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The Market Today - 3 July 2018

Bears plague Nigeria and other African markets                                                              

The second quarter of the year has been a harsh period for African financial markets on the back of capital flight triggered by investor concerns over a strengthening dollar, rising U.S. treasury rates, and worsening trade tensions between the U.S. and China. Bloomberg data showed that the FMI Bloomberg African Bond Index which tracks local currency bonds has lost 12% of its dollar value in Q2’18 whilst yields on African Eurobonds have climbed to two-year highs. Unsurprisingly, the yield on Nigeria’s 2032 Eurobond has risen from 6.9% at the end of March to 8.2% yesterday. African equities have been similarly hit, shedding 11% on average in the quarter, compared to emerging market average of 10%. Notably, the Global X MSCI Nigeria ETF, the only U.S. ETF that solely tracks Nigerian equities was down more than 25% in Q2’18 amidst outflows of $25 million (c.30% of market value at the start of the quarter). There are likely to be more choppy times ahead amid U.S. monetary tightening and persistent geopolitical worries, whilst a slightly softer oil price outlook may weigh on oil exporters like Nigeria.                                                                  

Selloffs across large caps swing ASI to negative week open                                                       

Driven by losses across large caps, The NSE ASI (-87bps) retreated at week open, with sell pressure weighted on Industrial Goods and select banking names. We expect weak investor sentiment to keep stock prices under pressure.                                                               

Stock Watch: FLOURMILL released its FY’18 results today, reporting a bottom line of ₦14 billion (26% behind our estimates and 54% up y/y). The stock currently trades at a price of ₦32.80 and has returned 13% YTD.                                                   

Mixed sentiment filters into the new week                                                      

In spite of a continued pause in OMO auctions and the consequent improvement in system liquidity, Interbank Call rate advanced to 30.00% yesterday (previous: 13.17%). Meanwhile, trading momentum in the T-bills space remained mixed with a bullish tilt, with yields declining 11bps on average. In contrast, trading in the bond space was largely muted, with sell pressure observed across tenors. Yields on benchmark bonds advanced 9bps on average. Barring external shocks, we expect quiet trading in the bond space with bargain hunters picking offers at attractive levels. Meanwhile, we expect trading in the T-bills space to remain mixed with a positive tilt in today’s session in the absence of an OMO auction.