Equities Gain N2.3tn to Rally at N18.3tn in November


•All-Share Index records year-to-date return of 30.5%

By Goddy Egene

The Nigerian equities market maintained its positive momentum in November, recording higher growth as funds continued to pour into the market to earn higher returns given lower yields in other investment windows.

The Nigerian Stock Exchange (NSE) market capitalisation, which measures the total value of listed equities, grew by N2.351 trillion to close at N18.309 trillion.

This translates into a jump of 14.7 per cent and it is higher than the N1.934 trillion or 13.7 per cent growth recorded in October. Similarly, the NSE All-Share Index jumped by 14.7 per cent to close November at 35,042.14, up from 30,530.69 in October.

The market had last month posted its best monthly gain since 2018 and closing as the second-best performing among the 93 major global markets tracked by Bloomberg.

While it was expected that the growth momentum would slow down in November due to profit-taking, the market surged further, recording higher gain and pushing the year-to-date growth to 30.5 per cent.

Although there were pockets of profit-taking during the month, the decision of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) at its 27th meeting to hold the monetary policy variables, further pushed portfolio rebalancing activities towards equities as yield-seeking investors re-priced fundamentally justified stocks with attractive dividend yields.

“With the recent decision of the MPC to hold monetary policy parameters constant in furtherance of their growth objective, we expect alpha-seeking investors to continue rotating their portfolio towards equities amid attractive dividend yields on bellwether stocks. We expect market performance to be dominated by the bulls, as positioning by early birds in dividend-paying stocks ahead of full-year (FY) 2020 dividend declarations should outweigh profit-taking activities. We reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings,” analysts at Cordros Research had said.

Immediately after the MPC meeting last week, the equities market witnessed more inflow of liquidity leading to renewed demand.

According to Invesdata Consulting Research, the bulls resurfaced on Nigeria’s equity market after the profit-taking as the MPC left all instruments unchanged in the midst with oil price crossing $48 per barrel, even as money market rates crashed further in the face of real negative returns given the hyperinflation now threatening the economy and investment.

“It is true that the recovery moves on the NSE are still intact with the ongoing bargain hunting for growth stocks and blue-chip companies that have kept the market in an uptrend. This is especially as more money market funds mature and would likely flow into the equity market, due to the continued low yields in the fixed income market.

After the just concluded Q3 earnings season, companies with December year-end, should naturally be the major investment attractions at the moment, depending on the sector, company performances and prospects. We also believed that the earnings capacity of these companies and dividend history, in addition to movements in economic indicators and policies, will sharply dictate the market direction, going forward,” Investdata Consulting said.

According to the firm, the next major earnings season is expected to commence in the first quarter of 2021 with the early filers as funds search for better returns and yields, considering the prevailing inflationary environment.

“So, it is advisable that target yields that are above 7.5 per cent, being that the market’s average dividend yields at five per cent, is above returns from all other investment windows, considering the shortest time period,” it said.

InvestData Consulting added that the renewed buying interest and high volatility reflect the inflow of funds into the equity space, considering the relatively high yields as seen through the Q3 corporate earnings positions, as well as the high possibility of dividend payment at the end of the current financial year.

“This is despite the likelihood of dividend cut in some sectors and companies, especially as rates and yields in treasury bills auction crashed to 0.15 per cent for the 364-day instruments, which was none-the-less oversubscribed,” the firm said.

The Chief Research Officer, Investdata Consulting Limited, Mr. Ambrose Omordion, had said the low yield environment and other factors had triggered buying interest in the equity space despite the seeming disconnection with economic realities to sustained the four consecutive months of bullish run.

Omordion explained that stock markets, as leading indicators of economic activities, are forward-looking, such that current share prices reflect future earnings potential or profitability of quoted companies.

“Since stock prices reflect expectations about profitability and profitability is directly linked to economic activity, fluctuations in stock prices are thought to show the direction of any economy. But our market since April has rallied on liquidity and sentiments, ignoring economic fundamental and at the same time pointing to economic recovery as quoted companies’ numbers remain resilient in the midst of negative macroeconomic indicators,” he stated.

The analysts said the positive investor responses to the mixed numbers, which have pushed many equities on the exchange to new 52- week high, revealed high liquidity and confidence.

“The possibility of prices rallying further from here is high, amidst portfolio reshuffling on the strength of the Q3 numbers, just as investors would be assured of reward in the form of dividends when the full-year score-cards begin to flow into the market in the early days of 2021 despite the possibility of dividend cut. It is expected that discerning investors and traders would take advantage of the prevailing relative low stock prices, year-end season and cycle to grow their income, ahead of major earnings season in the first quarter of 2021,” he said.

It is expected that the equities market would remain bullish going forward since the CBN has not made any changes to its policies that influenced the rally witnessed in the market since April 2020.

The Chief Executive Officer of the NSE, Mr. Oscar Onyema, had linked the stock market rally to CBN’s restriction of domestic investors from participating in its open market operations (OMO) as well as the interest rate cut.

He said investors are always in search of higher returns on investments, adding that CBN’s policies have made the stock market attractive to investors.

He said: “I must say that some of the policy changes include the CBN policy that domestic institutional investors should stop participating in the OMO market. That has driven significant funds into the Nigerian Treasury Bills (NTB) market and some of those funds have found their way into the equities market. We have also seen a cut in interest rate. That was a significant move in support of equities as an asset class.

What investors tend to do is to look for yield.”

According to Onyema, since the Nigerian economy has shifted into a negative real interest rate environment, investors are now in search of investments that would give them higher yields and returns.

He said: “Given the record dividend yield available in the Nigerian market and given the strong fundamentals of a number of companies that are listed on the exchange, it makes sense that as investors try to rebalance their portfolio, they would look at equities.”