Amid negative news flow and imminent close of the earnings season, bearish sentiments lingered in the market last week, albeit at a much softer pace relative to prior week, with the local bourse recording marginal losses in 4 out of 5 trading days.
The bulls surfaced inch by inch on the back of stern low stock prices and attractive valuation. Bargain buying intensified at the close of the week leading to a 50bps gain in the benchmark index, as the market clawed back losses recorded for most of the week. Thus, the benchmark index returned a marginal loss week-on-week (-0.1%) to 29,200.67 points. Year-to-date return currently stands at -15.8%. Market capitalisation also lost N92.1bn to close at N10.0trn.
Intense rally in the fixed Income market occurred last week across tenors with average yield in the Treasury bills and bond market dipping by 284bps and 286bps to 5.3% and 11.1% accordingly. Buy bias in the Treasury bill space was tilted towards the short to medium term instruments, though we later saw a retreat at the long end towards the end of the week, as some players took profit on current holdings in short term bills.
We expect last week’s showing of the bulls to persist this week despite overall cautious sentiment in the equities space. The market is currently at the oversold region (RSI at 30). However, while it’s a knotty task to ascertain when the market will fully bottom out before a trend reversal, we posit that at current levels, the market remains attractive for medium to long term positioning, particularly in value and dividend-paying stocks. The inauguration of the presidential cabinet this week further lends credence to our expectation of a positive close.
Global and Domestic Macro-Economic Updates
Latest job numbers supportive of a US December rate hike, but the Eurozone still lags
US equities finished the week higher as data from the Labor Department revealed the U.S. economy added 271,000 jobs in October — the largest monthly gain in 2015, far exceeding a consensus forecast of 177,000 new jobs. The data also revealed a long-awaited acceleration in hourly wage growth as average hourly earnings increased by 0.4% in October, the fastest y/y pace since the U.S. exited recession in mid-2009. Wage growth, an important driver of inflation, has been slowly creeping higher all year. The unemployment rate also ticked lower to an even 5%. In our view, the stage now appears set for a December rate hike, with the Fed-funds futures markets now pricing this possibility at 70%. FOMC’s last policy meeting is slated for December 15- 16th.
Three key policy decisions of the Bank of England (BOE) drove sentiments across the Atlantic in the past week. The BOE, as expected, kept its key interest rate at a record low of 0.5%. It also said it expects inflation to stay below 1% until the second half of 2016, well below Its 2% target, which it now expects to hit in around two years. The BOE’s downbeat signals were viewed as a surprise for investors as many were expecting the central bank to indicate that it believed markets were pricing in a U.K. rate rise for later than would likely happen. Most Eurozone markets closed lower on a w/w basis.
Unlike the previous month when Asian markets marched higher to the drumbeat of global-central bank policy easing moves, key Asian equity benchmarks in the past week now appear to be responding to idiosyncratic drivers. Most of China’s gains came mid-week, when China’s central bank published a statement about a possible Shenzhen-Hong Kong trading link launching before year end. The comments fueled a frenzy of buying in local brokerages, amid optimism that an influx of foreign cash would soon follow. The Nikkei’s gains for the week come as investors are still holding out hope that the Bank of Japan will introduce more stimulus soon, even though the central bank held its monetary policy steady last week.
On the domestic scene, data released by the Nigerian stock exchange in the past week revealed that for the month of September, Foreign portfolio investments in equities declined c.70.0% y/y to N69.3bn. A breakdown of the numbers showed N40bn of the total amount related to fund outflows while N29.3bn was fund inflows.
Equities Market Review and Outlook
Equities retreat after 4 days of decline; week-on-week return at -0.1%
Following 3rd quarter earnings from counters that were not noteworthy coupled with negative events trailing the domestic market, bearish sentiment in the market lingered in last week’s trading, though at a much softer pace with the local bourse recording marginal losses in 4 out of 5 trading days. Conversely, the bulls surfaced inch by inch last week on the back of stern low stock prices and attractive valuation; the bulls became more pronounced on Friday seeing that the benchmark index gained 50bps on that day, which eroded losses for most of the week. Thus, the benchmark index returned a marginal loss week-on-week (-0.1%) to 29,200.67 points; Year-to-date return currently stands at -15.8%. Market capitalisation also lost N92.1bn to close at N10.0trn. Market activity as measured by volume and value traded increased by 43.8% and 5.9% to 1.9bn units and N15.3bn respectively. Market breadth perked up to 0.5x (previously 0.2x) as 11 stocks appreciated in price while 23 stocks depreciated in price.
Performance across sectors somewhat mirrored the benchmark index performance. Save for the Oil & Gas sector which closed positive by 0.6% on the back of gains recorded in Oando (28.5%), all other sectors closed negative. Topping the list was the Consumer sector which lost 1.4% due to declines in Dangflour (-9.4%), Unilever (-18.7%), among others. The banking sector followed suit, returning -1.0% last week driven by losses recorded in stocks like Access (-3.0%) and Sterlnbank (-4.9%).
The Insurance and Industrial sectors also lost 0.8% and 0.5% accordingly.
We expect last week’s showing of the bulls to persist this week despite overall cautious sentiment in the equities space. The market is currently at the oversold region (RSI at 30). However, while it’s a knotty task to ascertain when the market will fully bottom out before a trend reversal, we posit that at current levels, the market remains attractive for medium to long term positioning, particularly in value and dividend-paying stocks. The inauguration of the presidential cabinet
Market rates stay low on stout liquidity
The money market maintained its recent trend with rates hovering around ultra low level on the back of healthy system liquidity from FAAC inflows, FX refund, maturing bills, amid tame outflows. The system opened at N900bn long for the week and closed the week at N514bn. The drop in system liquidity was due to Treasury bill auction worth N123.0bn and FX intervention. Consequently, market rates tempered by 30bps and 21bps to close the week at 0.6% and 1.0% respectively; average NIBOR also trimmed by 52bps to close the week at 11.4%. With maturing OMO of N70bn this week, liquidity should remain healthy this week, hence rates are expected to be kept as current low levels, though we expect to see little spike in the course of the week, on account of outflows for expected bond auction as well as FX intervention.
Intense rally in FI assets
Intense rally in the fixed Income market occurred last week across tenors with average yield in the Treasury bills and bond markets dipping by 284bps and 286bps to 5.3% and 11.1% accordingly. Buy bias in the Treasury bill space was tilted towards the short to medium term instruments, though we later saw a retreat at the long end towards the end of the week, as some players took profit on current holdings in short term bills. Thus, 12M bill recorded the steepest yield decline of 398bps to settle at 7.6%.
Liquidity levels and outlook for the coming auction drove buy bias in the bond market last week with demand tilted towards the medium tenured bonds (JUN 2019, FEB 2020 and MAR 2024). The DMO will auction bonds worth N50bn on Wednesday (11TH November) via the Feb-2020 (N30bn) and Mar-2024 (N20bn) respectively. Healthy system liquidity will likely sustain demand in the fixed income space this week with yields going further south. However, we expect the rally to slow down this week as we see some level of profit taking, coupled with the bond auction this week.
Naira loses 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 demand for the greenback however continues to surpass supply hence the Naira lost 36bps against the dollar on a w/w basis, to close at N198.18. 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.
