
Measuring with our Meri-HLTH index, the health care sector produced a return of -0.03% at the end of the week, as market breadth (0.50x) skewed in favour of the decliners, with two (2) stocks paring value, as against one (1) advancer.
Three stocks recorded movements in their prices during the week, with NEIMETH, which gained 3.33% to close at NGN 0.93, emerging as the only gainer. MAYBAKER steered the laggards, as its value declined by 10.48% to close at NGN 0.94, while FIDSON depreciated by 5.00%.
The lack of investor enthusiasm was highlighted during the week, as the sector traded flat on three (3) days and negative on the remaining two (2) trading days. However, we are of the opinion that the sector remains an attractive, especially as some stocks continue to trade well below their intrinsic prices. We however, advise investors to trade cautiously in the coming weeks, as we are not enthusiastic about an impending renaissance in the overall market.
Industrial goods sector: Late rally not enough to lift sector
The industrial goods sector continued its weekly losing streak, as the sector closed 2.29% down at the end of the week. The sector, however, gained on 3 trading days, but this was not enough to swing the sector mood positive.
PORTPAINT sustained the previous week’s momentum to top the gainers this week, appreciating by 8.25% to close at NGN 4.20. CUTIX and BERGER also recorded upticks, growing by 4.67% and 1.56% respectively in the week.
CCNN finished the week as the heaviest decliner, waning by 2.62% to close at NGN 7.80. Other losers were DANGCEM, CAP and WAPCO which pared by 2.47%, 2.39% and 1.11% respectively.
There appeared to be a lot of inactivity in the sector during the week, as the number of stocks that traded flat exceeded the number of stocks which recorded movements on each trading day. Given the current negative sentiments in the overall market and the possibility of sustenance, we advise investors with stakes in the sector to make decisions based on medium to long term expectations.
Insurance Sector: Sector returns uptick
In spite of the general weak market performance, the insurance sector scaled into the green zone, having appreciated marginally by 0.06% WoW to peg the sector’s year to date return at -5.77%, as measured by the NSEINS10 Index. Sector breadth (2.00x) also skewed in favour of advancers, as 2 stocks recorded price appreciations, while a lone stock waned in value.
CUSTODYINS emerged the sector’s top gainer, after the counter appreciated by 2.44% WoW to close at NGN4.20 (vs. NGN4.10 in prior week). The counter was joined on the gainer path by AIICO, having advanced by 1.10% WoW to close at NGN0.92. On the flip side, LAWUNION emerged the sectors lone laggards, after the counter waned by 3.70% to NGN0.52. All other counters traded flat.
Following the weak market reaction to the MPC news inflow during the week, amidst the dearth of further positive news inflows that can spur activities in the market in near term, we do not anticipate active participation on the sector stocks in the coming week. On the back of this, we advise investors’ to trade cautiously.
Oil and Gas Sector: Sector records no advancer
Activities in the Oil & Gas sector in the week were bearish, denoted by the fact there was no advancer amongst the sector’s stocks, while three (3) counters pared in value. Other stocks traded flat. Measured by the NSEOILG5 index, the sector declined by 1.35% WtD.
ETERNA led the laggards in the week, after waning by 8.11% to settle at NGN1.70. OANDO and MOBIL were the other decliners in the week, shedding 8.06% and 6.47% accordingly.
The price of crude oil, as measured against Brent crude settled at USD45.37pb, advancing by 1.59% in the week. Although we are not upbeat about OPEC member countries deciding to cut back on production output levels at their next meeting (4th December, 2015), we note that a decision in favour of a cut would translate to increased revenue for the nation going forward.
We anticipate moderate levels of bargain hunting activities in the coming week on fundamentally justified stocks, however, we advise investor trade with caution.
Services sector: Market breadth pegs at 1.00x
The year-to-date return was marginally pushed to -3.98%, as measured by the MERISER index, following a 0.01% WoW change. Three (3) stocks advanced, while three (3) stocks depreciated in value, balancing the sectoral breadth (1.00x).
IKEJAHOTEL led the gainers chart, followed by CAVERTON, after both counters advanced by 12.27% and 9.28% to close at NGN 3.66 and NGN 2.59 respectively. NAHCO(0.52%) completed the gainers list. On the other hand, LEARNAFRCA (-7.46%) topped the losers chart closing at NGN 0.62, tracked by AIRSERVICE which waned by 4.21%, and REDSTAREX (-2.44%); other stocks traded flat.
We are not optimistic about a rebound in the sector’s performance over the short term given general market and sector sentiments, and so, advise cautious trading on the sector’s stocks.
