Weekly Investment Research Commentary
Weekly Investment Research, October 22 – 26, 2018
Equities: Markets squeezes into positive territory supported by favorable earnings
Figure 1: NSEASI Sector Returns
Source: NSE, Sigma Research
For the third consecutive week, Nigerian equities closed in positive territory, albeit marginally with the ASI up 0.2% w/w. Turnover improved following a spate of largely positive earnings releases over the week.
Looking across the various sectors, market gains were driven by Banking (+1.1% w/w), Construction (+5.6% w/w), Insurance (+1.34% w/w), Oil & Gas (+3.2% w/w), Real Estate (+0.37% w/w) and Construction (+0.02% w/w). However, Brewers (-1.2% w/w), Personal Care (- 3.2% w/w) and Food (-0.04% w/w) closed negative.
Key individual gainers which bolstered the index over the week were Dangote Cement Plc (+0.48% w/w), Seplat Plc (+4.86% w/w), Total Nigeria Plc (+8.2% w/w), Stanbic IBTC Holdings (+2.2% w/w), Zenith Bank Plc (+4.8% w/w), Diamond Bank Plc (+20% w/w), Fidelity Bank Plc (+10.6% w/w) and Royal Exchange Assurance Plc (+10% w/w).
Fixed Income: Yield curve inverts on further CBN tightening
Figure 2: NGN Yield Curve
Source: FMDQ, NBS, Sigma Research
For the second consecutive week, the Central Bank of Nigeria (CBN) raised the discount rate at its weekly OMO auction by a further 50bps to 14.5% (effective: 16.7%). Consistent with the pattern in recent weeks, the CBN net repaid into the financial system with OMO sales of NGN186billion relative to NGN284billion in OMO bill maturities.
Accordingly, front end yields repriced higher with benchmark NTB yields closing the week 18bps higher on average: 3M (discount 12.62%, effective: 13.02%), 6M (discount: 12.63%, effective: 13.37%) and 1-yr (discount: 14.2%, effective: 16.38%). With the 1-yr crossing over 16%, the yield curve inversion resumed with short dated bills now higher than bond yields.
At the monthly bond auction, the Debt Management Office (DMO) cleared 77% (September: 107%) of its planned NGN115billion offer at an average yield of 15.16% (September 15.13%). While the 5-year and 7-year tenors were undersubscribed with bid-cover ratios of 0.5x and 0.7x respectively, the 10-year was 2.3x oversubscribed.
Currency: Naira gains on stabilizing FX flows
In a reverse from the declining trend in the last two weeks, activity picked up in the IE window (+36% w/w to USD1.1billion). Accordingly, the NGN appreciated 0.1% w/w to NGN363.84/$. At other segments the exchange rate remained stable at the official window (NGN306/$1) and at the parallel market to NGN362/$1. FX reserves declined 0.9% w/w to USD42.3billion.
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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