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The Market Today - 22 June 2017

MSCI delays decision on reclassification of Nigeria Index
Following the conclusion of the much anticipated meeting scheduled for June 20, MSCI announced that the decision on a potential reclassification of the MSCI Nigeria index to standalone market status has been postponed to its Semi-Annual Index review to be held in November. With the illiquid FX market in 2015/2016 affecting investors’ ability to repatriate capital and returns among other things, the discussion of a potential reclassification of the Nigeria index was billed to have occurred in June. However, recent developments in the Nigerian foreign exchange market, with particular reference to the IEFX window, has revived cautious optimism in the foreign exchange space. The decision was therefore delayed to the November meeting to give investors time to test the effectiveness of the new window. We note that the IEFX window has been particularly effective in improving liquidity in the foreign exchange market since its inception and has renewed investor confidence in the market in recent times. Whilst there have been media reports of a possible increase in Nigeria’s weighting in the Frontier index following the reclassification of Pakistan from the Frontier Markets index to the Emerging Markets index, we note that the global index benchmark provider was silent on the weighting adjustment in the statement released.

Bears steer Nigeria bourse to steepest loss in 2017
Following a five-session rally, the Nigerian equity market turned negative in yesterday’s trading session with all major sectors closing in the red – NSE ASI down 261bps – the biggest loss this year. Given notable market-wide sell pressure and an overall negative trading yesterday (as indicated by the wide negative market breadth), we foresee a bearish start today. However, we expect rebounding “buy” sentiment in the banking space to temper overall losses.

Stock Watch: After gaining 60% over 11 sessions and trading at a 10-month high of ₦1.44, DIAMONDBNK has lost 15% in 7 consecutive session. The stock currently trades at ₦1.22, still below Vetiva target price of ₦3.28, and has returned 39% ytd.

Fixed Income market bearish amidst PMAs
In the secondary market, trading was largely bearish with yields rising across the T-bills and bonds markets with selloffs in the T-bills market particularly weighted on the short-mid dated maturities. Similarly, bearish sentiment persisted in the bond market amidst the monthly auction, with yields trending 5bps higher on average. With yields at the bond auction coming in lower than secondary market levels we foresee increased demand across the space even as tight system liquidity continues to constrict demand in the T-bills market.