The Nigerian equities market emerged the best amongst its peers in the world in 2020 as All Share Index (ASI) delivered a positive return of 50.03% to investors. The performance was far ahead of S&P 500 and Dow Jones Industrial Index of 16.26% and 7.25% respectively. Renewed investor optimism coupled with improved economic conditions and low fixed income yields were some of the factors that contributed to the bullish performance in 2020.
Mr. Oscar Onyema, Chief Executive Officer, Nigerian Stock Exchange, during the annual market performance recap and outlook attributed the performance to renewed investor optimism coupled with improved economic conditions and low fixed income yields.
“The Exchange, renewed investor optimism coupled with improved economic conditions and low fixed income yields, propelled a year end bull run. Of 93 global equity indices tracked by Bloomberg, the NSE All Share Index (ASI) emerged the best-performing index in the world, surpassing the S&P 500 (+16.26%), Dow Jones Industrial Index (+7.25%) and other global and African market indexes, to post a one-year return of +50.03%,” he said.
However, turnover in the fixed income markets for the month ended December 31, 2020 grew by 35.31% month-on-month with turnover in the last month of the year standing at N19.89trillion. The figure is N5.19trillion higher than the turnover recorded in the month November. Also, turnover in December 2020 was better by 20.91% or N3.44 trillion compared to the figure in December 2019.
Breakdown of activities in the FIC markets done on the platform of the FMDQ showed that foreign exchange (FX) and money market transactions were the highest contributors to turnover in December 2020 as they jointly accounted for 59.16% of the total FIC market turnover, while OMO Bills and money market transactions accounted for majority of turnover in 2020, jointly contributing 50.54% to total turnover.
Total FX market turnover in December 2020 was $19.72billion (N7.79trn), representing a MoM increase of 81.25% ($8.84bn) from the turnover recorded in November 2020 $10.88billion (N4.21trn).
According to market sources, the performance was majorly driven by increased FX intervention sales by the Central Bank of Nigeria (CBN) to dealing member banks to reduce the build-up of unmet Clients’ FX demand in December 2020.
Analysis of the growth in FX market turnover indicates that FX Spot and FX Derivatives turnover increased MoM by 60.00% ($2.55bn) and 94.87% ($6.29bn) respectively in December 2020, with 71.15% of the increase in turnover driven by the turnover growth in FX Derivatives.
In the OTC FX Futures market, the near month contract (NGUS DEC302020) with a total outstanding notional value (NV) of $2.20billion matured and was settled, whilst a new long-term (60-month or 60M) contract, NGUS DEC312025 was introduced at a Futures price of $/N608.10, representing3.24%($/N19.07) MoM increase in the futures price, compared to the offer rate ($/N589.03) of the previous 60M contract (NGUSNOV262025).
The total notional value of open OTC FX Futures contracts as at December 31, 2020 stood at c.$8.09billion, representing a further decrease of 9.51% ($0.85bn) from its value as at November30, 2020 (c.$8.94bn), and continuing its downward trend since May 2020.
The average CBN Official Spot $/N exchange rate remained constant at $/N379.00 in December 2020. Conversely, the Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window, losing 2.07% ($/N8.01) to close at an average of $/N394.92in December 2020 from $/N386.91 recorded in November 2020.
Similarly, the Naira depreciated against the US Dollar in the parallel market, losing 0.17% ($/N0.81) to close at an average of $/N476.05 in December 2020 from $/N475.24 recorded in November 2020. However the average spread between the exchange rates in the formal (I&E FX Window) and irregulated (parallel) FX markets reduced by 8.15% to $/N81.13 in December 2020, from $/N88.33 in November 2020 due to the higher depreciation of the Naira in the I&E FX Window. Fixed Income (FI) Market (T.bills7, OMO bills and FGN8Bonds)
In the primary markets, average discount rates for the 91-day, 182-day and 364-day T.bills increased MoM by an average of 0.68 percentage points (ppts), to close at a range of 0.03% -1.85%in December 2020, while the discount rates for CBN OMO bills decreased MoM by an average of 1.01pptsto close at a range of 1.78% -6.07% in December 2020.
Similarly, the coupon rates of the 15Y and 25Y FGN Bond issuances increased by an average of 1.58ppts to close at a range of 6.95% -7.00% in December 2020.
The total value of T.bills and OMO bills outstanding as at December 31, 2020 remained constant MoM at N2.72tillion and N5.37trillion respectively, whilst the total value of FGN Bonds outstanding as at December 31, 2020 increased MoM by 0.28% (N0.03trn) to N10.70trillion from N10.67trillion recorded as at November 30, 2020
Turnover for T.bills and FGN Bonds increased by 60.33% (N0.73trn) and 15.82% (N0.28trn)to N1.94trn and N2.05trn respectively, resulting in an increase in their trading intensities to 0.71and 0.19 in December 2020 from 0.44 and 0.17 recorded in the previous month. Conversely, OMO bills’ turnover decreased MoM by 25.43% (N1.33trn) to N3.90trillion in December2020, resulting in a decrease in its trading intensity to 0.84 from 0.92 recorded in November 2020.
In December2020, 6M –12MT.bills were the most traded sovereign debt securities, accounting for 23.70% (N1.87trn)of the total fixed income market turnover, whilst 20Y -30Y FGN Bonds remained the most active long-term sovereign debt securities, accounting for 7.86% (N0.62trn) of the total fixed income market turnover.
The FMDQ disclosed that there was a general increase in yields across the sovereign yield curve between November and December 2020. “The spread between the 3M and 30Y sovereign debt securities increased by 47basis points (bps)to 710bps in December 2020 from 663bps in November 2020, indicating a steepening of the sovereign yield curve.”
Meanwhile, weighted average yields on short-term and medium-term maturities increased MoM by 1.36% and 2.99% respectively in December2020, whilst the weighted average yields on long-term maturities decreased by 1.37%. Further, inflation-adjusted yields remained negative across the yield curve in December2020.
Total turnover in the money market segment increased MoM and YoY by 76.89% (N1.73trn) and 48.51% (N1.30trn) respectively to a total of N3.98trillion in December 2020. This was jointly driven by the corresponding MoM and YoY increases in Repo/Buy-backs and Unsecured Placements/Takings turnover to N3.42trillion and N0.56 trillion respectively in December 2020. However, average O/N11and OBB12 rates decreased by 26bps and 18bps to close at 1.36% and 1.01% respectively in December 2020 from 1.62% and 1.19%recorded in November 2020 Market surveillance showed that despite the increase in overall market activity, the total number of executed trades reported on the Bloomberg E-Bond Trading System decreased MoM by22.17% (961) to 3,374 in December 2020 from 4,335 recorded in November 2020. “This was jointly driven by the MoM decrease in the number of trades recorded across all product categories -T.bills, OMO bills and FGN Bonds in December 2020,” FMDQ disclosed.
