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The Market Today - 31 May 2018

May blues likely to extend beyond the month                                                 

After returning c.16% in January, the Nigerian Equity market began a free fall that has seen the NSE ASI lose 15% of its value in four months, bringing current ytd returns to 1%. Initially triggered by profit-taking after the January surge, the turn in sentiment has been sustained by the early onset of political jitters ahead of the February 2019 Elections and possible capital reversal as a result of monetary policy tightening in the United States. Consequently, average daily market turnover has fallen from ₦8.9 billion in January to ₦4.4 billion in May albeit higher than the 3-year average of ₦3.4 billion. We note that Pension Fund Administrators have been directed to implement a multi-fund structure for their assests under management from July 2018. If implemented, we expect this to provide a level of support for the market. However, in the absence of any other catalysts we foresee sustained pressure on the market as investors continue to monitor election activities.                                                                                 

NSE ASI resumes with losses after Democracy Day                                                         

Following the Democracy Day break, the Nigerian equity market resumed to losses (-108bps today) on the back of a rout in Consumer and Industrial Goods names.  Despite a significantly higher market turnover and a positive start to the session, bears eventually took over and inflicted heavy losses in the Industrial Goods and Consumer Goods sectors. With evident pressure on bellwethers, we foresee negative sentiment filtering into today’s session.                                                     

Stock Watch: NB has shed 11% over the last six sessions and has now declined 18% YTD, compared to the Consumer Goods sector’s -6% YTD performance. The stock currently trades at its lowest price this year (₦110.00) and below our target price of ₦130.68.                                                                

Mixed trading amidst Primary Market Auction                                                 

The CBN conducted a Primary market auction yesterday, offering and selling ₦50 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.00%, 10.30% and 11.00% (previous: 10.00%, 10.50% and 10.70%).  Trading on T-bills was mixed with yields closing flat on average. Sentiment in the bond space was more positive as yields on benchmark bonds closed 9bps lower on average. We expect recent liquidity inflows to support demand in the fixed income market today, although we anticipate likely CBN liquidity mop up to weigh slightly on sentiment.