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Bear on a graph indicating market loss

NGX Closes the Week Bearish, loses 2.68% Week on Week.

Negative ruled Nigeria bourse as bellwether stocks declined. NGX ASI fell by 2.68%, closing negative in all of the four trading sessions during the week. It decreased on the back of profit-taking in large caps such as CONOIL (-10.00%) and CAP (-9.93%). Consequently, at 51,778.08 points, the equities market’s Year-to-Date return decreased to 21.21% as market capitalisation fell by 2.68% to close at N7.91 trillion.

Market breadth (a measure of investor sentiment) decreased in the just concluded week, declining from 0.81x to 0.25x as 13 stocks appreciated against 51 stocks that declined. LEARNAFRCA and SUNUASSUR topped the market gainers with 15.74% and 9.38% respectively WoW, while LIVESTOCK and INTBREW were the top losers with declines of  16.88% and 14.97% respectively WoW.

The activity level totally weakened as the total trade volume and value declined by 48.66% and 41.04% WoW. A total turnover of 940.892 million shares worth N11.494 billion in 20,077 deals was traded by investors on the floor of the Exchange. Trading in the top three equities namely United Bank for Africa Plc, Sterling Bank Plc and Transnational Corporation Plc (measured by volume) accounted for 304.837 million shares worth N1.285 billion in 2,103 deals, contributing 32.39% and 11.18% to the total equity turnover volume and value respectively.

Outlook for the week

We expect negative performance to persist on the back of profit-taking activities on stocks that have significantly appreciated.

The Nigerian Fixed Income Market

At the Fixed Income Space Last week, the bond market recorded mixed sentiment as two of the five tenor yields under coverage increased, the 1 and 5-Year tenor yields closed flat at 3.89% and 10.30% respectively while the yield on the 10-Year bond compressed by 3bps. The yields on the 3 and 30-Year bonds inched higher by 27bps and 2bps respectively.

The Nigerian Treasury Bills Market closed bearish as the 182 and 364-day paper yields closed higher by 103bps and 104bps to close at 5.19% and 6.10% respectively while the 91-day paper closed flat at 3.48%.

In the Money Market space, the Open Repo (OPR) and Overnight (O/N) rates decreased to 10.33% and 10.92% from 13.75% and 14.00% respectively WoW.

Outlook for the week

We expect market activity in the fixed income market to be influenced by liquidity levels and foreign investor participation.

Local Economic Updates

Based on the NBS report, the Consumer Price Index (CPI), which measures inflation, rose by 17.71% Year-on-Year (YoY) in May’22. This is 0.89% higher than the rate recorded in Apr’22 (16.82%) but 1.30% lower than May’21 (0.22%). The headline inflation spiraled upward, in line with the previous month’s hike. The increase in May 2022 was on the back of price acceleration in the food and core subindices, representing the highest rate recorded since June’21.

Also, on a month-on-month (MoM) basis, the Headline Index increased to 1.78% in May’22; this is a 0.02% increase from the rate (1.76%) recorded in the previous month (Apr’22). The hike in monthly headline inflation (Core and Food Subindices) mirrors the global inflationary pressures, exacerbated by the ongoing Eastern Europe crises, which have given rise to commodities and energy prices.

While the Monetary Policy Committee (MPC) hiked the interest rate by 150bps with the hope of improving net foreign inflows and taming the rising inflation, the aftermath proved immaterial as all inflation indices accelerated, in sync with our opinion that rate hikes may not address the rising inflation as the supply-driven inflation is more impacted by structural issues (requiring synergy of fiscal and monetary policies), evidenced by legacy drivers like food production shortages, insecurity issues, and abysmal transportation infrastructure.

Elsewhere, on Nigeria’s crude oil production, OPEC monthly oil market report revealed that Nigeria’s total production fell by 16% (or 195,000 barrels per day) from 1.22mbpd in April to 1.0mbpd in May. The continuous decline in Nigeria’s crude oil production puts the country’s oil revenue at risk. Crude oil revenue is a major component of Nigeria’s revenue. However, due to a persistent decrease in production and export, Nigeria’s oil revenue has continued to underperform despite rising crude oil prices.

Global and Emerging Market Economic Updates

In line with an expectation of a rate hike by the U.S. Fed, the Committee raised the interest rate by 75bps, marking its highest rate hike in over two decades (since 1994). Consequently, the federal funds rate readjusted to a range of 1.5%-1.75%. Also, the Committee reaffirmed its commitment to beat inflation to its target levels while maintaining its earlier planned balance sheet reduction mechanism.

Last week, the Bank of England implemented a fifth consecutive hike in interest rates to rein in soaring inflation. The Monetary Policy Committee voted 6-3 to increase the Bank Rate by 25bps to 1.25%, with the three dissenting members voting for a 50 basis point hike to 1.5%. The Committee said in a statement that it would take the actions necessary to return inflation to the 2% target sustainably in the medium term with the scale, pace, and timing of any further hikes depending on the economic outlook and inflationary pressures.

The European Union, Israel, and Egypt have signed a tripartite natural gas export deal as the bloc seeks to diversify away from Russian energy. The deal, finalized last Wednesday at the Cairo East Mediterranean regional energy conference, will allow “significant” exports of Israeli gas to Europe for the first time. European Commission chief Ursula von der Leyen said in a joint news conference alongside the Egyptian and Israeli energy ministers that the agreement would contribute to Europe’s energy security. Israeli gas will be brought via a pipeline to Egypt’s LNG terminal on the Mediterranean, where some will be liquefied and transported on tankers to European shores.  

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