November 25, 2021/United Capital Research
Yesterday, the Central Bank of Nigeria (CBN) conducted an NTB Primary Market Auction (PMA), rolling over N118.7bn worth of bills. In line with the recent trend in the market, investors’ appetite for treasury paper remained strong, as the auction was oversubscribed by 3.5x. Stop rates for the 91-day, and 182-day bills remained unchanged at 2.5%, 3.5%, respectively. However, rates on the longer tenor paper dipped for the fourth consecutive auction by 61bps to close at 5.89%.
At the auction, the CBN oversold, allotting N215.7bn worth of bills (as against N118.7bn on offer). The increased demand for treasury bills continues to be aided by the cautious investor stance towards the bonds market.
Looking ahead, we expect to observe some buying interest in the secondary NTB market as unmet bids get filled. For our near-term equities market outlook, we do not expect the sustained moderation in short term rates to lead to an asset switch, due to a confluence of factors. Firstly, we believe institutional investors will continue to find yields in the fixed income space attractive. Also, we expect the market to continue its side-ways trend, with sell pressures dominating as investors book profits following recent rallies in some blue-chip tickers. However, should stop rates continue to moderate in the medium term, recent valuations may provide some respite for the market, which is relatively undervalued at a P/E ratio of 9.7x, significantly lower than its five-year historical average of 13.7x. We believe the emergence of some positive broad-based macroeconomic fundamentals such as continued disinflation, improved oil prices and modest GDP recovery could provide support for a mild bullish rally towards the end of the year and early in 2021, as investors position themselves for FY-2021 earnings.
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