The bearish trends witnessed last week seem to have continued as the trio of stock, fixed income and money markets all trended downwards. Stocks do well when the economy is booming because consumers are making more purchases, companies receive higher earnings with higher demand, and investors feel confident. When stocks go up in value, bonds go down. 

But experts say that when investors are in a panic and selling everything, stocks and bonds both fall at the same time. 

This played out last week, as the All-Share index at the Nigerian Stock Exchange (NSE) declined by 3.0 per cent when compared week by week (w/w). Confirming this, dealers from Afrinvest (West) Africa said the NSE also recorded worsened year to date (YTD) loss of -4.8 per cent and market capitalisation fell to N20.0 trillion. 

Activity level was down as average volume and value traded fell by 25.2 percent and 27.6 percent to 209.5 million units and N2.3 billion, respectively. According to Afrinvest, across sectors under coverage, performance was bearish as only the Oil & Gas index gained 7.4 per cent w/w. The AFR-ICT and Industrial indices, down 5.6 per cent and 3.3 per cent w/w, respectively, just as the Banking and Insurance indices declined by 1.5 per cent and 0.7 per cent w/w, respectively, while the Consumer Goods index also fell by 3bps for the week.

“In the coming week, we expect the bearish sentiment to continue in the absence of any positive catalyst,” the analysts stated. 

Similarly, bonds have lost almost 10 per cent in dollar terms this quarter, extending their year-to-date decline to more than 28 per cent, the worst in the Bloomberg Barclays Global Emerging Markets local currency index. Dealers say that even with benchmark 10-year Naira yields rising above 13 per cent as the budget deficit widened during the pandemic, investors are still getting a negative real return. 

“There could be further upside for yields,” said Samir Gadio, Head of Africa Strategy at Standard Chartered Bank. 

“Pension funds and local investors will probably seek to push yields even higher for now given negative inflation adjusted rates and the sharp decline in bond maturities in May to June. 

“Bonds are finally repricing to more adequate levels from excessively expensive valuations previously,” said Gadio. 

That’s been driven by a rise in short-term interest rates, more long-dated bond supply at auctions and the spike in inflation, he said. 

Furthermore, the Federal Government’s bond auction results show weak appetite for bonds as Debt Management (DMO) fails to raise the target cash amount. At the bond auction last week, the DMO raised a total of N175.24 billion (130 per cent of the total offered amount) across the three tenors offered with a total bid-to-cover ratio of 1.88X. 

Demand for higher rates from investors saw the DMO shifting most of its sale to the long-end (2049 paper), raising a total of N181 billion cash value (25 per cent short of its monthly target of N240 billion cash for the quarter). 

The DMO raised stop rates by 62 basis points (bps) on average, as rates closed at 13.10 per cent 14.00 per cent and 14.20 per cent for the 7-, 15-, and 30-year papers, respectively. In the same vein, Naira on Friday fell significantly at the I&E window below the 411.88th mark to the US Dollar, the first time it would reach that mark in nearly three months. 

Dealers said the decline happened as foreign exchange supply plummeted substantially. 

Similarly, the domestic unit slumped at the parallel market after it remained stable in the past four consecutive trading sessions within the week. Data posted on the FMDQ Security Exchange window where forex is officially traded showed that the currency closed at N412.00 at the NAFEX window on Friday. 

This represents a N0.69 or 0.17 per cent depreciation from N411.31 the rate it traded in the previous session on Thursday. The depreciation became effective as forex turnover decreased by 25.30 per cent with $89.72 million recorded as against the $120.08 million posted in the previous session on Thursday. Naira hit an intraday high of N394.00 and a low of N415.00 before closing at N412.00 on Friday The domestic currency last touched the N412.00 benchmark at the over-the-counter (OTC) market was on March 9, just after it exchanged hands with the dollar at the previous session of March 8 at N411.88 — the second-lowest rate the currency traded in almost three months. 

The Naira also weakened against the U.S. dollar at the unofficial market on Friday, data posted on, a website that collates parallel market rates in Lagos showed. 

The currency closed at N485.00 at the black market, this represents a N0.1 or 0.21 per cent devaluation from N484.00, the rate it has been trading since May 14.

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