Nigerian Stock market views

NSEASI rises 8.4% w/w as H1-17 earnings impress  

…sentiment remains upbeat

The Nigerian equities market advances further as the benchmark index climbed 8.4% higher, breaking its own record in more than 30 months to settle at 36,865pts. The uptrend was bolstered by solid performance scorecards submitted in the week as stronger demand for market bellwethers such as DANGCEM (+11.1%), GUARANTY (+9.6%), NESTLE (+9.3%) and NIGERIAN BREWERIES (+7.9%) pushed the All Share Index higher. Market Capitalization added N980.3bn to settle at N12.7tn driving YTD return to 37.2%. System liquidity opened the week N329.2bn long on account of retail auction funding and coupon inflows which kept rates relatively high (OBB: 17.3%, O/N: 18.8%). The CBN continued its aggressive OMO stance, floating OMO auctions on all trading days except for Monday and mopping up a total of N318.0BN. On Thursday, N65.0bn maturing bills eased liquidity pressures. Closing the week, however, Money market rates crashed as FAAC inflows (estimated at N313bn) hit the system. For the week, the OBB and O/N rates closed at 5.0% and 5.8%, 64bps and 61bps lower week-on-week. In the week ahead, we see the influx of further H1-17 earnings driving sentiments amid intertemporal profit taking. We expect sustained OMO auctions and FX interventions to be the dominant themes that would dictate proceedings in the fixed income space.

Global and Macroeconomic market update

Global equities close mixed 

Performance in the global market ended rather mixed in the week to 28th July 2017 amid an influx of corporate earnings releases across markets. Economic events in the week included US Fed’s FOMC meeting which ended with a decision to maintain status quo, the publication of the IMF’s July World Economic Outlook which left projections for global growth in 2017 and 2018 unchanged at 3.5% and 3.6% respectively and the release of GDP growth numbers in the US economy where the output level increased 2.6% in Q2-2017. Meanwhile, global oil price rebounded to $52.4/b, closing above $50/b for the first time in since OPEC’s June meeting.

Equity indices in the Advanced World witnessed a mixed performance as not so impressive corporate earnings left investors undecided. In the US, the S& P 500 and NASDAQ eased 0.1% and 0.2% w/w respectively while the Dow added 1.0% w/w.  European stocks relayed similar trend as UK FTSE (-0.1% w/w), German DAX (-0.6% w/w) and the STOXX 600 (-0.5% w/w) all closed the week lower. France CAC, on the other hand, added 0.3% w/w.

Markets in the BRICS category also closed mixed with Brazil’s IBOV and China SHANG COMP closing 0.8% and 0.5% higher w/w in contrast to Russia’s RTS and S/Africa’s JSE FTSE which ended the week -1.0% and -0.3% lower.

Activities across Pan African markets was the only outlier, closing bullish on the back of strong momentum in Nigeria (+8.4%), Kenya (+4.7%) and Ghana GSE (+1.8%) which all appreciated w/w.

Domestic Financial Markets Review and Outlook

Equities: NSEASI rises 8.4% w/w as H1-17 earnings impress

The Nigerian equities market advances further as the benchmark index climbed 8.4% higher, breaking its own record in more than 30 months to settle at 36,865pts. The uptrend was bolstered by solid performance scorecards submitted in the week as stronger demand for market bellwethers such as DANGCEM (+11.1%), GUARANTY (+9.6%), NESTLE (+9.3%) and NIGERIAN BREWERIES (+7.9%) pushed the All Share Index higher. Market Capitalization added N980.3bn to settle at N12.7tn driving YTD return to 37.2%.

Performances across sectors mirrored the broader index, with the Banking Index ahead of the pack, 9.5% w/w on gains in GUARANTY (+9.6%), ZENITH (+12.9%), STANBIC (+15.5%) and ETI (+13.3%). The Consumer Goods Index followed closely, up 7.5% w/w amid impressive earnings numbers published by NESTLE (Revenue up 51.6% y/y to N121.9bn, PAT up 2988.4% y/y to N16.5bn) and NIGERIAN BREWERIES (Revenue up 15.0% y/y to N181.0bn, PAT up 24.6% y/y to N23.8bn) among others. The Industrial Goods index also rose 5.9% buoyed by gains in sector giant- DANGCEM whose H1-17 result indicated a mouth watering 41.2% and 39.3% y/y expansion in revenue (N412.7bn) and PAT (N144.0) for the period. The Oil & Gas and Insurance sector indices came in at 3.1% and 2.0% higher driven by decent earnings numbers submitted by OANDO (Revenue up 130.0% y/y to N267.0bn, PAT rebounded to N4.5bn from -N26.9bn in the prior year).

Expectedly, market sentiment, measured by market breadth (ratio of advancers to decliners) which settled at 2.2x, was largely bullish as a total of 48 stocks advanced against 22 decliners during the week. Additionally, average volume and value traded during the week rose 28.3% and 79.1% to 525.5m units and N8.1bn respectively as appetite for equities strengthened. In the week ahead, we see the influx of further Q2-17 earnings driving sentiments amid intertemporal profit taking.

Money Market: c.N313bn FAAC inflow eases liquidity

System liquidity opened the week N329.2bn long on account of retail auction funding and coupon inflows which kept rates relatively high (OBB: 17.3%, O/N: 18.8%). The CBN continued its aggressive OMO stance, floating OMO auctions on all trading days except for Monday and mopping up a total of N318.0BN. On Thursday, N65.0bn maturing bills eased liquidity pressures. Closing the week, however, Money market rates crashed as FAAC inflows (estimated at N313bn) hit the system. For the week, the OBB and O/N rates closed at 5.0% and 5.8%, 64bps and 61bps lower week-on-week. Going into the new week, we expect the Apex bank to continue its intervention in both the FX and OMO auctions. Additionally, an OMO maturity of N120.0bn is expected to keep rates low.

Bonds & Bills Market: Sell-side sentiment dictates proceedings across maturities

At the beginning of the week, activity in the FI space was subdued as players remained cautious ahead of the Monetary Policy Committee (MPC) Meeting. Sell-side players dominated proceedings in the T-bills space for the week, which drove a bearish close to the market as average yield inched higher by 161bps w/w to close at 20.5%. However, a bullish theme was dominant in the bonds space as average bond yield closed the week 5bps lower to settle at 16.3%. We expect sustained OMO auctions and FX interventions to be the dominant themes that would dictate proceedings in the Fixed income space this week.

Currency Market: Naira appreciates in the parallel market

At the official market, the naira appreciated by 28bps to settle at N306.7/USD. Parallel market rate appreciated to 363.5 from 364.5/USD. However, the newly introduced Investors’ & Exporters’ window saw a slight depreciation to N367.6/USD (vs. N366.4/USD in the previous week). Oil prices strengthened from $48.1/b to $52.4/b. The outlook of the naira remains tied to the spate of CBN’s intervention in the spot and forward markets as well as the better price discovery in the I&E FX window.

by UCAP

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