Investment View …Will 2016 start on a bullish note?

The local bourse rode on bullish sentiment last week on the back of rally in large cap stocks such as DANGCEM, UNILEVER, NB, among others. On the back of this, the benchmark index (NGSE INDX) gained 6.6% w/w to close the year at 28,642.25 points, moderating 2015 losses to -17.4%. Similarly, market capitalization edged up to N9.85trn.

On the back of robust liquidity in the financial system, bond yields continued on a downward trend as investors took positions in line with short term expectation for yields. However, signals of liquidity mop-up by the CBN and primary market expectation sustained bearish sentiment in the Treasury Bills market with average Treasury bills rate inching up by 155bps to 4.4% while average bond yields dipped by 50bps to 10.7%.

Bargain hunting is expected to greet the market this week as investors take position on low priced stocks with significant upside potential coupled. However, pockets of selling on the back of recent gains will likely offset gains in the week with the benchmark likely to close marginally negative.

Financial Markets Review and Outlook

Bulls recommence bargain hunting as stock prices near bottoms

Equities: Year-end rally rams the market north

The local bourse rode on bullish sentiment last week on the back of rally in large cap stocks such as DANGCEM, UNILEVER, NB, among others. On the back of this, the benchmark index (NGSE INDX) gained 6.6% w/w to close the year at 28,642.25 points, moderating 2015 losses to -17.4%. Similarly, market capitalization edged up to N9.85trn. Market activity as measured by volume and value traded increased by 299.1% and 42.1% to 2.96bn units and N9.4bn respectively. Year-on-Year volume and value traded declined by 7.9% and 27.5% to 92.9bn units and N950.3bn accordingly.

Following the completion of the Year End Review of the NSE indices, the NSE made changes to the composition of some market indices, mainly the NSE 30, NSE Insurance Index, NSE Pension Index and NSE Lotus Islamic Index.

System liquidity remains healthy amid OMO auction

Healthy system liquidity lingered in the market last week on the back of inflows from FAAC and maturing T-Bills worth (N178.8bn) which offset outflows from OMO (N50.1bn). This kept money market rates low with the Open Buy Back (OBB) and Overnight (O/N) dipping to 0.5% and 1.0% respectively. Similarly, the overnight, 3M and 6M NIBOR declined to 1.0%, 10.7% and 12.8% accordingly.

The CBN conducted OMO auction last week worth N200.7bn via 310-day bills (N138.8bn) and 183-day bills (N61.9bn). Inflows from maturing T-Bills worth N136.25bn will support liquidity at current level; hence, rates are likely to trend south this week.

Buoyant liquidity support bullish bias in Bonds

On the back of robust liquidity in the financial system, bond yields moved downwards as investors took positions in line with short term expectation for yields. However, signals of liquidity mop-up by the CBN and primary market expectation sustained bearish sentiment in the Treasury Bills market with average Treasury bills inching up by 155bps to 4.4%, while average bond yields dipped by 50bps to 10.7%. Yields on the 5yr, 7yr and 10yr bond instrument declined to 9.5%, 10.0% and 11.1% from 9.9%, 10.4% and 11.3% in that order.

The Treasury Bills market is likely to be calm this week as investors wait on the side-line hinged on mop-up signals by the CBN. Furthermore, traders will be looking at the near term direction from next week’s primary auction before taking position in the market. Thus, yields may inch up marginally in the Treasury Bill space though healthy liquidity might fuel some buy bias. In the bond space, expectation of lower yields in the near term coupled with healthy liquidity will sustain the bullish tilt in the market.

Naira flat w/w, but pressure on FX still palpable

While the naira remained stable at the official and interbank markets, closing flattish w/w at 199.3/US$, the wide spread when compared with the parallel market persisted as the local currency remained within the 270.0-280.0/US$ band at the close of the week.  We expect current trend to linger as the apex bank continues to use administrative controls to manage the FX markets even as consumers turn to the parallel market to source FX to meet foreign purchases.