Nigerian Stocks: Worth a Second Look

Nigerian Stocks: Worth a Second Look

Tuesday, September 28, 2021 / 08:22 AM / by Coronation Research / Header Image Credit: Ecographics

Now that we are almost three-quarters through the year, Nigeria stock market investors might want to take a look at what factors and sectors have driven the market’s performance and why. Proshare Nigeria Pvt. Ltd. FX

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) weakened by 0.49% to a record low of N414.90/US$1, following a 17.34% fall in turnover in the space. Elsewhere, the Central Bank of Nigeria’s FX reserves rose by 2.04% to US$36.09bn – its highest level in over six months. We maintain our view that the FGNs US$4.0bn Eurobond issuance and the US$3.3bn allocation from the International Monetary Fund’s (IMF) Special Drawing Right (SDR) will help shore up the external reserves and provide some respite to the exchange rate pressure. Amidst these developments, we expect the I&E Window rate to trade range-bound in the near term

Bonds & T-bills

Last week, the Federal Government of Nigeria (FGN) bond market saw renewed bullish sentiments as market players sought to cover lost auction bids in the secondary market. Additionally, expectations of reduced local currency bond supply, and a consequent decline in bond yields following the FGN’s US$4.00bn Eurobond issuance, led to increased activity in the bond space. Consequently, the average benchmark yield for bonds fell by 7bps w/w to close at 11.23%. The yield of an FGN Naira-denominated bond with 10-years to maturity rose by 8bps to 12.02%, the yield on the 7-year bond closed flat at 11.60%, while the yield on the 3-year bond fell by 12bps to 9.15%. At the FGN Bond primary auction, the Debt Management Office (DMO) allotted a total of N277bn (US$647m) to investors, the highest total issuance since the June 2021 auction. This brings the total bond issuance in 2021 so far to a record N2.19trn (FY2020: N1.88trn). Stop rates were unchanged on the February 2028 (11.60%) and March 2036 (12.75%) bonds. However, the stop rate on the March 2050 bond expanded by 20bps to 13.00%. Demand at the auction was relatively strong, with a recorded total subscription of N334.32bn and a bid-to-offer ratio of 2.2x. The auction outcome supports our view that a future rise in bond yields, if any, is unlikely to be sharp over the coming months due to unaggressive borrowing as the DMO manages its debt service […]

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