Stock Market Reverses N1.1tn Gain, Slip into Negative Territory

Goddy Egene
The nation’s stock has reversed the gains of N1.124 trillion recorded in January and has now slipped into negative territory, posting a year-to-date(YTD) decline of 0.2 per cent.
Having gained N8 trillion in 2020, sustained demand made the market to gain N1.124 trillion in the month of January of 2021.

However, that gain has not only been wiped off but the market has recorded a total decline of N1.161 trillion within the last three weeks.
The Nigerian Stock Exchange (NSE) market capitalisation declined from N22.187 trillion at the end of January to N21.026 trillion as at last Friday, while the NSE All-Share Index (ASI) fell from 42,412.66 to 40,186,70.

The bearish trend has been due to profit-taking and gradual return of investors to fixed income market following uptick in yields in that space. Although analysts had projected that the positive performance in 2020, would be sustained at the end of 2021, the huge gain recorded in the month of January has been attracting profit-taking. Hence, the selling pressure that persisted in the last three weeks.

Also, most domestic investors have been trading cautiously given the yield elevation in the fixed income market in the near term, while foreign investors are yet to return to take advantage of the attractive valuations due to foreign exchange (FX) challenges.

A founding partner at Cardinalstone Partners Limited, Mohammed Garuba, last week told THISDAY that lack liquidity in the FX market had prevented foreign investors from the Nigerian market.
He explained that the long FX scarcity was scaring investors away from the market, adding that even while foreign investors have started returning to Ghana and others, they were yet to return to Nigeria.

“In 2016 we had a problem like this when FX inflow dropped materially. But we started seeing some liquidity when the Investors & Exporters (I & E). In the past we have always seen financial crisis but never exceeded six months. For the first time, we started seeing this crisis March last year, when CBN stop selling FX and has not sold FX since then,” Garuba had said.

In the absence of foreign investors, domestic institutional investors have remained the major drivers of the market. But the uptick in the yields in the fixed income market has made some of the domestic investors to begin to change their focus to the fixed income market since the beginning of February.

However, it is expected that bargain hunting may set in as companies began to declare dividends for 2020 financial year. Last week, United Capital Plc, African Prudential Plc and Nigerian Breweries Plc announced dividend of 70 kobo, 50 kobo and 69 kobo respectively.

Analysts at Investdata Consulting Limited said watchers and market participants await a trigger to drive the anticipated reversal of trend, these pullbacks are creating buy opportunities ahead of earnings expectation. They have advised that investment plans and objectives, entry and exit strategies, should guide investors to survive and profit from the expected new trend.

“In that way, should the full-year earnings reports and dividend news fail to impact and reverse the current trend, a big rotation in sector trends should also guide you, going into the future,” they said.
The negative performance of the market in the last three weeks notwithstanding, more analysts have projected a positive close in 2021. The research team at FBNQuest has projected that the equities market would rise by 20 per cent in the current year.

“The impact of lower rates is expected to carry over into 2021, albeit with less dramatic impact, as domestic institutions are swayed by dividend yield offered by bank stocks. A number of non-financial stocks such as Seplat Petroleum Products Development Company Plc, Flour Mills of Nigeria Plc, Nestle Nigeria Plc and UAC of Nigeria Plc are also expected to outperform in 2021, FBNQuest said.

Analysts at Greenwich Merchant Bank had equally expressed optimism that the earnings season and low yields in the fixed income market space would continue to drive the equities market.

“We expect factors like the kick-off in the earnings season, and the persistently low yields in the fixed income space should drive activities next week. We envisage the market will maintain its uptrend, countered by pockets of profit-taking by contrarian investors,” they said.

Similarly, analysts at Cordros Securities had said that with negative real returns in the fixed income market, they expected risk-averse investors to recalibrate their portfolio towards fundamentally sound stocks with attractive dividend yields.

“However, we advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings,” they said.

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