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The Market Today - 29th March 2017

Foreign Portfolio Investors remain on the sidelines

According to data from the Nigerian Stock Exchange, total transaction on the Nigerian bourse declined further in February, dropping 22% m/m to ₦74 billion as investor appetite remains dampened. Also, FPIs to equities declined 29% m/m to ₦16 billion as FX uncertainty lingered. The outlook for FPIs remains mixed. Following a steady accretion in foreign reserves on the back of improved oil production volumes and recovery in oil prices, the CBN introduced a new FX policy late in February which has resulted in series of interventions in a bid to improve dollar supply and narrow the spread between parallel and official market rates. The CBN is estimated to have supplied over $2 billion to the FX market in forwards and spot deliveries in the last month, spurring an impressive 39% appreciation in the parallel market. Whilst this offers some hope for the return of FPIs, concerns over the sustainability of the interventions easily comes to mind, particularly with the recent pressure on oil prices. Also, the possibility of exclusion of the Nigerian equity market from MSCI’s Frontier Markets Index in April over restriction on capital flows further blurs the prospect of a hasty return of foreign portfolio investors. We highlight that the NSE ASI has lost 5.38% ytd in dollar terms.

Industrials weigh on ASI, down 31bps

After a positive week-open, the ASI slumped 31bps on Tuesday, pressured by sustained losses in the Industrial Goods sector. Despite the negative close, we highlight that the market sustained a positive trading sentiment with green closes across most key sectors and a sustained positive market breadth. Thus, we expect that the exchange will continue to trade with a positive bias in today’s session even as earnings continue to filter in.

Stock Watch: FCMB released its FY’16 results yesterday with PAT up y/y but falling 4% below Vetiva estimate. The group also proposed a final dividend of ₦0.10, in line with market expectations.

Mixed trading persists in Fixed Income market

Yesterday, the T-bills market turned mixed following the bullish trading at week open. In contrast, the bulls returned to the bond market after mild profit taking at week open as yields declined 2bps on average across the benchmark bonds. For today's session, whilst we expect the positive sentiment to persist in the bond market, we believe bearish sentiment could become more evident in T-bills market guided by the waning demand observed yesterday.