The outbreak of “Coronavirus” in Wuhan, China and the aggressive pace of infections, with reported cases in over 15 countries, unsettled global markets this week. Market reaction was driven by the potentially catastrophic impact the virus could have on global economic activities and company earnings, especially in China. Elsewhere, as risks to the global economy remain elevated, central banks in advanced economies maintained a dovish stance in recent meetings. The US Fed kept policy rate unchanged at the range of 1.50% to 1.75%, citing growth concerns and below-target inflation. Indeed, recent data confirm that the US economy expanded slower at 2.1% in Q4 and 2.3% in 2019 from 2.9% in 2018. Similarly, the Bank of England (BOE) left its benchmark rate steady at 0.75% despite the exit from the EU today. The UK is likely to face an extended period of uncertainty going forward as it seeks to establish new trade relations with the EU and the rest of the world. 

In view of the above, performance across the developed markets was largely bearish this week. The US’ S&P 500 and NASDAQ indices waned 0.4% apiece w/w following negative reaction to mixed corporate earnings and slowing economic growth. France’s CAC 40 and Germany’s XETRA DAX indices lost 3.0% and 3.5% w/w respectively while UK’s FTSE All Share index declined 3.2% w/w following Brexit. Similarly, Japan’s Nikkei 225 and Hong Kong’s Hang Seng indices lost 2.6% and 5.9% w/w respectively as the outbreak of “Coronavirus” slowed economic activities.

In the BRICS market, the narrative was similar as all indices ended in the red territory w/w except China’s Shanghai Composite index which remained flat following the Lunar New Year break. Russia’s RTS and Brazil’s Ibovespa indices lost the most, down 4.4% and 3.7% w/w respectively. India’s BSE Sens and South Africa’s FTSE/JSE All Share indices were not spared, declining 2.1% and 1.9% w/w respectively as weak corporate earnings affected investors’ appetite. 

The African markets recorded weak performance w/w, save Egypt’s EGX 30 index which gained 1.4% w/w following Saudi Arabia’s Telecom acquisition of a 55.0% stake in Vodafone Egypt. Nigeria’s ASI and Kenya’s NSE 20 indices pared 2.7% and 1.6% w/w respectively while Ghana’s GSE Composite index lost 1.1% w/w following weak earnings. Also, Mauritius’ SEMDEX and Morocco’s Casablanca MASI indices ended southwards w/w, down 1.0% and 0.9% respectively. 

Across the Asian and Middle East markets, performance was surprisingly bullish as all indices trended northward w/w. Thailand’s SET index led the gainers, up 3.7% W-o-W. Similarly, Turkey’s BIST 100 index gained 2.0% w/w while Saudi Arabia’s Tadawul ASI, Qatar’s DSM 220 and UAE’s ADX General indices rose 1.7% apiece w/w. 

Nigerian Stock market closes in red… ASI Sheds 2.7% w/w

The momentum in the local bourse weakened this week with the market recording its first weekly loss for the year following five consecutive days of losses. Consequently, the benchmark index fell 2.7% to close at 28,843.53 points. As a result, YTD return declined to 7.5% while market capitalisation reduced by ₦404.5bn to ₦14.8tn. Activity level improved as average volume and value traded rose 26.2% and 13.6% respectively to 312.2m units and ₦5.2bn. In terms of volume, ZENITH (150.3m units), GUARANTY (141.9m units) and UBA (75.2m units) led the chart while MTNN (₦6.1bn), GUARANTY (₦4.3bn) and ZENITH (₦3.2bn) led by value.

Performance across sectors was bearish as 4 of 6 indices declined w/w. The Insurance and Consumer Goods indices gained 0.9% and 0.1% respectively due to buying interest in LINKASSURE (+18.8%), NEM (+9.1%), VITAFOAM (+10.0%) and CHAMPION (+7.8%). Conversely, price declines in FBNH (-10.3%), STANBIC (-10.0%), WAPCO (-12.9%) and CAP (-9.1%) compelled the sharpest losses in Banking and Industrial Goods indices. Similarly, the AFR-ICT and Oil & Gas indices pared 2.5% and 1.1% respectively on the back of sell pressure in MTNN (-4.3%), ETERNA (-23.8%) and TOTAL (-8.5%). 

Investor sentiment as measured by market breadth (advance/decline ratio) weakened to 0.4x as 16 tickers gained against 44 that declined. LINKASSURE (+18.8%), NEIMETH (+17.0%) and VITAFOAM (+10.0%) led the gainers while ETERNA (-23.8%), HONEYFLOUR (-17.8%) and ABCTRANS (-17.1%) led the decliners. We believe that the market would continue this downtrend especially as earnings released this week has been largely mixed and insufficient to boost investor confidence.

Foreign Exchange Market: Naira remains calm across FX Windows

On Wednesday, the governor of the apex bank of Nigeria, Godwin Emefiele reacted to analysts’ opinion about the possible devaluation of the Naira happening soon. He stated that the devaluation of the local currency is not going to happen any time soon. However, the foreign reserve balance fell 0.4% to US$38.1bn. Also, despite the absence of the CBN’s intervention in the foreign exchange market this week, Naira remained calm across board. At the CBN official window, Naira weakened slightly by 5 kobo w/w after it opened at ₦306.95/US$1.00 and closed at ₦307.00/US$1.00. At the parallel market however, Naira gained ₦1.00, closing at ₦360.00/US$1.00. Meanwhile at the I&E window, Naira lost ₦1.22 w/w after it opened at ₦362.75/US$1.00 to close at ₦363.97/US$1.00. Activity level at the I&E Window advanced as total turnover rose 5.9% w/w to close at US$966.2m.

Following the maturity of the JAN 2020 Futures worth US$1.6bn, the total value of FX Futures fell $913.0m w/w to $9.5bn, although there was an introduction of the FEB 2021 instrument worth $26.9m. Meanwhile, the JAN 2021 futures (contract price: ₦367.48) saw the most buy interest with an additional subscription worth $216.0m, taking its total value to $695.3m. On the other hand, the JULY 2020 futures (contract price: ₦365.67) was the least subscribed, with a marginal subscription of $1.0m, to close the week at $247.1m. In the coming week, we expect the apex bank to sustain intervention in the forex market, thus we anticipate that naira would trade at a similar band.

Money Market: T-Bills Rates Trend Lower  

This week, the OBB and OVN rates opened the week at 9.4% and 10.5% respectively, higher than 3.7% and 4.3% recorded in the previous week as system liquidity fell from ₦1.0tn to ₦222.6bn. On Wednesday, the OBB and OVN rate climbed to 13.5% and 14.2% respectively from 8.4% and 9.3% (on Tuesday) but fell on Thursday to 4.2% and 5.5% as system liquidity rose to ₦1.1tn. Finally, on Friday, OBB and OVN rate advanced to close the week at 14.0% and 15.3% respectively, as system liquidity declined to ₦510.8bn.

On Wednesday, the CBN at the primary market auction (PMA) issued; 91-day (Offer: ₦28.0bn; Subscription: ₦53.2bn; Sale: ₦49.8bn), 182-day (Offer: ₦33.7bn; Subscription: ₦57.8bn; Sale: ₦54.6bn) and 364-day (Offer: ₦167.9bn; Subscription: ₦152.7bn; Sale: ₦125.2bn) instruments at a marginal rate of 3.5%, 4.5% and 6.5% respectively compared with previous rates of 2.95%, 3.95% and 5.09%. The 91-day and 182-day instruments were oversubscribed at 1.9x and 1.7x while the 364-day instrument was undersubscribed at 0.9x. On Thursday, following the inflow from OMO maturities worth ₦495.0bn, the CBN conducted OMO auction worth ₦200.0bn to mop-up excess liquidity in the system. As a result of stronger appetite for higher yields, there was no sale on the short-term instrument. Howbeit, the 180-day (Offer: ₦10.bn; Subscription: ₦20.14bn; Sale: ₦20.14bn) and 364-day (Offer: ₦180.bn; Subscription: ₦458.01bn; Sale: ₦190.15bn) instruments were oversubscribed by 2.0x and 2.5x with marginal rates of 11.6% and 13.0% respectively.

In the treasury bills secondary market, the performance was bullish as average yield across benchmark tenors trended lower, down 7bps w/w to close at 3.8%. During the week, average yields across instruments were relatively stable as local investors took a cautious approach due to depressed T-bills yields and the announcement of an OMO auction by the CBN. The 364-day instrument enjoyed the most buying interest as yields declined 30bps to 4.2% while the 91- and 182-day instruments rose 3bps and 5bps to 3.4% and 3.7% respectively. In the coming week, the CBN is expected to sustain its OMO auction given that OMO maturities worth N338.5bn will further boost system liquidity levels. Also, we envisage that elevated system liquidity levels would drive rates lower in the secondary T-Bills market.

Bonds Market: The Bulls Sustain Dominance

This week, performance in the secondary market was positive as average yield declined 31bps w/w to 9.9%. On Monday, yields rose as investors responded to last week’s increment of Cash Reserve Ratio (CRR) to 27.5% by the MPC. However, the sentiment was shrugged off in subsequent trading sessions as investors resumed interest on high-yield bonds. Across tenors, the short-term bonds witnessed the most buy interest w/w, shedding 175bps in yields while the mid-end notes and long-dated bonds trailed, shedding 39bps and 17bps w/w respectively as investors locked-in excess funds from OMO maturities worth c.₦495.0bn. At the SSA Eurobond market, the performance was flat. The South Africa 2020 and Republic of Ghana 2026 instruments continue to enjoy high demand, shedding 88bps and 15bps respectively. Similarly, the Nigerian 2022 and Ghanaian 2023 instruments trailed, shedding 12bps and 15bps respectively.

For the African Corporate Eurobonds that we track, the story is comparable as yields declined 2bps w/w. The ESKOM HOLDINGS 2025 and OFFICE CHERIFIEN DES PHO 2044 instruments led the pack with yields declining 31bps and 9bps w/w respectively. FIDELITY BANK PLC 2022 and UBA PLC 2022 trailed, shedding 1bps apiece. We expect a sustained bullish run in the coming week at the African Eurobonds space on the back of policy easing by central banks in advanced economies.

Source: Afrinvest