Weekly Investment Research Commentary

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Weekly Investment Research, November 12 – 16, 2018

Macroeconomics: Nigeria taps global debt markets for USD2.8billion at a higher price

  • For the second time in 2018, Nigeria made another foray into global debt markets with the sale of USD2.86 billion (NGN857billion) worth of Eurobonds. The offer was split into three tranches: USD1.18 billion (7-yr) which was priced at 7.625%, USD1 billion (12-yr) priced at 8.75%, and USD750 million (30-r) priced at 9.25%. Though demand was robust with an order book of USD9.3billion, the pricing appears expensive when compared to February 2018 Eurobond Issuance. Specifically, relative to 427bps and 456bps in respective credit spreads for the 12-yr and 30-yr in February, Nigeria paid 563bps and 589bps for both tenors in the Eurobond sale. The higher pricing reflects feedthrough from tighter global financial market conditions due to a mix of factors: higher US treasury yields (10-year: +70bps YTD to 3.1%), a stronger USD, ongoing trade wars and recent downturn in crude oil prices.

Figure 1: Nigeria – External Debt Composition

Source: DMO, Sigma Research *estimate

 

Currency: Softer inflows drives renewed NGN weakening

  • FX market activity weakened for the second week in a row with average IE turnover down 5% w/w to USD139million (Total: USD694million). However, the NGN held softened slightly to NGN364.01/$ (-0.03% w/w). At other segments the exchange rate remained stable at the official window (NGN306.7/$1) while the parallel market weakened by NGN1/$ to NGN363/$1. FX reserves maintained the downward trend (-0.3% w/w to USD41.6billion).

 

Equities: NSEASI posts negative performance on renewed offshore selling

  • In a reverse from the gain in the prior week, Nigerian equities swung negative with the ASI down 0.6% w/w (YTD: -16.1%) driven by declines in large and mid-cap stocks. Trading activity remained soft over the week. (Average turnover: -36% w/w to NGN2.3billion). Looking across all sectors, Food (+1.2% w/w), Personal Care (+1.1% w/w), Insurance (+0.9% w/w) and Oil & Gas (0.2% w/w) recorded gains during the week. However, this was offset by the negatives across Banks (-0.47% w/w), Brewers (-0.5% w/w), Cement (-0.5% w/w), Construction (-5.8% w/w) and Real Estate (-0.5% w/w) ended weaker. In terms of individual counters, the negative performance was spurred by sell pressures in Nestle (-9.99%), Access (-9.92%) and Oando (-9.69%). During the week, global index provider, MSCI included FBN Holdings Plc in its Frontier Market Index in lieu of Lafarge WAPCO Plc.

Figure 2: Trends across NSEASI Sectors

Source: NSE, Bloomberg, Sigma Research

 

Fixed Income: Yield curve continues to rise on CBN liquidity tightening

  • Though system liquidity remained robust, money markets were less liquid as the CBN continued on the path of net liquidity tightening via its OMO sales whose impact was evident in the uptick in OBB/overnight rates which averaged 6.1%/6.9% from 3.9%/4.9% in the prior week. For the record, CBN conducted OMO sales of NGN451billion relative to OMO maturities of NGN424billion. Elsewhere, at the fortnightly NTB auction, the FGN took advantage of robust demand (bid-cover: 3.1x) to roll over NGN128billion at lower yields (-10bps on average). Nevertheless, secondary markets continued to focus on CBN hawkish signals given its unchanged OMO discount rates which resulted in further upswing in front end rates over the week (up 20bps w/w on average) to 13.38(3M), 13.62% (6M) and 16.88% (1-yr). For FGN bonds, despite a sell-off at the start of the week, news of Nigeria’s successful Eurobond sale drove downward retracement in FGN bond yields, which closed the week roughly flat.

Figure 3: Naira Yield Curve

Source: FMDQ, NBS, Sigma Research

 

 

Important Information

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.

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