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The Market Today - 08 February 2019

FPI resurgence driving capital market gains                                                       

The Nigerian capital market has seen an increase in foreign participation since the turn of the year, beating analyst expectations of a stand-offish investor sentiment pre-elections. The clearest indication of this is the resurgence of foreign inflows into the Nigerian market, indicated by a jump in FPI contribution to the I&E FX window (51% vs 22% in Q4’18). The positivity can be attributed to both foreign and domestic factors; the change in tone from the U.S. Fed, indicating a slowdown in monetary policy normalization; and a relatively peaceful pre-election period. The positive sentiment has impacted both the Fixed Income and Equity spaces, with average yields declining 87bps from 31 December 2018 till date, despite tight monetary controls by the CBN, thanks to stronger demand. Meanwhile, the equity market has also benefited from the uptrend, with total turnover since the start of the year hitting ₦78 billion, driven by renewed interest in Large-cap stocks. That said, with the uncertainty of elections still looming large, market performance has remained tepid, with the ASI returning only +0.01% ytd. We expect foreign flows to remain positive in the run-up to elections and foresee further gains at the conclusion of the polls.           

                               

Bulls emerge as Banking stocks boost bourse                                                    

Lifted by a particularly strong performance from big Banking names, the Nigerian equity market sailed 198bps higher yesterday. Accordingly, market turnover also jumped, nearing ₦6.0 billion as investors continued to snap up stocks ahead of elections. Market breadth remained positive with 27 advances and 13 declines. As the elections draw closer, investors are likely to continue their pursuit of cheapened stocks amid improved buy sentiment. Thus, we expect another positive close to trading today, driven by continued bargain buying ahead of elections.

                                               

Stock Watch: With investors beginning to take positions ahead of the polls, Banking stocks have seen the highest level of interest from investors (₦11.8 billion of the ₦19.1 billion traded since the start of February). Large-caps GUARANTY, ZENITHBANK and UBA were responsible for 90% of the turnover in the sector. We see this persisting in coming sessions, driven by positive sentiment, as these stocks currently trade at discounts to Consensus valuations.

                                                               

Investors look to the long-end as bond yields decline                                                  

Amidst a ₦315 billion OMO maturity, the CBN conducted another OMO auction yesterday, selling c.₦321 billion (₦250 billion offered) across the 119DTM, 182DTM and 364DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.38%, 14.47% and 17.64%). In the secondary market, trading in the T-bills space was mixed, although with a bearish tilt, with yields advancing 13bps on average. However, trading in the bond space remained bullish, with benchmark yields declining 9bs on average. Amidst consistent pressure on system liquidity, we foresee further mixed trading in the T-bills space, with further yield advances likely. Meanwhile, we expect further buy-activity in the bond space, as investors continue to take positions ahead of the polls.