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The Market Today - 14 August 2018

Politics and global concerns drive Nigeria into bear market                                                       

The Nigerian equity market has lost 21% since its 2018 high on 19 January, indicating a bear market (accepted wisdom indicates bear territory is at least 20% off previous peak). The deterioration in market sentiment in the past six months can be attributed to greater political tensions within the country, as well as a wider risk-off approach to emerging markets amid U.S. monetary tightening and early signs of a global trade war. Ahead of the 2019 elections, Nigeria’s political scene has been on overdrive in recent weeks, and the weakening of the incumbent’s power base has increased uncertainty over the outcome of the polls. All of this has occurred amid healthy oil prices and a decent economic performance both of which should persist through the year. However, market sentiment is likely to remain downbeat during that time, barring a significant improvement in political developments.                                                             

Bears persist, market extends slide to seven sessions                                                  

With all key sectors closing in the red, the NSE ASI started the week negatively, dipping 13bps and stretching losses to seven straight sessions, the longest streak of consecutive losses since an eleven-session streak in May (17 May to 1 June 2018). Even as we expect more top-flight banking names to post positive H1’18 performances in coming sessions, we anticipate another negative trading sessions as investor sentiment remains weak.                                   

Stock Watch: ETERNA has gained 20% in the last 8 sessions. The stock has gained 77% ytd to trade at ₦7.10, outperforming the Oil and Gas sector which has lost 9.40% ytd.                                                

Bearish sentiment persists at week open                                                           

Even in the absence of an OMO auction and despite liquidity supported by a coupon payment on the 15.54% FGN FEB 2020 bond, the Interbank call rate advanced 333bps to 11.75%. Notwithstanding healthy system liquidity, sentiment in the T-bills space was bearish as yields rose 12bps on average. Notably, yields on the 38DTM (+47bps to 10.87%) and 339DTM (+39bps to 13.25%) bills advanced. Likewise, bears dominated the bond space as yields on benchmark bonds increased 19bps on average. Specifically, yields on the 16.39% FGN JAN 2022 and 14.20% FGN MAR 2024 bonds rose 44bps and 50bps to settle at 14.18% and 14.49% resepectively. In line with the recent trend, we expect trading in the fixed income market to remain downbeat today, with healthy liquidity not enough to spur strong buying in the space.