Nigerian Stock Market Maintains Lead in Africa Despite Sell Pressure


Goddy Egene

The Nigerian stock market has remained the best performing bourse in the African continent, year-to-date, despite sell pressure that has eroded significant value since the beginning of February.

The market had delivered 7.5 per cent appreciation in January 2020, after declining for two consecutive years.

But profit taking, coupled with negative reactions that greeted the mixed earnings reported by companies in their 2019 full year interim results, have led to bearish trading since the beginning of February, leading to a decline of 3.3 per cent in six trading days of February.

The Nigerian Stock Exchange (NSE) All-Share Index (ASI), which closed in January at 28,843.53, fell to 27, 871.90 as at Tuesday, while market capitalisation of equities, which stood at N14.857 trillion at the end of January, ended lower at N14.516 trillion on Tuesday.
Despite the decline, the Nigerian market remains the best performer in Africa. It still boasts a year-to-date growth of 3.8 per cent.

It is being trailed by the South African bourse market, which has posted a year-to-date growth of 1.5 per cent, according to THISDAY’s investigation.

Kenya’s stock market has gained 0.8 per cent, while the Egyptian market has posted a growth of 0.3 per cent.

However, the Ghanaian stock market is in the negative territory, as it has depreciated by 1.6 per cent so far this year.
Market operators believe the Nigerian market has strong potential to deliver positive return at the end of 2020.
According to them, the current bearish trend is an opportunity for investors to enter the Nigerian market.

Analysts stressed that Nigerian stocks remain the cheapest among their peers in the region because of the two-year decline the market suffered.

Using at least three fundamental and technical approaches and wide-ranging global and national macroeconomic analyses, analysts at Meristem Securities Limited, an investment banking firm, said the Nigerian equities market could return 10.27 per cent in 2020.
Meristem combined fundamental analysis approach, artificial neural networks and econometric analysis to get a weighted average return outlook for the market.

The analysts explained that they adopted the combined average approach to provide a balanced and more realistic outlook.
The three separate analyses indicated return range of between 6.40 per cent and 12.56 per cent.

All analyses, however, indicated a positive performance, which is a major relief for investors who had struggled with net losses in the past two years.

According to the analysts, the factors that will drive the equities market this year include: excess liquidity from the money market, depressed valuation, foreign portfolio investments and corporate earnings.

With the Central Bank of Nigeria (CBN) policies in the money market sending rates crashing, the equities market is expected to see some inflows in 2020.

The apex bank had disallowed Nigerian individual and institutional investors from participating in the Open Market Operation (OMO).

“We expect gains in the market to be driven by excess liquidity from OMO maturities, some of which should end up in the equities in search of the attractive dividend yields and potential capital gains,” Meristem stated.

The analysts said emerging market equities, including Nigeria, had become cheap, relative to advanced markets, making them attractive for global portfolio managers.

“With the accommodative stance by many central banks in advanced economies, rates are set to remain low for longer. However, country specific risks will direct the flow of these funds. Notwithstanding Nigeria’s risks, investors will cherry pick fundamentally sound counters to drive activities in the market,” they said.

The analysts added that lower equities prices have made dividend yields attractive and with many of the dividend paying stocks expected to sustain distributions in 2020, investors hunting for dividends will also drive improvement in market activities.