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Decline in Bond Yields Helps Stock Market to Sustain Rally

21 Jan 2013

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NSE DG, Oscar Onyema
 

By Goddy Egene and Eromosele Abiodun
 
Renewed interests of portfolio managers in the equities market as a result of the decline in the bond yields and bargain hunting by investors helped the Nigerian equities market to sustain its momentum last week.
Numbers released by the Financial Market Dealers Association (FMDA) showed that bond yield on the 7-year FGN June 2014 with 9.20 per cent coupon rate fell from 11.87 per cent on January 2013 to 11.46 per cent last Monday while the 10-year FGN Bond with 9.35 per cent coupon rate fell to 11.13 per cent from 11.90 per cent in the same period.

Investors buy actions in anticipation of shares appreciations had driven the equities market previous week as investors exchanged a total of 2.160 billion shares for N16.998 billion as against a total of 972.737million shares valued at N8.509 billion that exchanged hands the week before.

Trading activities opened on a positive note on Monday as bargain hunters took position for future gains. The rally continued on Tuesday with a stronger momentum as investors remained persistent with high demand in anticipation of robust corporate earnings release.

Banking stocks were the main drivers. This is because investors expect the lending institutions’ cleaner balance sheets will guarantee robust earnings in the full-year results for 2012.

By mid-week, stock prices rose further as investors’ optimism drove market activities causing the NSE ASI to cross the psychological band of 30,000.

On Thursday, the inclusion of three additional stocks in the market making basket further enhanced the market performance as most indicators closed stronger.

However, the banking index, the main driver of the current rally dwindled on Thursday after panic investors sold some of the banking shares.

At the close of business last Friday, the NSE ASI gained 1.99 per cent to close at 30,927.17 points, helped gain recorded in the share prices of Dangote Cement Plc, FBN Holdings Plc, Nigerian Breweries Plc, ETI and Zenith Bank Plc among others.

Consequently, all market indicators closed the week firmer led by the twin market gauge- the All-Share Index and the market capitalisation.
Analysis of trading showed that the exchange’s benchmark index appreciated by 5.91 per cent to close at 30,927.18. Also, market capitalisation of the listed equities appreciated by 5.92 per cent to close at N9.893 trillion.

All the sectoral indices appreciated: The NSE 30, the NSE Consumer Goods, the NSE Banking, the NSE Insurance, the NSE Oil/Gas and NSE Lotus II appreciated by 5.77 per cent; 4.31 per cent, 3.34 per cent; 3.30 per cent; 7.12 per cent and 6.26 per cent.
 
Market Turnover
A further analysis of the performance of the market for the week showed that investors sold a total of 3.259 billion ordinary made shares worth N21.636 billion in 34,651 deals in contrast to a total of 2.160 billion shares valued at N16.998 billion that exchanged hands the previous week in 31,241 deals.

The financial services sector continued its vibrant dominance in the activity chart (measured by turnover volume) recording the highest trading volume of 2.477 billion shares valued at N15.399 billion exchanged hands by investors in 22,627 deals, representing 76.01 per cent, 71.17 per cent and 65.30 per cent of the volume, value and number of deals executed on the stock market respectively during the week.
The conglomerates sector (measured by turnover volume) followed with a recorded volume of 423.299 million shares valued at N771.622 million traded in 1,117 deals.

The consumer goods sector (measured by turnover volume) was third with 141.525 million shares valued at N3.673 billion traded in 5,671 deals. The top three sectors accounted for 3.042 billion shares valued at N19.844 billion traded in 29,415 deals, thus accounting for 93.34 per cent, 91.72 per cent and 84.89 per cent, of the volume, value and number of deals respectively.

Transnational Corporation of Nigeria Plc  (Transcorp) of the diversified industries subsector was the most active with a volume of 415.970 million units followed by UBA Plc and Diamond Bank Plc. The top three equities with a total volume of 1.022 billion units of shares contributed 31.37 per cent and 20.38 per cent respectively to the total turnover and value for the week.

Also traded during the week was 565 units of NewGold Exchange Traded Funds (ETFs) valued at N1.440 billion exchanged hands in 4 deals in contrast to a total of 413 units valued at N1.1042 million transacted last week in 5 deals. There were no transactions through the stock market in the FGN Bonds, State/Local Government Bonds and Corporate Bonds/Debentures sectors.
 
Price Change Summary
A review of the equity price movement chart indicated that 68 equities gained while seven equities recorded price declined and prices of 118 equities remained constant. When compared with the preceding week, 52 equities gained while 20 equities recorded price declined and prices of 123 equities remained constant.

The top 10 gainers were: Nestle Nigeria Plc (N24.00), Dangote Cement Plc (N14.00), Mobil Oil Nigeria Plc (N11.19), Nigerian Breweries Plc (N8.09), Flour Mills Nigeria Plc (N5.00), UACN Plc (N4.76), Julius Berger Nigeria Plc (N4.71), Total Nigeria Plc (N4.60), Cadbury Nigeria Plc (N3.74), UACN Property Development Company Plc (N3.59).
Conversely, the top 10 losers included: Unilever Nigeria Plc (N2.41), John Holt Plc (N0.64), B.O.C. Gases Plc (N0.32), Guaranty Trust Bank Plc (N0.23), Morison Industries Plc (N0.14), Cutix Plc (N0.08), UTC Nigeria Plc (N0.03), Ikeja Hotel Plc (N0.02 ), NPF Microfinance Bank Plc (N0.01 kobo).
 
Analysts’ Views
Analysts are of the opinion that aside the speculative activities of the investors, the recent drop in the various classes of the FGN Bonds have also been instrumental to the sustained rally in the equities market.
"With the continuous expansion of the market-making stocks and the introduction of securities lending by the NSE, we expect these measures to bring forth enhanced liquidity to the market through the activities of the appointed market makers.

Again, the Sovereign Wealth Fund (SWF) is billed to commence full operations in March 2013 and it is very likely the government’s investment vehicle will consider local equities in their portfolio; this arrangement will have huge impacts on the equities market.
However, the banking sector has been the most beneficiary of the recent rally with UBA and Fidelity Bank being the major drivers of the sector in terms of trading activities while other sectors exhibited mixed trend. But we expect the market to slow down in the coming weeks as investors are likely to cash out profits,” analysts at BGL Securities Limited said.


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