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The Market Today - 20 February 2019

AfCFTA four signatures short of ratification

The African Free Continental Trade Area (AfCFTA) agreement moved one step closer to entering effect after the agreement was ratified by the South African Parliament bringing the total number of parliamentary ratifications to 18, with four more needed for the deal to become effective. Although the agreement has been signed by 49 of the 55 AU member states, it must be ratified in the parliaments of at least 22-member states to take effect. We recall the Nigerian President’s, reluctance to sign the deal until an assessment of its impact on the economy was completed due to the concerns over dumping and the perceived erosion of Nigeria’s competitive advantage. The AfCFTA would effectively create a single market across most of the African continent, meaning Nigeria’s high import levies, a tool used by the FG to curtail imports and reduce forex pressure, would be waived on imports from other African nations.

Slight rebound as Banking earnings boost the market                                         

Thanks in large part to a strong performance from the Banking sector, the NSE ASI recovered from the previous day’s losses with a 67bps gain. Market turnover also improved d/d, with total trades hitting ₦4.2 billion. Market breadth turned positive with 16 advances and 14 declines. With the fallout from the postponement of the presidential election cushioned by the release of favourable FY’18 results, we foresee a mixed trading session with a positive tilt, as investors begin to take positions ahead of further releases.                                        

"Stock Watch: ZENITHBANK released its FY’18 results yesterday, posting an 11% y/y gain in PAT despite a 15% y/y decline in gross earnings. The Tier I bank gained 5.63% in yesterday’s session to settle at ₦25.35, albeit 24% lower than consensus valuation.                                             

Yields decline in T-bills space as CBN refrains from mop-up                                            

The CBN held off on conducting an OMO auction yesterday. Amidst this, the Interbank Call rate declined 833bps to settle at 15.00%.  Meanwhile, trading in the secondary T-bills market was positive, with buy interest observed across the space and yields declining 26bps on average. Trading in the bond market however remained mixed, with the yields on many benchmark bonds closing flat on the day even as average yields advanced 3bps on average.  Amidst increasing political uncertainty, we expect investors to continue to stick to the short end of the curve. We also foresee further yield declines in the T-bills space should the CBN refrain from performing another mop-up.