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Afrinvest Weekly Update | Mixed Performance amidst Stimulus Optimism and Rising Bond Yield
(Source: Afrinvest Research , Date: 05-Mar-2021)

 

 

Global Equities Market: Mixed Performance amidst Stimulus Optimism and Rising Bond Yield
Global COVID-19 cases remained on the rise this week at 115.1 million, an increase of 2.2% from last week while the death toll rose 2.3% to 2.6 million. The US (28.5m cases), India (11.2m cases) and Brazil (10.7m) continue to lead the global COVID-19 infection chart. The House of Representatives approved President Joe Biden's $1.9tn pandemic relief package, giving the second-highest stimulus bill in US history a major breakthrough, however, the bill is still subject to modifications in the Senate. Elsewhere, OPEC and its allies met on Thursday to review existing supply cuts and resolved to keep supply steady through April with Saudi Arabia maintaining its 1million bpd production cut and Russia & Kazakhstan raising production by 130,000 and 20,000 bpd, respectively. We believe this development would help support the recovery in oil prices. 

Performance in the developed markets was mixed with 4 of 7 indices advancing w/w. In the US, the S&P 500 and NASDAQ indices fell 0.7% and 4.0% w/w respectively due to disappointing signals from the Fed about rising bond yields. In the UK, the FTSE All-Share, France CAC 40 and Germany's XETRA DAX gained 2.8%, 2.1% and 1.7% w/w respectively. Hong Kong's Hang Seng index rose 0.4% w/w and Japan's Nikkei 225 index closed the week lower by 0.4% w/w.

Performance across the BRICS markets was bullish with 4 indices closing higher w/w. China's Shanghai Composite emerged the lone laggard, down 0.2% w/w. Conversely, Brazil's Ibovespa and South Africa's FTSE/JSE All-Share indices advanced 3.6% and 3.1% w/w respectively. India's BSE and Russia's RTS also gained 2.7% and 2.6% w/w respectively.

In Africa, performance was bearish with 4 of 6 indices under our coverage declining w/w. Ghana's GSE Composite and Kenya's NSE 20 appreciated 0.3% and 1.3% w/w respectively. Conversely, Nigeria's All-Share and Egypt's EGX 30 indices declined 1.2% and 2.4% w/w respectively. Similarly, Mauritius' SEMDEX and Morrocco's Casablanca MASI fell 1.1% and 0.1% w/w respectively.

Across the Asian and Middle East markets, performance was bullish as a result of rising oil prices on OPEC+ decision thus, all indices closed in the green save the Qatar's DSM 220 that declined 1.2%. Turkey's BIST 100 and Thailand's Set indices gained 4.9% and 3.2% w/w respectively. UAE's ADX General and Saudi Arabia's Tadawul All Share indices also gained 1.2% and 0.5% w/w respectively.


Domestic Equities Market: Sell Pressures Sustained... ASI Sheds 1.2% w/w
The equities market sustained previous week's sell-offs with trades closing southwards on all trading sessions save Monday. Consequently, the benchmark index lost 1.2% w/w to 39,331.61 points. Also, YTD return worsened to -2.3% while market capitalisation fell ₦245.0bn to ₦20.6tn. Trading activity improved as average volume and value increased 8.4% and 44.0% to 418.4m units and ₦5.9bn respectively. The most traded stocks by volume were WEMABANK (374.5m units), ZENITH (148.8m units) and UNIVINSURE (83.4m units) while ZENITH (₦3.8bn), NESTLE (₦3.1bn) and GUARANTY (₦1.8bn) led by value.

Performance across sectors was lacklustre w/w as all indices under our coverage lost save the Industrial Goods index which gained 1.4% due to gains in BUACEMENT (+1.1%). The Consumer Goods index led the losers, down 6.3% following losses in CHAMPION (-33.3%) and NASCON (-19.0%). Trailing, the Insurance and Oil & Gas indices fell 5.0% and 2.2% respectively, following price declines in MBENEFIT (-12.5%), LINKASSURE (-10.7%) and OANDO (-23.2%). Similarly, sell pressures in STERLNBA (-14.0%), WEMABANK (-12.7%) and MTNN (-2.3%) dragged the Banking and AFR-ICT indices down by 1.9% and 1.2% respectively. 

Investor sentiment as measured by market breadth (advance/decline ratio) waned to 0.2x from 0.4x recorded the previous week as 12 stocks gained against 67 that lost. MORISON (+20.0%), UNITYBNK (+9.0%) and BETAGLAS (+8.0%) led the top gainers while CHAMPION (-33.3%), OANDO (-23.2%) and NASCON (-19.0%) led the decliners. For the coming week, we expect a mixed performance with positive bias for bargain hunting.

 
Foreign Exchange Market: Oil Price Hits nearly 2-year High as OPEC+ Sustains Production Cut 
Brent oil price jumped on Thursday and rose 6.4% w/w to $68.55bbl. after OPEC+ kept production cut steady through April at 7.2mbpd and Saudi Arabia maintained its voluntary 1mbpd production cut. However, Russia and Kazakhstan were allowed to increase production by 130,000 and 20,000 bpd respectively. This move was on the back of ensuring a steady oil market recovery through supply management. Meanwhile, locally the external reserves fell 0.7% w/w to $34.9bn (3/3/2021).

In the FOREX market, the CBN spot rate traded flat all week at ₦379.00/$1.00 while rate at the parallel market appreciated ₦2.00 w/w to ₦480.00.00/$1.00. At the Investors & Exporters (I&E) Window, the NAFEX rate depreciated ₦0.75 w/w to ₦411.00/$1.00. Activity level in I&E Window improved this week as total turnover declined 55.6% to $221.5m from $498.8m recorded in the previous week.

At the FMDQ Securities Exchange FX Futures Contract Market, the total value of open contracts settled at $6.1bn, up 2.3% ($138.9m) from the prior week. The December 2021 instrument (contract price: ₦432.58) had the most demand with additional subscription of $40.5m putting the total value at $373.8m. Meanwhile, the August 2021 instrument (contract price: ₦426.58) had the least demand with as the total value settled at $389.2m. In the coming week, we expect Naira to remain within similar band across the different FX segments.

 
Money Market: OBB and OVN Trend Higher 
This week, the OBB and OVN rates opened the week at 6.0% and 6.8% respectively, higher than 5.7% and 6.3% recorded in the previous week as system liquidity settled at ₦336.2bn. On Tuesday, following inflows worth ₦130.5bn, system liquidity rose to ₦401.7bn as OBB and OVN fell to 4.3% and 4.8% respectively. Finally, on Friday, OBB and OVN rate further rose to close the week at 15.3% and 16.3% respectively despite system liquidity settling higher at ₦563.5bn.

On Thursday, the CBN conducted OMO auction worth ₦90.0bn to mop-up excess liquidity in the system. Demand at the auction was healthy as the 90-day (Offer: ₦10.0bn; Subscription: ₦35.0bn; Sale: ₦10.0bn), 187-day (Offer: ₦10.0bn; Subscription: ₦57.6bn; Sale: ₦10.0bn) and 362-day (Offer: ₦70.0bn; Subscription: ₦361.0bn; Sale: ₦70.0bn) instruments were oversubscribed by 3.5x, 5.8x and 5.2x with marginal rates of 7.0%, 8.5% and 10.1% respectively.

In the treasury bills secondary market, the performance was bullish as average yield across benchmark tenors trended lower by 5bps w/w to close at 1.7%. The medium-term instrument enjoyed the most buying interest as yields declined 15bps w/w to 1.9%. On the other hand, the short and long-term instruments closed flat for the week. In the coming week, we expect the CBN to sustain its OMO auction as OMO maturities worth ₦50.0bn would hit the system, raising system liquidity. We envisage rates will be low in the secondary T-Bills market.



Bonds Market: Domestic Bonds Yield Sustains Bullish Momentum
The domestic bonds market ended the week on a bullish note, extending last week's gain as average yield fell marginally by 3bps to 9.2% following buying interest on 2 of the 5 trading days. Across tenors, the long-term and short-term instruments recorded the most buying interest as yields declined 9bps and 2bps w/w respectively. Lastly, the medium-term instrument traded flat for the week.

Across the SSA Eurobonds space, sell pressures dragged performance sustaining the bearish outlook as average yield rose 7bps w/w to 7.7%. The GHANA 2022 and SENEGAL 2024 instruments recorded the most sell-offs as yields increased by 3.3% and 0.2% w/w respectively. On the other hand, yields on the ZAMBIAN 2022 and 2027 instruments fell 82bps and 33bps w/w respectively.

At the African Corporate Eurobonds market under our coverage, performance was negative as average yield rose marginally by 2bps w/w to 4.5%. The BAYPORT MANAGEMENT 2022 and EBN FINANCE CO BV 2026 instruments posted a bearish performance as yields advanced 46bps and 11bps w/w respectively. Conversely, the FIDELITY BANK PLC 2022 and TRANSNET SOC LTD 2022 instruments recorded gains as yields fell 17bps and 11bps w/w respectively. In the coming week, we expect to see a mixed performance in the domestic market as investors react to higher yields. In the Eurobond markets, we expect performance to be dictated by the direction of the US bond yield.

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