Monday, February 08, 2021 / 9:29PM / Kainosedge Consulting for AFEX Commodities Exchange / Header Image Credit: AFEX Commodities Exchange
1. Overview of Nigeria's Capital Market
In the last one year, returns on investment on the ACI appreciated by 113%, beating Nigeria's inflation rate of 15.75% y/y. Similarly, the index outperformed the AEI which returned 53.37% and the Nigerian All Share Index which returned 57.86% respectively amid the ravaging effect of the COVID-19 pandemic in 2020 which saw the economy dip into a second recession in the last 5 years. Investors across these indexes remain better-off investors exposed to the Nigerian fixed income space which is currently characterized by low yields and negative real return. Our analysis shows that yields have slumped by 96% since January 2020 to 0.4% as at January 2021, hence a negative real return of 15.32% when adjusted for inflation at 15.75% as at December 2020.
The AEI and ACI maintained a bullish run into the second month of the new trading season which started in December 2020. The ACI which measures the performance of a basket of grain commodities recorded a YtD performance of 17% while the AEI which measures the performance of a basket of export commodities gained 12% in the corresponding period, respectively. AFEX indexes also outperformed the Nigerian All Share Index (ASI) which gained 7% in January 2020.
This time, driven by heightened demand in the grains and export market the ACI and AEI surged the most by 20% and 12% respectively on a M-o-M basis when compared with performances recorded in the last 7 trading months. The biggest monthly spike in 5-months witnessed in January could primary be attributed to early season demand rush in an economy awash with cash amid marginal growth in production levels. We could also attribute the surge to the resultant effects of fiscal and monetary policies towards boosting production in the agriculture space such import bans, border closure and FX restrictions on importation.
2. Drivers and Laggards
Performance across all commodities were positive with Maize topping the performance chart while paddy rice sits at the bottom of the chart. During the period, Maize and Sorghum outperformed the ACI on a M-o-M basis after prices settled at N201,424/MT and N186,950/MT respectively. In the AE, Ginger outperformed the index as price settled at N873,330/MT, topping the drivers' chart for the index. Activities in the Cocoa space was muted as prices averaged N1,021,822/MT during the period.
3. Market Analysis
c. Paddy Rice
4. Price Dynamics: Exchange Price vs Open Market Price
During the month, executed prices on the exchange were higher than the average monthly prices of the local indicative open market survey prices for most commodities, except for Soybean, Sorghum and Sesame. Ginger prices surged the most in the open market by 54% from an average price of N308.87/kg. Meanwhile, prices of paddy rice in the open market dipped 3% from an average price of N190.43/Kg following the conclusion of the festive period and impact of the reopening of land borders in December.
We expect prices of most commodities in the opening market to remain pressured upwards amid factors such as increased demand, widening supply gaps, FX shortage and restrictions and higher parity prices for commodities such as Ginger, Cocoa and Soybean.
5. Volume and Deals
On a M-o-M basis, total volumes traded on the exchange surged by approximately 71% from c.54 million to c.92 million. This was driven by buy pressure especially from brewers on Sorghum which caused volume traded for the commodity to skyrocket by 288% in a month with a resultant upward movement in price by 24% during the period. Across all grain commodities, volume traded increased significantly however, except for paddy rice which saw a marginal movement. Meanwhile, volumes traded for export commodities decline M-o-M, however, priced higher given supply shortage for the commodities.
A total of 415 deals were closed across all commodities traded during the month at a total average executed price of N3,042/Kg. Maize deals accounted for 54% of total deals at an average executed price of N179/Kg during the period.
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