Weekly Investment Research Commentary
Weekly Investment Research Commentary, October 1 – 5, 2018
Equities: Renewed offshore bearish sentiments weigh on NSEASI
Figure 1: NSEASI Sector Returns
Source: NSE, Sigma Research
Nigerian equities closed the week down 1.17% w/w, bringing to a halt a 2-week winning streak. Equity investors reacted negatively to news of fresh trouble between MTN and CBN over the week. On a sectoral basis, declines stemmed from Cement (- 2.21%), Brewers (-1.55), Banking (-1.44%), Real Estate (-0.53%) and Insurance (- 0.47%) closed the week negative while the Oil & Gas (+2.23%), Food (+0.5%), and Personal Care (+0.03%) sectors closed positive over the week. On a more micro level, the bearish sentiment was largely driven by persisting sell pressure in bellwether stocks – DANGCEM (-2.44%), STANBIC (-7.6%), UBA (-2.38%), NB (-1.97%), and ETI (- 2.23%).
Fixed Income: Higher NGN liquidity drives bullish sentiments across the curve
Figure 2: NGN Yield Curve
Source: FMDQ, NBS, Sigma Research
Yields along the NGN yields curve moderated over the week on account of higher system liquidity for most of the week after the CBN delayed OMO activity until Thursday. Specifically, having stayed out of money markets in the prior week, the hangover of excess liquidity from the prior week alongside FAAC inflows worked to depress front-end yields in the earlier part of the week.
The liquidity build-up was evident at the primary market auction for Nigerian Treasury Bills (NTB) on Wednesday, where the CBN, on behalf of the FGN, sought to rollover NGN133billion. At the auction, bids of nearly 3.3x the offer (the highest so far in 2018) showed up which allowed the discount on the 1-yr tenor decline to 13.33% (13.5%). Though the CBN appeared aggressive on Thursday with sterilization of NGN553billion at its 13.5% stop rate, which was well in excess of OMO maturities of NGN268billion, yields on benchmark NTB papers fell 31bps on average w/w. In a similar vein, strong pension fund buying activity continued and worked to depress FGN bond yields, which moderated 17bps w/w on average.
Currency: Non-CBN flows continue to wane with negative impact on FX reserves
The Naira remained broadly stable across all segments of the FX markets with the official and parallel rates holding steady at NGN306.4/$ and NGN361/$ respectively. The CBN continued to drive convergence across with the NIFEX rate closing the week at NGN361.79/$. At the Investors’ & Exporters’ Window, liquidity opened October on a softer note declining by 11.5% w/w to USD1.02billion.
Accordingly, the NGN weakened at the segment shedding 25k to close at NGN363.82/$ which continued to be supported by CBN interventions which weighed on FX reserves, down 1.3% w/w to USD43.8billion.
This material has been prepared by the investment research unit of Sigma Pensions Limited (“Sigma Pensions”) and is provided purely for informational purposes and is not intended to be used as an investment advice or a recommendation. Sigma Pensions is a pension fund administrator licensed and regulated by the National Pension Commission (PenCom) to provide pension fund management services. The views contained herein are those of the authors as of October 2018 and are subject to change without notice. Sigma Pensions, its directors, officers and employees make no express or implied warranties or representations and shall have no liability whatsoever with respect to any data contained herein with respect to the accuracy or completeness of the information set out in this report or any third party’s use of such information. This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision or speak to a financial adviser. Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
By accepting and reading this document, you agree to be bound by the foregoing limitations.
Copyright © 2018 Sigma Pensions Limited (“Sigma Pensions”). All rights reserved.