Monday, July 16, 2012 1:16 PM / DLM Research 

Analysis 
In our assessment of the market last week, we observed the influence of the treasury bills auction, which took place mid-week, on activities across the market. This resulted in relatively sustained intra-day volatility and subsequent stability as traders adopted a cautious approach.

At the treasury bills auction, N31.16 billion worth of 91day was offered and sold at the rate of 13.75% against N21.84 billion which was sold at 14.09% at the previous auction, whilst N65.40 billion worth of 182day was offered and sold at 14.89% compared to 15.31% at the previous auction. Total subscription during the auction stood at N290.23 billion against N95.56 billion on offer, which represents 203.70% oversubscription.

In our opinion, this high level of subscription may not be unconnected with the market speculations with respect to the major economic events in the weeks ahead e.g. MPC meeting, and the gradual return of offshore investors to the Nigerian market. Over the last few days, the presence of international investors had been observed in the market which could also be seen in the strengthening of the domestic currency. 

We believe that the intractable financial and economic challenges of the Eurozone has made  frontier and or emerging markets with attractive yields such as Nigeria  the  likely destination  for flow of capital from portfolio investors with the appropriate risk appetite.  However, rather than attracting portfolio investors, the Nigerian economy should be positioned to attract foreign direct investments (FDIs)  in view of the decline in the inflow of FDIs to Nigeria in recent times.  

In our analysis of FDI inflow to the west-African sub-region, we observed that whilst Nigeria is the leader in absolute terms with inflow of c. US$6.1 billion in 2010 (fig. 3), growth was negative with -29.5% recorded for the same period. Comparatively, there has been a significant increase in FDI inflow to Ghana, which recorded a 50.0% increase in FDI to c. $2.5 billion. (fig. 4) 
 

Meanwhile, OTC trading remained relatively active as traders sought to cover their positions ahead of the FGN bonds auction schedules for the current week, mainly with respect to the on-the-run bonds which are to be reopened.
 

In the week ahead, there will be a primary auction of FGN bonds during which c. N75.00 billion will be issued. We equally expect the maturity of c. N94.90 billion worth of OMO bills. The market equally anticipates the release of June 2012 inflation figures by the National Bureau of Statistics (NBS).
 

LAST WEEK: The Nigerian Bond Watch @ 090712 – DLM
 

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