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NGX Declined Further by 0.91% in Week 3 of Sept

Bearish sentiment persists in the local bourse as the NGX ASI declined further by 0.91% WoW, closing negative in 4 of the 5 trading sessions. It fell on significant decreases in bellwether stocks such as BUACEMENT (-10.36%) and CADBURY (-13.82%). Consequently, at 49,026.62 points, the equities market’s Year-to-Date return decreased to 14.77% as market capitalisation declined by 0.94% to close at N26.44 trillion.

Market breadth (a measure of investor sentiment) strengthened but negative in the just concluded week, rising from 0.33x to 0.40x as 17 stocks appreciated against 42 stocks that depreciated. VITAFOAM and FIDELITYBK topped the market gainers with 12.25% and 10.85% WoW, respectively, while ACADEMY and NGXGROUP were the top losers, with declines of 22.73% and 13.92%, respectively WoW.

The activity level was mixed as the total trade volume declined by 21.74% while the total value improved by 17.92% WoW, respectively. A total turnover of 562.856 million shares worth N9.438 billion in 16,013 deals were traded during the week by investors on the floor of the Exchange. Trading in the top three equities, namely Zenith Bank Plc, NGX Group Plc and Guaranty Trust Holding Company Plc (measured by volume), accounted for 183.929 million shares worth N3,499 billion in 3,628 deals, contributing 32.68% and 37.07% to the total equity turnover volume and value respectively.

We expect positive performance to return in the coming week as the equities market still presents decent opportunities for investors chasing positive real returns on investments.

The Nigerian Fixed-Income Market

Last week, there was mixed sentiment in the bond market as two of the four tenor yields under coverage closed lower, the 10 and 30-Year tenor yields closed flat respectively. The yields on the 3 and 5-Year bonds compressed by 110bps and 43bps respectively WoW.

There was bullish sentiment in the Nigerian Treasury Bills Market as the 91, 182 and 364-day paper yields compressed by 2bps, 231bps and 1bp respectively WoW.

In the Money Market space, the Open Repo (OPR) and Overnight (O/N) rates increased to 12.81% and 13.65% from 9.67% and 10.17% 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 Update

The Federal Government stated its intentions to raise the N30,000 minimum wage in light of the increasing challenges of global inflation. According to the Minister of Labor and Employment, the modification was necessary to reflect the ongoing increase in global prices.

Nigeria’s overall public debt stock, including domestic and foreign loans, increased by 2.9% to N42.8 trillion in June 2022 from N41.6 trillion in March 2022, according to the Debt Management Office (DMO). This suggests that domestic debt increased Nigeria’s overall state debt by N1.2 trillion in three months.

5G Sunset Cell Tower

The Federal Government is expected to generate about N500.0bn through the 5G spectrum in 2023, according to the Nigeria Communication Commission (NCC). The two 5G spectrum auctions, which would take place in 2023, would bring in money for the NNC. Notably, the commission generated N257.0 billion in Q1-2022, of which N195 billion was paid into government coffers.

According to the recently released Electricity report by the NBS, the number of power consumers on estimated billing in Nigeria increased to 5.85mn in Q2-2022, from 5.84mn recorded in Q1-2022.

The nation’s Gross Domestic Product (GDP) increased by 4.8% y/y in Q2 2022, up from a 3.3% increase in Q1 2022, according to the Ghana Statistical Office. The growth, which increased by 5.2%, was mostly contributed by the services sector. With 4.6% and 4.4% growth rates, respectively, the industries and agriculture sectors lagged.

Ghana is getting ready to start negotiations with domestic bondholders on restructuring its domestic currency debt as part of its strategy to obtain a $3 billion loan from the IMF. 

Global and Emerging Market Economic Updates

With August’s inflation reading coming in at 8.3%, the Fed increased the benchmark interest rate by 75 basis points for the third time in a row, bringing it to a range of 3% to 3.25%. As inflation now teeters on its four-decade high, the 75ps was in line with what the market anticipated. In the news conference following the meeting, Fed Chair Jerome Powell reaffirmed the Fed’s commitment to bringing inflation down to 2% and stated that the U.S. economy will likely experience ongoing rate hikes for the foreseeable future, at least until the funds rate reaches a terminal rate of 4.6% in 2023.

The Bank of England increased its base interest rates by 50bps on Thursday, contrary to market expectations of a 75bps rate increase and bringing the base rate to 2.25%. The BoE raised interest rates for the seventh time in a row, this time in a less-than-aggressive manner, at a time when the pound is weakening, inflation was sky-high in August (9.9%), and there are growing concerns about an impending economic recession. The bank added that rather than following a “pre-set route” of rate increases, it would keep evaluating recent economic data to decide the nature, extent, and timing of future changes to the bank rate.

The Bank of England in London.

In the meantime, several monetary authorities reassessed their monetary policies to curb inflation, curtail expenditure, and reduce the money in circulation. The Bank of Japan (BOJ) took decisive action on Wednesday by selling dollars from its reserves on the currency market to defend its falling yen, which is being battered by a rising dollar and escalating inflationary pressures in Japan. The yen rose by 2% due to this action, from its 24-year low of 145/$1 to 141.2/$1.

Germany has taken a significant step by nationalizing gas company (Uniper), as the eurozone evaluates additional options to weather the energy crisis ahead of the impending winter. The German government will purchase a 98.5% ownership part in the company through this acquisition for €8.5 billion, aiding in the attempt to ensure energy supplies amidst shocks posed by the Russia-Ukraine crisis.