Welcome once again to our daily market report where we look at the daily performance of major economic indicators and highlights from trading sessions and key statistics such as Treasury Bills, bonds, FX rates, inflation, oil price.
This report is dated April 16th, 2019.
***Nigeria’s Inflation Dips to 11.25% in March 2019 *** – NBS
Key Indicators
Bonds
The FGN Bond market remained slightly bullish in today’s session, with yields lower by c.4bps following some demand interest on some short and mid tenured maturities. The 2027s and 2028s remained the most actively traded, with sustained demand interest on the 27s, and some profit taking on the 28s up to c.14.58%.
We expect activities to be largely order driven in subsequent sessions, as market players wind down ahead of the Easter break. A slightly more bearish positioning is however anticipated as the FGN Bond auction for the month draws closer, whilst coupon payments on the 2037s expected Thursday may spur slight interest on that end of the curve.
Treasury Bills
The T-bills market remained slightly bearish as market players were constrained by the tight system liquidity levels. We however witnessed slight interests on some mid tenors ahead of the NTB auction scheduled for tomorrow.
The CBN will offer a total of N58.50bn of the 91, 182 and 364 day bills at the NTB auction scheduled for tomorrow, and we expect rates to clear slightly lower than their previous levels due to the smaller volumes on offer and absence of an OMO auction in the previous week.
Money Market
Rates in the money market declined sharply by c.25pct, as banks were able to access the CBN’s SLF for their funding needs. The OBB and OVN rates consequently ended the session at 16.14% and 17.43%, with system liquidity still estimated at c.N150bn negative.
We expect rates to remain relatively unchanged tomorrow, as there are no significant inflows anticipated.
FX Market
At the Interbank, the Naira/USD rate was stable at N306.95/$ at the spot market, while the SMIS rate depreciated marginally by 0.13% to N356.26/$. The NAFEX closing rate in the I&E window appreciated slightly by 0.02% to N360.23/$, as market turnover rose by 261% to $403m. At the parallel market, the cash and transfer rates remained unchanged at N358.50/$ and N364.00/$ respectively.
Eurobonds
The NGERIA Sovereigns traded on a relatively flat note, with some demand interests witnessed in the belly of the curve (30s, 31s & 32s).
In the NGERIA Corps, we witnessed renewed interests in the UBANL 22s, whilst investors took some profit on the FIDBAN 22s. The ETINL 24s also held on to gains from the previous session.
Contact us:
Dealing Desk: 01-6311667 Email: research@zedcrestcapital.com Disclaimer: Whilst proper and reasonable care has been taken in the preparation and accuracy of the facts and figures presented in this report, no responsibility or liability is accepted by Zedcrest Capital or its employees for any error, omission or opinion expressed herein. This report is not an investment research or a research recommendation and should not be regarded as such. The information provided herein is by no means intended to provide a sufficient basis on which to make an investment decision.
How COVID-19 and low yield affect Nigeria’s pension funds
Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance, and the pension fund investors of blissful retirement.
Towards the end of 2019 it became evident, judging by the way interest rates were going, that pension fund managers might find it difficult to replicate prior years’ performances.
It even became more evident, when viewed against the realization that most of the assets under management by pension fund managers in Nigeria are invested in financial instruments that derive their benefits or even existence from the yield curve.
As if that was not enough challenge, and to add insult to injury, out of nowhere and without any notice, came coronavirus. Today, those two, Covid-19 and low yield are conniving to rub pension fund managers of a chest-beating performance and the pension fund investors of their hope for a long-lasting and blissful retirement.
Already, the impacts of those two are being felt by pension funds, not only in Nigeria but the world over. My pension fund account is yet to recover from the 18% drop it suffered in March 2020. Although Nigerian pension funds recorded positive returns during the first 4 months of the year, such returns are nothing to write home about, when compared to prior years’ returns.
According to an analysis conducted by Quantitative Financial Analytics, the RSA category of Nigerian pension funds generated an average of 1.64% on a year to date basis, as at April 30th, 2020, while the Retiree fund category generated an average return of 2.96%. Compared to a similar period in 2019, RSA funds generated an average return of 3.46% while the Retire fund category had an average of 4.13%. For the year to date, April 30th, 2020, Pension fund manager, Veritas Glanvills (VG) recorded the highest return in both categories of 4.24% and 5.38% respectively and a couple of funds made losses.
Although those numbers are not what pension fund investors expected or hoped for, they are quite impressive when compared with what is happening elsewhere in the World. According to the Financial Times Adviser (FT Adviser), “the average pension fund fell by 15% in the first quarter of this year” in the UK, which represents “the worst quarterly performance on record”. In the United States of America, the story is the same. According to the Washington Post which described COVID-19 pandemic as a meltdown, “This meltdown has exposed the fragility of public pension systems in the United States”. In the wake of the pandemic, “Moody’s Investors Service estimated that the stock market sell-off vaporized $1 trillion of value from public pension portfolios or about 21 percent of the assets that pay for the retirement plans of state and local employees”.
In another reportorial, the NJ Spotlight, (a New Jersey Newsletter in the US), noted on March 26th, 2020, that Covid-19 hammered public pension workers to the extent that the pension system shed $6 billion since January 1st. S&P Ratings also estimated that, in the first quarter of 2020, “U.S. public pension funds in aggregate lost a cool $855 billion”.
Those underscore the bleak future facing pension fund industries all over the World and the need for Nigerian pension fund investors to be thankful with the 1% average gain that Nigerian pension fund managers were able to generate. It is hoped that as the fight to curb or eradicate Covid-19 rages on successfully, that the performance will improve rather than get eroded.
Name of Fund: Veritas Glanvills Pension Retiree Fund 4
YTD Performance %: 5.38%
YTD Gain per unit: N0.19
Second Best Performing Fund:
Name of Fund: Radix Pensions Retiree fund 4
YTD Performance %: 5.17%
YTD Gain per unit: N0.11
3rd Best Performing Fund:
Name of Fund: Fidelity Pensions Retiree Fund 4
YTD Performance %: 4.27%
YTD Gain per unit: N0.14
4th Best Performing Fund:
Name of Fund: ARM Pensions Retiree Fund 4
YTD Performance %: 4.21%
YTD Gain per unit: N0.16
5th Best Performing Fund:
Name of Fund: OAK Pensions Retiree Fund 4
YTD Performance %: 3.94%
YTD Gain per unit: N0.15
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
Pension Fund Managers dump Nigerian Treasury Bills
Pension fund managers redeemed treasury bills worth N512 million Naira in the two months combined but did not invest any additional kobo into treasury bills within the same period.
Analysis of the recently released summary of Pension Fund Asset data for the first two months of 2020 by the Pension Commission of Nigeria has shown that pension fund managers are no longer in love with Treasury Bills like they used to be in the past.
Time was when fund managers allocated much of their assets to treasury bills, but that seems to be waning as yields on treasury bills head towards subzero.
According to the analysis, pension fund managers redeemed treasury bills worth N512 million in the two months combined but did not invest any additional kobo into treasury bills within the same period.
Prior to this event, the pension fund had invested a combined sum of N1.88 trillion into treasury bills, representing 18.4% of total pension fund assets.
With that development, pension fund managers allocation to treasury bills now stands at 13%. This is about the first time, in over 5 years that PFM’s are shying away from treasury bills.
The love seems to have shifted to bank placements which attracted additional investment if N420 million from pension fund managers. FGN Bonds continue their camaraderie with pension fund managers as they pumped additional N352 million into FGN bonds in January and February, combined. This seeming reallocation to bank placements is indicative of pension fund managers’ desire to hold on to their cash, while waiting and hoping that yields will trend up anytime soon.
Yield Analysis: Fund managers who are out to seek ways to generate positive alpha or returns for their investors are running away because of the low treasury bill yields. The last Treasury Bill option that was conducted on May 13th, 2020, had stop rates of 2.5%, 2.85% and 3.84% for 91-day, 182-day and 364-day treasury bills respectively. Those rates were not enticing enough for the fund managers.
Strong Market Demand: This does not mean that Nigerian Treasury Bills are no longer in demand because, according to the NTB Auction Results sheet of May 13th, 2020, all the three tenors of treasury bills were oversubscribed.
While the 91-day Treasury Bill had N4,384,80,000 on offer, it attracted a total subscription of N22,334,588,000, the 182-day tenor which had N12,920,900,000 on offer saw N41,194,993,000 being subscribed for, while investors bid N102,030,671,000 for the 364-day tenor which had N16,536,720,000 on offer.
Pension Fund Asset Allocation: All said and done, FGN bonds continue to be the asset type with the highest allocation from pension managers. Out of the N10.5 trillion total pension fund asset value as at February, 29th 2020, N5.6 trillion sits with FGN Bonds, while bank placements come second with an allocation of N1.48 trillion leaving Treasury Bills in the third position with an asset allocation of N1.37 trillion.
MTN Nigeria Communications Plc has commenced its Commercial Paper (CP) Issuance (Series 1 & 2 of N50 billion each) under its N100 billion CP issuance programme on Thursday.
In a statement issued by the company and seen by Nairametrics, the telco explained that the issuance has a tenor of 180 days (CP 1) and 270 days (CP 2) with a discount rate of 4.6890% – 4.8797% (CP1) and 5.8500% – 6.000% (CP2).
Nairametrics had reported a few days ago when the telecommunication company notified the Nigerian Stock Exchange about the issuance.
Why it matters: The issuance is important to the telco, as it intends using the proceeds to its working capital and general corporate purposes in Nigeria. This issuance under the CP Programme represents MTN Nigeria’s debut in the domestic debt capital market.
MTNN is the leading telecommunications operator in the largest telecoms market in Africa. The company is the largest mobile operator and undisputed market leader in Nigeria, as measured by total mobile subscribers (c. 70 million), active data users (c. 26.8 million), revenue (almost 50% of industry), and profit pool.
MTNN is well-positioned for the long term, with its unmatched investments in its infrastructure – most expansive 2G, 3G, and 4G network, largest fibre network (c. 29,000km) that spans across Nigeria, largest physical and digital distribution platform, and wide range of spectrum holdings – and the exciting market opportunity Nigeria brings.
MTNN is rated Aa+ by Agusto & Co. which reflects the company’s history of strong financial performance – record revenue in excess of N1 trillion (largest revs by a listed corporate), stable and healthy operating profit metrics (+53% EBITDA margin), comfortably low leverage (0.4x Net Debt/EBITDA, 10.8x interest coverage) that is predominantly local currency, and strong free cash flow.
