After returning c.16% in January, the Nigerian Equity market began a free fall that has seen the NSE ASI lose 15% of its value in four months, bringing current ytd returns to 1%. Initially triggered by profit-taking after the January surge, the turn in sentiment has been sustained by the early onset of political jitters ahead of the February 2019 Elections and possible capital reversal as a result of monetary policy tightening in the United States. Consequently, average daily market turnover has fallen from ?8.9 billion in January to ?4.4 billion in May albeit higher than the 3-year average of ?3.4 billion. 

We note that Pension Fund Administrators have been directed to implement a multi-fund structure for their assests under management from July 2018. If implemented, we expect this to provide a level of support for the market. However, in the absence of any other catalysts we foresee sustained pressure on the market as investors continue to monitor election activities. 

Mixed trading amidst Primary Market Auction 

The CBN conducted a Primary market auction yesterday, offering and selling N50 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.00%, 10.30% and 11.70% (previous: 10.00%, 10.50% and 10.70%). Supported by a ?300 billion bond maturity, the Interbank Call rate declined 192bps to 1.75%.

Trading on T-bills was mixed with yields closing flat on average. Notably, whilst yields on the 22DTM (+85bps to 11.69%) and 228DTM (+47bps to 14.03%) bills advanced, yields on the 43DTM (-41bps to 11.48%) and 169DTM (-46bps to 12.72%) bills declined. Sentiment in the bond space was more positive as yields on benchmark bonds closed 9bps lower on average. In particular, yields on the 16.00% FGN APR 2019 and 14.20% FGN MAR 2024 bonds moderated 84bps and 25bps to settle at 12.04% and 13.22% respectively.

We expect recent liquidity inflows to support demand in the fixed income market today, although we anticipate likely CBN liquidity mop up to weigh slightly on sentiment.

NSE ASI resumes with losses after Democracy Day 

Following the Democracy Day break, the Nigerian equity market resumed to losses (-108bps today) on the back of a rout in Consumer and Industrial Goods names.

The Consumer Goods (-263bps) sector led laggards on the day as red closes in INTBREW (-492bps), NB (-435bps) and NESTLE (-375bps) outweighed gains in FLOURMILL (+498bps), DANGFLOUR (+468bps) and DANGSUGAR (+272bps). Following closely, the Industrial Goods (- 170bps) sector shed points, following losses in WAPCO (-494bps) and DANGCEM (-102bps). The Banking sector shed 34bps after declines in ETI (-220bps) and ZENITHBANK (-192bps) overshadowed gains in UBA (+192bps) and ACCESS (+187bps). Meanwhile, the Oil & Gas sector eked out a meagre 6bps gain after advances in ETERNA (+398bps) lifted the sector.

Market breadth remained negative with 23 advances and 24 declines. 

Market Outlook

Despite a significantly higher market turnover and a positive start to the session, bears eventually took over and inflicted heavy losses in the Industrial Goods and Consumer Goods sectors. With evident pressure on bellwethers, we foresee negative sentiment filtering into today’s session.

Stock Watch: 

NB has shed 11% over the last six sessions and has now declined 18% YTD, compared to the Consumer Goods sector’s -6% YTD performance. The stock currently trades at its lowest price this year (N110.00) and below our target price of N130.68.