Weekly Investment Research Commentary

Posted by sigpe2017

Weekly Investment Research Commentary, 15 – 19, 2018

Equities: Gains momentum on positive sentiments

Figure 1: NSEASI Sector Returns

Source: NSE, Sigma Research

For the second week in a row, Nigerian equities closed positive, with the All Share Index up 1.19% w/w (YTD: -14.1%) as improved clarity on the political front, upbeat sentiment regarding oil prices and positive investor reaction to a flurry of Q3 2018 earnings releases spurred increased activity by local investors. Looking across the various sectors, market gains were driven by cement (+4.4% w/w), Banks (+0.8% w/w), Brewers (+0.6% w/w) Insurance (+0.3% w/w) and oil & gas (+0.6% w/w).

On the flipside, Personal Care (-0.39% w/w), Food (-1.74% w/w), Construction (-5.8% w/w) and Real Estate (-0.31% w/w) all closed lower. Key gainers were Dangote Cement (+5%), Zenith Bank (+3.15%), Guaranty Trust Bank (+0.82%), United Bank for Africa (+0.62%) and Nigerian Breweries (+0.57%) as investors favourably reacted to the release of Q3 2018 earnings over the week


Fixed Income: CBN hikes OMO clearing rate which drives yield curve higher

Figure 2: NGN Yield Curve

Source: FMDQ, NBS, Sigma Research

Yields along the NGN yields curve climbed last week in the aftermath of CBN’s decision to raise clearing rate by 50bps to 14% at Thursday’s open market operation (OMO) auction. At 16.3%, the implied effective yield of the 1-year tenor, fueled bearish sentiments along the yield curve, despite net liquidity injections over the week as the CBN only sterilized NGN275billion of the NGN348billion of maturing OMO paper on Thursday. Consequently, yields closed up 38bps higher in secondary market trading: 3M (+6bps to 12.52%, effective: 12.91%), 6M (Discount: 12.8%, effective: 13.6%) 1-yr (Discount 13.69%, effective: 15.73%). In a similar vein, FGN bond yields also trended north (+15bps on average).

At the primary market auction on Wednesday, where there was  NGN148billion worth of Nigerian Treasury Bills on offer, the thin market liquidity levels underpinned a drop in subscription with bid-cover ratios of 1.3x (last 3.3x) which had the knock-on effect of driving clearing rates higher across three tenors: 91-day (+6bps to 10.96%, effective yield: 11.27%), 182-day (+60bps to 12.7%, effective yield: 13.55%) 1-yr (+10bps to 13.45%, effective yield: 15.53%).

The National Bureau of Statistics (NBS) released the much-anticipated September 2018 CPI report which showed a 5bps rise in headline inflation to 11.28% y/y (August: 11.23% y/y). Though direction was in line with market expectations, the magnitude printed well behind the 11.5% y/y consensus which stemmed from a third consecutive slowdown in monthly inflation to 0.84% (August: 1.05%). On monthly basis, food and core inflation decelerated to 1% (August: 1.42%) and 0.64% (August: 0.78%) respectively.


Currency: Shrinking FPI participation in the IE window underpin higher CBN FX sales

After a 25% drop in the prior week, average FX turnover declined a further 14% w/w to USD163million. Nevertheless, the naira closed the week flat at NGN364.02/$ at the Investors and Exports (IE) window thanks to sustained CBN intervention. Across other segments, while the exchange rate remained stable at the official window (NGN306/$1) while it softened by NGN1/$ at the parallel market to NGN362/$1. Largely reflecting the pick-up in CBN supply to meet shortfalls in the IE window as foreign investors exits Nigeria ahead of the 2019 elections, FX reserves declined 1.1% w/w to USD42.8billion.






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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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