DANGCEM, BUACEMENT Drags NGX Indices to -0.1% Weekly Consecutive Loss

Nigerian Stock Exchange Trading Floor. Image Credit: NGX

Losses recorded in the shares of heavyweight cement companies DANGCEM and BUACEMENT, on the first trading day of the week, offset the cumulative gains of 1.9% as of Friday, as the local bourse suffered its second consecutive weekly loss. As a result, the All-Share Index declined marginally by 0.1% w/w to close at 51,705.61 points.

June 24, 2022/Cordros Report

Global Economy

According to the Office for National Statistics (ONS), headline inflation in the UK maintained an uptrend for the tenth consecutive month, settling at 9.1% y/y in May (April: 9.0% y/y) – the highest print since March 1982 (9.1% y/y). The persistent increase in inflationary pressures reflects the troika impact of the (1) soaring emerging prices, (2) lingering post-pandemic supply chain disruptions and (3) passthrough effect of the Russia-Ukraine conflict. Unsurprisingly, price pressures remain significant in the costs of housing & utilities (19.4% y/y vs April: 19.2% y/y), food (8.6% y/y vs April: 6.7% y/y), transportation (13.8% y/y vs April: 13.5% y/y), and furniture & household goods (10.5% y/y vs April: 10.3% y/y. On a month-on-month basis, consumer prices rose by 0.7% (April: 2.5% m/m). Inflationary pressures are still biased to the upside in the near term, with the Bank of England expecting inflation to peak slightly above 11.0% in October. The preceding suggests that the BoE could be pressured to keep increasing the key policy rate even as it continues to plod at a slower pace than the US Fed.

In June, the United States (US) private sector activity weakened to the lowest level since the Omicron-induced slowdown in January. According to the flash estimates from S&P Global, the US composite PMI softened to 51.2 points in June (May: 53.6 points). The moderation was consistent with the renewed downturn in demand as inflation, material shortages, and delivery delays led some customers to pause or lower their purchases of goods. Accordingly, the Manufacturing PMI (52.4 points vs May: 57.0 points) eased to a 23-month low. Elsewhere, the service PMI (51.6 points vs May: 53.4 points) slowed to its lowest level in five months as new orders fell for the first time since July 2020 and at the steepest pace for over two years. We expect private sector activity to slow further in the near term, consistent with the waning demand after the mini-boom in March when the economy was fully reopened. In addition, we expect the growth to be hampered by higher interest rates, supply shortages and the rising cost of living.

Global Markets

This week, global stocks posted broadly bullish performances as signs of slowing economic growth and lower oil and commodity prices eased inflation fears temporarily. Accordingly, US (DJIA: +2.6%; S&P 500: +3.3%) stocks were poised to break a string of weekly losses as investors digested the Fed’s latest assertions on fighting inflation. In the same vein, European (STOXX Europe: +0.2%; and FTSE 100: +0.5%) stocks were on track to close higher as investors cut back bets on the extent of monetary policy tightening by major central banks. Asian markets posted positive performances, as the Nikkei 225 (+2.0%) ended the week higher taking a cue from the rally on Wall Street amid gains in chip-related shares. Similarly, the SSE (+1.0%) advanced as positive signals of economic stimulus from Beijing fueled gains in tech and auto stocks. The Emerging (MSCI EM: -0.9%) market declined as losses in South Korea (-3.1%) offset gains in China (+1.0%). Similarly, the Frontier (MSCI FM: -0.9%) market closed lower following selloffs in Kuwait (-2.4%).



According to the National Bureau of Statistics (NBS), VAT collection rose to a record high, increasing by 18.6% y/y to NGN588.60 billion in Q1-22 (Q1-21: NGN496.39 billion). The higher VAT collection during the review period was primarily driven by increased local VAT (+53.0% y/y to NGN344.04 billion) and import VAT (+26.7% y/y to NGN126.57 billion) collections. The increased local collections synchronised neatly with the improvement in domestic consumption amidst elevated inflationary pressures. Meanwhile, non-import foreign VAT collections declined by 31.3% y/y to NGN117.99 billion, negating the upturn in foreign CIT (+75.3%) collection during the review quarter. Finally, we highlight that VAT collections increased by 4.4% on a quarter-on-quarter basis. In the absence of any major shock to the domestic economy, we expect the lingering recovery in domestic demand to remain supportive of VAT collections even as inflationary pressures remain elevated. Accordingly, we expect the combined impact of higher VAT and CIT collections to support the FGN’s non-oil revenue in 2022E.

As published in the May Domestic & Foreign Portfolio Investment report of the Nigerian Exchange Limited (NGX), the total transaction value at the local bourse surged by 195.0% m/m to NGN607.25 billion in May (April: NGN205.88 billion). We believe the significant increase was primarily driven by Union Bank’s transfer of 93.4% of its issued share capital to Titan Trust Bank. Accordingly, domestic transactions (92.6% of total transaction value) rose by 214.4% m/m to NGN562.15 billion (April: NGN178.80 billion), underpinned by a 341.3% growth in domestic institutional investors’ transactions. Elsewhere, although foreign transactions increased by 66.5% m/m to NGN45.10 billion (April: NGN27.08 billion), their contribution to total transactions dropped to a new record low of 7.4% in May. In the short to medium term, we expect domestic investors to continue to dominate market performance, although rising FI yields may constrain buying activities amid uncertainties associated with an election cycle. Also, FPIs who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to sustained FX liquidity challenges and interest rate hikes by central banks in advanced countries.

Capital markets


Losses recorded in the shares of heavyweight cement companies DANGCEM and BUACEMENT, on the first trading day of the week, offset the cumulative gains of 1.9% as of Friday, as the local bourse suffered its second consecutive weekly loss. As a result, the All-Share Index declined marginally by 0.1% w/w to close at 51,705.61 points. Notably, the profit-taking activities in BUACEMENT (-3.2%), DANGCEM (-0.7%), NB (-5.5%), and WAPCO (-3.2%), led the weekly loss. Consequently, the MTD and YTD return settled at -2.4% and +21.0%, respectively. However, activity levels were stronger than the prior week, as trading volume and value increased by 19.1% w/w and 19.2% w/w, respectively. Analysing by sectors, the Consumer Goods (-2.0%), Industrial Goods (-1.9%) and Insurance (-1.4%) indices declined, while the Banking (+0.3%) and Oil and Gas (+0.3%) indices advanced.

We expect the choppy trading pattern that played out this week to persist in the week ahead, as investors continue to cherry-pick stocks with attractive dividend yields, and at the same time remain cautious about leaving gains in the market. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.

Money market and fixed income

Money market

In line with our expectations, the overnight (OVN) rate stayed in the double-digit region through the week. It eventually rose by 308bps w/w to close at 14.0% as system liquidity remained constrained. The system was pressured by debits for the FGN bond (NGN226.13 billion) and FX auctions in the absence of any significant inflows.

In the coming week, we expect the OVN rate to remain elevated, as outflows for CBN’s weekly auctions (OMO, FX and NTB) will likely keep system liquidity strained with no significant inflow expected.

Treasury bills

The bears continued to dominate the Treasury bills secondary market this week as the depressed system liquidity triggered sell-offs from local banks as they sought liquidity to fund their daily obligations. Consequently, the average yield across all instruments expanded by 26bps to 4.9% – average yield inched higher by 59bps and 15bps to 5.2% and 4.8% at the OMO and NTB segments, respectively.

We still expect the average yield on T-bills to maintain its uptick next week, given the tight liquidity picture. Also, we expect quiet trading at the NTB market as participants position for next week’s PMA, with NGN174.09 billion worth of maturities on offer.


The Treasury bonds secondary market traded with bullish sentiments this week, as investors covered for lost bids at Monday’s PMA. As a result, the average yield across all instruments contracted by 5bps to 11.1%. Across the benchmark curve, the average yield contracted at the short (-4bps), mid (-1bp), and long (-11bps) segments following buying interests in the MAR-2024 (-19bps), APR-2032 (-5bps), and APR-2037 (-28bps) bonds, respectively. At the primary auction, the DMO offered instruments worth NGN225.00 billion to investors through re-openings of the 13.53% FGN MAR 2025 (Bid-to-offer: 1.8x; Stop rate: 10.10%), 12.50% FGN APR 2032 (Bid-to-offer: 1.1x; Stop rate: 12.50%) and 13.00% FGN JAN 2042 (Bid-to-offer: 4.5x; Stop rate: 13.15%) bonds. Total subscriptions across the offered instruments settled at NGN552.36 billion, with the DMO eventually allotting instruments worth NGN259.28 billion, resulting in a bid-cover ratio of 2.5x.

We reiterate our view of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.

Foreign Exchange

Nigeria’s FX reserves recorded another accretion this week, as it grew by USD220.04 million w/w to USD38.88 billion (23 June). Across the FX windows, the naira appreciated by 0.3% to NGN420.17/USD at the I&E window (IEW) but depreciated by 0.8% to NGN614.00/USD at the parallel market. At the IEW, total turnover (as of 23 June) declined by 25.5% WTD to USD427.94 million, with trades consummated within the NGN410.00 – NGN453.55/USD band. In the Forwards market, the naira depreciated at the 1-month (-0.2% to NGN420.60/USD), 3-month (-0.3% to NGN427.50/USD), 6-months (-0.4% to NGN438.67/USD) and 1-year (-0.3% to NGN461.63/USD) contracts.

Although the CBN has enough liquidity to support the FX market over the short term, we highlight that foreign inflows are paramount for sustained FX liquidity over the medium term. Considering the tepid accretion to the reserves given the (1) low crude oil production level and (2) elevated PMS under-recovery costs, FPIs which have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels in the medium to long term. 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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