Naira firms, external reserves steady as investors’ turnover hit $59.75bn in one year

…CBN injects $473m, CNY 39m in 2 weeks …Investments in equities market shed N302bn in 5 days At the close of second trading week in 2019, the Nigerian currency, Naira, remained firm against the US dollar and two other major foreign currencies, while the nation’s external reserves stood steady, as Investors & Exporters Foreign Exchange (I&E FX) window transactions turnover hit a total sum of $59.75 billion in just one year. This is even as the Central Bank of Nigeria (CBN) continued to support the interbank market foreign exchange market with total injections of $473 million and CNY 39 million in the first two trading weeks this year. But while comparing turnover in the I&E FX in December, The Daily Times discovered that the window recorded an 8.50 per cent ($0.46bn) Month –on-Month (MoM) decrease to close at $4.95 billion from the $5.41 billion recorded in November. The total FX market turnover in December was $11.01 billion, which represented a 17.22 per cent ($2.29bn) MoM decline from the $13.30 billion turnover recorded in the previous month, however, recorded $59.75 billion from January 1 to December 31, 2018. However, the latest FMDQ OTC report showed that the decrease in FX turnover in December can be attributed to the 41.96 per cent and 2.66 per cent decline in Member-Clients and Inter-Member trades which was only partly offset by the 6.75 per cent increase in Member-CBN4 trades. But analysis of FX turnover by product type showed that FX Derivatives was the main driver of the overall MoM decline in FX turnover, with a MoM increase of 41.33 per cent to $2.73 billion, driven mainly by an 84.79 per cent rise in FX Swaps turnover. Contrastingly, FX Spot recorded a MoM decrease of 74.75 per cent to $5.01 billion. For instance, in December 30th, Naira-settled OTC FX Futures Contract (NGUS DEC 26, 2018) with total open contract of $664.78mm matured and was settled on FMDQ, while a new 12-month Futures contract (NGUS DEC 24, 2019) with a notional principal of $1.00 billion and futures price of $/N366.24 was listed on the OTC Exchange. The apex bank had intervened in the FX market twice this year, with the first injection happened on January 4, 2019, in the inter-bank sector of the Foreign Exchange market with a total sum of $210 million injected into the wholesale segment and other sectors of the market. A breakdown of the figures obtained from the CBN showed that customers in the Wholesale sector of the market received the sum of $100 million with the Small and Medium Enterprises (SMEs) and invisibles sectors each getting $55 million to meet the needs of customers. The CBN, in its second intervention for the year, injected the sum of $263 million into the Retail Secondary Market Intervention Sales (SMIS), in addition to the sum CNY 39 million consummated through a combination of spot and short-tenored forwards, arising from bids received from authorized dealers. The figures obtained from the CBN on Friday revealed that the US dollar-denominated interventions were for requests in the agricultural and raw materials sectors while the Yuan sale was for payment of Renminbi-denominated Letters of Credit for agriculture as well as raw materials. The Bank’s Director in-charge of Corporate Communications, Mr. Isaac Okorafor, said that the CBN continued from where it stopped in 2018 in order to maintain the stability being enjoyed in the market. Mr. Okorafor said the move was in furtherance of the Governor’s avowed commitment to ensuring foreign exchange liquidity in the system as well as boosting trade and production. He expressed confidence that the CBN, in the weeks ahead, will sustain its intervention through the sale of foreign exchange to all segments of the market to meet all legitimate foreign exchange demand in the market while also striving to achieve exchange rate stability in the market. Okorafor also disclosed that the Governor, Godwin Emefiele, will further unfold the Bank’s plans for the year during the first Monetary Policy Committee (MPC) meeting for the year scheduled for January 21 to 22, 2019. While noting that the Bank had made a commendable effort in keeping the exchange rates at the current levels, Okorafor reechoed the Bank’s Governor, Mr. Godwin Emefiele, saying that the current capital flow reversals from the emerging markets were expected to bring out pressures on the market rates. He, however, assured that in spite of the anticipated pressures, coupled with the forthcoming elections, the Bank was committed to maintaining the current exchange rate policy, given the level of reserves. Quoting the Governor, Okorafor said that the CBN was determined to sustain a stable exchange rate as it continues to put in place relevant measures to shore up the country’s reserves. It is, however, worthy of note that despite the apex bank commitment to continue to support the naira, while ensuring financial system stability, the nation’s external reserves stood steady at $43.052 billion as at January 10, 2019, as against $39.429 billion in the corresponding period of 2018. Meanwhile, the local currency closed flat at N306.9 against the dollar at the interbank market as it continues to see support from apex bank’s intervention sales. But was at N306.95 in prior week at the interbank market of the CBN from N307 it closed 2018. At the parallel market, while the Naira lost 0.28per cent against the dollar to close at N363, it closed flat at N460 and N410 against pounds and Euro, respectively. At the Investors & Exporters Foreign Exchange (I&E FX) window, while the Naira lost 0.25 per cent against Pounds to close at N465.92, it gained 0.05 per cent and 0.37per cent against the dollar and euro to close at N364.94 and N417.58 respectively. Analysts at United Capital said naira trading would remain within the tight band of N360-N370 dollar in the first half of 2019, despite growing fears of an imminent devaluation. The Lagos based company in its ‘Nigeria Outlook 2019: Sailing through the Storm’ report said, “We expect the naira to remain relatively stable in H1- resolve to defend the local unit supported by a strong dollar reserve position. However, the outlook for H2-19 is clouded by the likely change in leadership of the CBN from Jul-19. “We see the naira trading within the tight band of N360/$-N370/$ in H1-19, despite growing fears of an imminent devaluation. “At $43.2 billion, the Apex Bank can conveniently meet up to 10 months of import. As such, the outlook for the local currency remains relatively stable in the interim, despite potential pressure in the political space ahead of the 2019 general election. “Accordingly, we expect FX rate to depreciate marginally at the I & E window, pressured by net capital outflow expected to weigh in Q1-19. Similarly, parallel market rates may witness some pressure but the CBN will maintain a fixed rate at the official window. “The inflow of funds into the Nigerian economy is not expected to improve significantly in H1-19 amid election uncertainties. However, we expect a net capital inflow in H2-19 regardless of the election outcome. “Downside risks to this outlook include changes in the policy environment traceable to changes at the Apex bank as well as the overall development in the polity. Increased pressure on FX and net capital outflow in Q1-19 points to further depletion of the external reserves; we imagine another $2-3billion decline if recent the trend is anything to go by. Should this hold true, the CBN would be left with $40-$42billion dollar reserves going into H2-19.” Meanwhile, Profit-taking has emerged in the equities market of the Nigerian Stock Exchange (NSE) with investors losing N302 billion in one-week trading amid political uncertainty leading to foreign investors exit. This represents 2.6 per cent decline in market capitalization, a parameter used in measuring the value of all companies traded, from N11.426 trillion when it opened for trading as against N11.124 trillion achieved last Friday. Similarly, Instrument used in measuring the equities market performance, the All-Share Index (ASI) which opened at 30,638.90 basis points lost 808.20 basis points or 2.64 per cent to close at 29,830.70 basis points the equities market. Against that backdrop, the Month-to-Date equities market loss increased to 5.09 per cent. All the equities market indices recorded drop with the exception of the NSE Industrial Goods Index that rose by 1.00 per cent while the NSE ASeM index closed flat. According to NSE weekly report, “A total turnover of 1.265 billion shares worth N14.074 billion in 19,278 deals were traded this week by investors on the floor of the Exchange in contrast to a total of 1.647 billion shares valued at N8.413 billion that exchanged hands last week in 14,773 deals. “The Financial Services Industry (measured by volume) led the activity chart with 1.072 billion shares valued at N8.795 billion traded in 12,287 deals; thus contributing 84.73 per cent and 62.49 per cent to the total equity turnover volume and value respectively. “The Conglomerates Industry followed with 83.595 million shares worth N155.485 million in 750 deals. The third place was Consumer Goods Industry with a turnover of 50.537 million shares worth N3.432 billion in 2,576 deals. “Trading in the Top Three Equities namely, Diamond Bank Plc, FBN Holdings Plc and Custodian Investment Plc (measured by volume) accounted for 465.000 million shares worth N 2.044 billion in 2,448 deals, contributing 36.75 per cent and 14.53 per cent to the total equity turnover volume and value respectively.” Also traded during the week were a total of 15,288 units of Exchange Traded Products (ETPs) valued at N236,445.40 executed in 4 deals compared with a total of 395 units valued at N816,344.70 that was transacted last week in 13 deals. A total of 17,996 units of Federal Government Bonds valued at N18.426 million were traded this week in 10 deals compared with a total of 7,209 units valued at N6.958 million transacted last week in 8 deals. A look at the price movement chart showed that only 22 equities appreciated in price during the week, the same with 22 in the previous week. 44 equities depreciated in price, lower than 45 of the previous week, while 103 equities remained unchanged higher than 97 equities recorded in the preceding week. Capital market analysts attributed that foreign portfolio investors were offloading and running for safety as “political risks” surrounding the 2019 general elections were beginning to play out. They added that investors at the moment had two options of investing for long-term or to sell down in order to cut the huge losses to invest back when eventually the market rebounded. Motolani Oseni