Bears Sustain Hold as Profit-Taking Drives NGX ASI to -2.6% Weekly Decline

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The bears dictated proceedings in the domestic bourse, as profit-taking activities dominated market performance, with the All-Share Index recording declines on all the trading days of the week. Precisely, the NGX ASI declined by 2.6% w/w to close at 42,167.91 points. 

December 3, 2021/Cordros Report

Global economy

According to the Chinese National Bureau of Statistics (NBS), China’s manufacturing PMI rose to 50.1 points in November (October: 49.2 points) after two consecutive months of being below the 50-points psychological benchmark. The return to the expansionary range was supported by the ease in power shortages and the decline in raw material prices. Accordingly, the production index (52.0 points vs October: 48.4 points) returned to the expansionary range while new orders (49.4 points vs October: 48.8 points), supplier delivery time (48.2 points vs October: 46.7 points) and employment (48.9 points vs October: 48.8 points) indices also increased. Meanwhile, the non-manufacturing PMI (52.3 points vs October: 52.4 points) maintained a stable recovery, albeit slowly amidst the introduction of new containment measures to limit the spread of a new outbreak. We expect overall output expansion to remain sluggish over the short term due to the impact of (1) intermittent new COVID-19 cases, (2) property investment slowdown and (3) persistent semiconductor chip shortages.

In line with our expectations, Euro Area’s consumer prices sustained their upward pressure in November. According to the flash estimates released by Eurostat, Euro Area’s consumer prices rose to 4.9% y/y in November (October: +4.1% y/y) – the highest since 1997 when the statistical agency started keeping the data series. The persistent inflationary pressure continues to reflect the impact of (1) surging energy prices, (2) demand recovery following the sustained ease of COVID-19 restrictions, and (3) persistent supply chain disruptions. Accordingly, the most significant price increases were seen in cost of energy (+27.4% y/y vs October: +23.7% y/y), services (+2.7% y/y vs October: +2.1% y/y), non-energy industrial goods (+2.4% y/y vs October: +2.0% y/y) and food, alcohol & tobacco (+2.2% vs October: +1.9% y/y). On a month-on-month basis, consumer prices rose by 0.5% in November (October: +0.8% m/m). We expect the headline inflation to continue to be above the ECB’s 2.0% target over the short term due to the persistent impact of (1) elevated global gas prices and (2) supply chain disruptions on domestic price levels.

Global markets

Global equities remained under pressure due to concerns surrounding the Omicron COVID-19 variant, with investors awaiting clarity about the heavily mutated variant the potential impact on global recovery. In line with this, the US’ confirmation of its first case of the new Omicron COVID-19 variant rattled Wall street. However, trading proceedings at the week’s twilight indicate investors seem optimistic that the new variant will not be as economically disruptive as first feared. Nonetheless, we highlight that the benchmark DJIA (-0.7%) and S&P 500 (-0.4%) are poised to close the week lower. Meanwhile, European equities (STOXX 600: +0.3%; FTSE 100: +1.2%) are set to end the week positive despite similar worries, following news of the EU greenlighting the administering of vaccines tailored to the new variant. Asian equities were mixed as the Chinese market (SSE: +1.2%) closed higher while Japan’s benchmark index, the Nikkei 225 (-2.5%), shed points. Elsewhere, the MSCI EM (+1.1%) index posted a positive return, driven by the gain in China, while the MSCI FM (-0.7%) index closed lower, following a 2.4% loss in the Kuwaiti market.


The oil sector continues to weaken as the industry faces oil production challenges. According to the November edition of the OPEC Monthly Oil Market Report (MOMR), Nigeria’s average crude oil production (excluding condensates) settled at 1.35mb/d in October (September: 1.40mb/d) – 19.6% below the 1.68mb/d which the latest agreement (as of the 2nd December meeting) permits. As a result, average crude oil production declined by 13.5% y/y in 10M-21 to 1.39mb/d (10M-20: 1.61mb/d). The decline in production witnessed during the year was due to the impact of (1) infrastructure decay and (2) complexities of operating the oil wells, both of which led to terminal shut-ins in some of the country’s major production facilities – Qua Iboe, Forcados, and Escravos. Based on the preceding, we expect average crude oil production (excluding condensates) to settle at 1.63mb/d in 2021FY (2020FY: 1.78mb/d). That said, we do not expect a material change to the current development over the short term, given the nature of challenges which mostly involve a dearth of infrastructure investment.

The amount disbursed by the Federation Accounts Allocation Committee (FAAC) to the three tiers of government in November (based on October revenue) reversed the previous month’s rise as it declined by 9.2% m/m to NGN671.91 billion (October: NGN739.97 billion). We understand that revenue decline across Companies Income Tax (CIT), Petroleum Profit Tax (PPT), oil & gas royalties and VAT receipts were responsible for the disbursement decline in November. Accordingly, the FGN received 42.3% or NGN284.29 billion (October: NGN301.31 billion), State Governments received NGN231.34 billion (October: NGN274.48 billion), while the Local Governments received NGN156.28 billion (October: NGN164.18 billion). We maintain our expectations that the amount to be shared by the tiers of government would remain stable at current levels (NGN650.00 billion to NGN750.00 billion) over the medium term. Our prognosis is hinged on the impact of (1) general improvement in economic activities and (2) rally in oil prices, which would partly offset the decline in crude oil production volume.

Capital markets


The bears dictated proceedings in the domestic bourse, as profit-taking activities dominated market performance, with the All-Share Index recording declines on all the trading days of the week. Precisely, the NGX ASI declined by 2.6% w/w to close at 42,167.91 points. Notably, selloffs of large caps MTNN (-12.1%), ZENITHBANK (-3.5%), GTCO (-3.6%), SEPLAT (-6.5%) and STANBIC (-2.6%) drove the weekly loss. Consequently, the MTD and YTD return settled at -2.5% and -4.7%, respectively. This week, activity levels were weaker, as trading volumes and value decreased by 62.8% w/w and 43.9% w/w, respectively. The performances across sectors were broadly negative, as all our coverage indices – the Oil & Gas (-4.5%), Banking (-2.3%), Consumer Goods (-0.6%) and Industrial Goods (-0.1%) – save for the Insurance (+3.0%) index recorded declines.

We expect bearish sentiments to remain predominant next week without any positive triggers to turn the tide for Nigerian equities. Nonetheless, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.

Money market and fixed income

Money market 

The overnight (OVN) rate expanded slightly by 8bps w/w to 15.8% this week, in light of the funding pressures for the CBN’s weekly OMO (NGN37.00 billion) and FX auctions that offset inflows from OMO maturities (NGN54.30 billion) and FGN bond coupon payments (NGN5.63 billion).

In the coming week, we envisage the OVN rate would remain elevated in the double-digit region as expected debits for CRR and CBN’s weekly auctions inflows are likely to outweigh expected inflows from OMO maturities (NGN50.00 billion).

Treasury bills

Bullish trading sentiments persisted in the Treasury bills secondary market on the back of declining primary market offer rates in the NTB segment, where market participants have focused their attention. Accordingly, the average yield across all instruments contracted by 25bps to 4.9%. Across the market segments, most of the yield decline was witnessed at the NTB space (-35bps to 4.5%) while the OMO segment pared by 2bps to 5.5%.  The CBN sold NGN37.00 billion worth of bills to market participants at this week’s OMO auction and maintained stop rates across the three tenors, as with previous auctions.

We envisage that lower yields on T-bills would persist following expected improved buying activities in reaction to the lower rates on recently (re)issued bills.


Proceedings in the Treasury bonds secondary market closed the week on a mixed note, as investors remained on the sidelines but continued to cherry-pick instruments across the curve. Consequently, the average yield was unchanged 11.4%. Across the benchmark curve, the average yield expanded at the short (+23bps) end as investors sold off the JAN-2022 bond, but declined at the mid (-14bps) and long (-1bp) segments following improved demand for the JUL-2030 (-17bps) and MAR-2035 (-8bps) bonds, respectively.

In the short term, we expect yields to oscillate around current levels, driven by thin maturities and deliberate efforts by the DMO to reduce domestic borrowing costs for the government. Also, we expect non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand.

Foreign Exchange

Nigeria’s FX reserve declined for another week following efforts by the CBN to support the naira at the official channels. Particularly, the gross reserves closed lower by USD124.86 million w/w, to USD41.15 billion (1st December 2021). Meanwhile, the naira appreciated by 0.1% w/w to NGN414.73/USD at the I&E window (IEW) but depreciated by and 0.2% w/w to NGN565.00/USD at the parallel market. At the IEW, total turnover (as of 2nd December 2021) declined by 22.7% WTD to USD772.53 million, with trades consummated within the NGN404.00 – 457.86/USD band. In the Forwards market, the 1-month (NGN416.07/USD), 3-month (NGN421.33/USD), 6-month (NGN430.47/USD) and 1-year (NGN448.13/USD) contracts traded flat relative to the greenback.

In our opinion, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR. However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low. Thus, FPIs which have historically supported supply levels in the IEW (53.8% of FX inflows to the IEW in 2019FY) will be needed to sustain FX liquidity levels. Hence, we think (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be significant in attracting foreign inflows back to the market.


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