NSE LIVE! Investors chase banking stocks ahead CBN monetary review

In from Success Allantee…

Banking stocks were toasts of investors last week at the Nigerian stock market as investors anticipated the possible decisions of the Monetary Policy Committee (MPC), which meets between Monday September 21 and Tuesday September 22.

Financial services indices returned the highest gain at the Nigerian Stock Exchange (NSE) last week, led by banking sector index, which recorded more than double of the average return by the overall market. The NSE Banking Index, which tracks the traditionally most active banking sector, recorded a week-on-week return of 5.07 per cent, the highest by any tracked group indices. The NSE Insurance Index placed second with a gain of 3.73 per cent.

Gains across the sectors underlined the widespread buying sentiments that dominated the stock market during the week, in spite of intermittent profit-taking transactions. The All Share Index (ASI) – the common value-based index that tracks prices of all quoted equities on the NSE, recorded a week-on-week gain of 2.17 to close at 30,332.68 points as against its week’s opening index of 29,689.08 points.

The NSE Premium Board Index, which tracks the trio of FBN Holdings, Dangote Cement and Zenith Bank International, rose by 0.79 per cent. The Main Board Index, which tracks stocks on the main board, outperformed the average index with a return of 2.93 per cent. The NSE 30 Index, which tracks the 30 most capitalised stocks, rose by 3.56 per cent. The NSE Consumer Goods Index rose by 3.18 per cent. The NSE Oil and Gas Index gathered 2.73 per cent. The NSE Lotus Islamic Index, which tracks ethical stocks, gained 0.86 per cent. The NSE Industrial Goods Index chalked up 0.67 per cent while NSE Pension Index rose by 3.30 per cent.

Aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE) closed at the weekend at N10.425 trillion as against the week’s opening value of N10.204 trillion, representing an increase of 2.17 per cent and N221 billion. The uptrend moderated the negative average year-to-date return to -12.48 per cent.

Price trend analysis showed increased investors’ appetite for quoted stocks. There were 56 advancers against 22 decliners last week, a marked improvement on 32 gainers and 37 losers recorded two weeks ago. A total of 112 stocks closed flat, lower than 121 flat stocks in the previous week. Penny stocks dominated the top price movement list, in percentage terms, with Aiico Insurance leading the gainers with a gain of 16.05 per cent to close at 94 kobo. Continental Reinsurance followed with a gain of 15.29 per cent to close at 98 kobo. E-Tranzact rose by 15.17 per cent to close at N2.43. Portland Paints and Products Nigeria returned 15.13 per cent to close at N4.11. Caverton Offshore Services Group rallied 14.63 per cent to close at N3.37 while Eterna rose by 11.43 per cent to close at N1.95 per share.

On the downside, Vanleer Containers led the decliners with a drop of 9.64 per cent to close at N9.37. Costain declined by 9.38 per cent to 58 kobo. Honeywell Flour Mills dropped by 7.55 per cent to close at N2.45. Cutix declined by 5.88 per cent to N1.60 while Diamond Bank dropped by 5.56 per cent to close at N3.40 per share.

Total turnover stood at 1.38 billion shares worth N13.86 billion in 17,984 deals were last week. The financial services sector remained the most active with 1.14 billion shares valued at N7.39 billion in 10,034 deals; representing 82.12 per cent and 53.31 per cent of the total equity turnover volume and value respectively. The conglomerates sector followed with a turnover of 94.562 million shares worth N1.345 billion in 964 deals. The third place was occupied by the consumer goods sector with 54.146 million shares worth N2.987 billion in 3,328 deals.

The trio of African Alliance Insurance Company Plc.; Zenith International Bank Plc. and FBN Holdings Plc were the most active, jointly accounting for 472.643 million shares worth N3.298 billion in 3,593 deals, representing 34.16 per cent and 23.79 per cent of the total equity turnover volume and value respectively.

Besides common equities, a total of 1,189 units of Exchange Traded Products (ETPs) valued at N1.282 million were traded in 24 deals last week compared with a total of 1,526 units valued at N695,885.40 traded in 17 deals two weeks ago.

Also, a total of 3,750 units of Federal Government Bonds valued at N3.299 million were traded in four deals compared with a total of 3,675 units valued at N3.611 million traded in eight deals in the previous week.

The improved investors’ appetite for banking stocks came as most analysts expected the next meeting of the Monetary Policy Committee (MPC of the Central Bank of Nigeria (CBN) to make policy changes and boost liquidity in the financial markets.

On the heels of the decision of JP Morgan to remove Nigerian sovereign bonds from its GBI-EM Index and the implementation of the Treasury Single Account (TSA), the MPC’s meeting is expected to focus on exchange rate management, economic growth and financial system liquidity.

At the end of its July 2015 meeting, the MPC maintained the Monetary Policy Rate (MPR) and the Liquidity Ratio (LR) at 13% and 30% respectively, and maintained the Cash Reserve Requirement (CRR) on public and private sector deposits at 31%.

Most analysts expect the apex bank to maintain the MPR at 13 per cent, while reducing the CRR.

“The recent domestic and international economic and financial market developments provide strong arguments for the MPC to change its policy stance in order to increase the level of liquidity in the financial market to support credit growth in the economy,” FSDH Merchant Bank Limited stated in a preview.

According to analysts, the implementation of the TSA has impacted financial system liquidity and increased volatility in the money market, setting up the tasks of the MPC meeting on how to improve currency market liquidity, especially given the apex bank and government’s stand that devaluation is not an option.

Afrinvest Securities stated that there could be two scenarios at the end of the MPC meeting. In the first option, the MPC may reduce CRR to 27.0% in order to repress the strains of the TSA implementation on financial system liquidity and banking cost of funds; leaving MPR and official exchange rate unchanged at 13.0% and N197.00/US$1.00 respectively. In the second option, the MPC may leave all policy rates unchanged and continue to use administrative measures to ensure financial stability within the economy.

“We place a higher weighting on the first scenario with a 70.0% probability relative to the second scenario at a probability of 30.0%. This is based on the CBN’s need to keep liquidity at a level just enough to ensure a functioning and stable money market without increasing pressure on the external sector variables, amid global financial market conundrum, falling oil prices and exchange rate volatility,” Afrinvest Securities stated.

FSDH noted that the weak global economic recovery and the negative impact on oil price is a major external shock, and this calls for a monetary policy action to boost credit growth to develop the non-oil sector of the Nigerian economy.

“In our view, the most cost effective policy response from the CBN is through the reduction in the CRR. A reduction in the CRR to 26.09% will completely neutralise the impact of the TSA implementation on the FGN Deposits, while a reduction of CRR to 22.79% will completely neutralise the impact of the implementation of TSA on all government deposits. Any reduction beyond what we mentioned here will inject more liquidity into the system than pre-TSA implementation,” FSDH stated

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