Nigerian Stock Exchange Wants Trading Rule Changes; Nigerian Stocks See Four Consecutive Days of Gains

Written by Ann Brown

Jul 14, 2013

What shaped the past week

Global Markets

This week marked the start of earnings seasons and Global markets, specifically the U.S and European markets, opened the week positive on speculation Global companies will report better-than-forecasted earnings and an improvement in Euro economic data. However, by mid-week markets reversed gains on a report showing company earnings reported were the weakest in four years. Subsequently, equity markets gained after the U.S Federal Reserve Chairman, Ben Bernanke stated that the U.S will continue to need stimulus.

Domestic Economy: The Nigerian Stock Exchange is proposing some changes to trading rules. The proposal will see the NSE suspend trading activities in the event of extraordinary market volatility with the introduction of market-wide circuit. This circuit breaker will be triggered by a 5% decline in the market, and will last for 30 minutes. The reasoning behind implementing this strategy is to ensure that there are no sharp swings in the market. The NSE is calling for comments on the proposed new rule and is yet to finalize.

Equities: The Nigerian equity market recorded improved volumes, accruing an average daily turnover of NGN3.8 billion, a welcome 25% increase from the previous week, though this was driven by the cross trade in UBA shares – 492 million shares worth NGN4.1 billion. The market opened the week in the red, dipping 37bps Monday as sell pressure mounted on heavyweight Financials and Consumer Goods shares. The index subsequently booked four consecutive days of gains, thanks to sustained interest in large cap DANGCEM and NB (which further surged 2.0% WoW and 1.0% WoW accordingly). The bulls nudged the NSE ASI to a 1.24% WoW gain, ramping the YTD return to 33%.

Fixed Income: The Central Bank remained active in the Treasury market this week, announcing three OMO auctions totaling NGN270 billion, though demand remained tepid considering stop rates were significantly below current market levels. The 226-Day and 224-Day bills were offered at a stop rate of 13.2% vs 14.2% which is the corresponding yield in the secondary market. Consequently, trading in the secondary T-bills and Bonds market picked pace, with yields up slightly by an average of 3bps in the T-bills market. Following the release of the July Bond auction calendar which shows bond supply by the Debt Management Office (DMO) will shrink c.47%, demand momentum improved with yields dipping a marginal 3bps.