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The Market Today - 26 September 2018

President signs NSE demutualization billPresident signs NSE demutualization bill On the 29th of August, President Buhari assented to the bill that would lead to the demutualization of the Nigerian Stock Exchange (NSE), allowing it to convert from a company limited by guarantee to a publicly traded company listed on an exchange. This would bring the NSE in line with global best practices and also emulate the previous demutualization of the National Association of Securities dealers (NASD) exchange. It is hoped that this move would strengthen the exchange’s corporate governance structure which would drive greater investor participation and more listings. The demutualization of the NSE has been in the works for over a decade but was highlighted as a material possibility in our 2018 Outlook “Acta Non Verba” after the NSE Board voted in favour of the change, paving the way for legislative approval and presidential assent. NSE ASI rebounds as bargain hunters emerge The market turned positive yesterday after bargain hunting in three of the four key sectors drove the bourse to a 208bps gain.  Market breadth turned positive with 25 advances and 20 declines. We note that most of yesterday’s positive trading came in the first half of the session and the offer cart suggested sell pressure at the tail end of the trading session. Thus, we expect tepid trading to resume in today’s session albeit with sporadic bargain hunting.  Stock Watch: After hitting its year-low of ₦32.50 eleven sessions ago, GUARANTY has gained in four of the last five sessions to settle at ₦37.00. The stock gained 496bps yesterday and is trailing its year-open value by 9%. Our target price for the stock is ₦51.58. Tight system liquidity drives bearish trading System liquidity declined to ₦122 billion (Monday: ₦497 billion), and as a result, the interbank call rate advanced 967bps to settle at 18.00%. With the Central Bank of Nigeria choosing to hold interest rates but indicating a hawkish bias, trading was broadly negative in the fixed income market. Yields advanced 36bps on average across T-bills yesterday, with yields on the 16DTM and 65DTM bills rising 244bps and 90bps to settle at 10.78% and 12.86% respectively. Meanwhile, yields on the benchmark bonds advanced 3bps on average. Notably, yields on the 12.50% FGN JAN 2026 and 12.40% FGN MAR 2036 bonds advanced 5bps and 8bps to setltle at 15.27% and 15.44% respectively. Driven by the recent monetary policy decision and tight system liquidity, we foresee continued bearish trading across the fixed income market. In addition, we expect stop rates at today’s bond auction to come in higher than previous auction and secondary market levels.