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Election risk yet to weaken foreign, domestic investors’ at stock market

Contrary to speculations that the associated risks trailing the ongoing but fiercely fought 2019 presidential election campaigns may send shock waves to both foreign and domestic players at the Nigerian Stock Exchange (NSE), the Nigeria’s equity market has remained in cheerful mood within the period under review.
For example, the benchmark index returned a whopping 2.92% w/w to 31,529.92 points. Notably, the ASI closed positive in all sessions last week. Thus, the MtD gain printed 3.2%, thereby pushing the YtD return into positive territory at 0.3%.
On sectoral breakdown, all sector indices closed positive save for the Industrial (-0.66%) index — with Banking (+8.10%) index leading the pack, followed closely by the Consumer Goods (+4.10%), Insurance (+4.00%), and Oil & Gas (+2.54%) indices respectively.
However, analysts are still monitoring happenstances as investors are advised to trade cautiously amidst brewing political jitters ahead 2019 elections, and the absence of a positive market trigger.
Though there had been a serious believe that the observable macroeconomic fundamentals will drive recovery post-election.
On the fixed income and money market, the overnight lending rate expanded by 756 bps w/w to 19.42%, against the previous week’s close of 11.86%, amidst the CBN’s persisting aggressive liquidity mop-ups, wherein NGN643.19 billion worth of bills were sold over four auctions, offsetting inflows from matured OMO bills worth NGN315.32 billion on Thursday last week.
Experts are upbeat that this week, inflows worth NGN677.06 billion — maturing OMO bills (NGN629.94 billion) and bond coupon payments (NGN47.12 billion) — will offer support to system liquidity. However, liquidity mop-up and forex intervention by the CBN are likely to exert upward pressure on the overnight lending rate.
Also last week, activities in the treasury bills market were bearish as system liquidity was in a deficit for most of the week. Consequently, yields rose 21 bps to close the week at 14.61% on average. Sell pressure was evident at the mid (+10 bps) and long (+10 bps) segments, with the 97DTM (+105 bps) and 209DTM (+64 bps) bills, respectively. On the flip side, demand for the 55DTM (-150 bps) led to yield contraction at the short (-7 bps) end of the curve.
Observers say this week, yields are expected to be pressured, as the CBN is expected to maintain its aggressive OMO stance. At the NTB auction scheduled for next week, the CBN will offer NGN153.38 billion – NGN3.38 billion of the 91-day, NGN10.00 billion of the 182-day, and NGN140.00 billion of the 364-day – worth of bills to the market.
Also last week and for the first time in four weeks, the CBN recorded foreign reserve depletion. Precisely, the apex bank penned down FX drawdown of USD199.8 million w/w to USD42.97 billion.
The bank sustained its weekly FX intervention across various windows selling USD210 million distributed across wholesale (USD100 million), SMEs (USD55 million) and invisible (USD55 million) windows. Hence, the naira appreciated by 0.27% to USD361.73 at the I&E window, but was flat at NGN361 at the parallel segment.
Meanwhile, total turnover at the I&E window surged by 103.5% to USD1.66 billion with 99.96% of trades executed within the NGN360-369/USD band. At the forwards market, USD/NGN appreciated across all contracts. Notably, 1-month (+0.28% to NGN364.53), 3-month (+0.26% to NGN371.07), 6-month (+0.37% to NGN382.80), and 1-year (+0.27% to NGN412.24) contracts respectively.