Stock Market Sheds N1.364tn on Profit-taking, Weakening Sentiments

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Goddy Egene

The stock market, which gained N1.124 trillion in January, lost N1.364 trillion in February.
This was as a result of profit-taking and gradual migration of investors to the fixed income market.
Consequently, the local bourse has suffered a year-to-date decline of 1.2 per cent compared to a growth in the first month of the year.

High demand for stocks had made the market to gain N1.124 trillion in January after a superlative performance in 2020 that saw the local bourse leading global returns on investments.
However, the growth was halted in February as some investors sold down to book profit, while others began to migrate to fixed income market following an uptick in yields in that investment space.

Market capitalisation of equities fell from N22.187 trillion at the end of January to N20.823 trillion, while the Nigerian Stock Exchange (NSE) All-Share Index (ASI) declined from 42,412.66 to 39,799.89. The decline implies a loss of N1.364 trillion in market capitalisation and 6.16 per cent in the NSE ASI in February compared with N1.124 trillion and 5.3 per cent gain respectively in January.

Although the market was expected to sustain the growth recorded in January on the expectations of positive earnings season and better yields delayed dividend declarations and a sudden uptick in the yields fixed income market changed the minds of some investors who reduced their exposure to the equities market.

While profit-taking is expected to continue intermittently, the decline is seen as an entry opportunity for investors to position ahead of dividend declarations by more companies that would publish their audited full year 2020 financial results.

Analysts at Cordros Securities said on Friday that they expected the NSE floor to be flooded with corporate earnings as more companies publish their audited FY 2020 numbers, accompanied by dividend declarations.

“We believe this should provide respite for market performance. However, we expect intermittent profit-taking activities to continue due to lingering concerns about yield elevation in the FI market. As a result, we think the local bourse will likely exhibit a zig-zag pattern. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings,” they said.

Similarly, analysts at Investdata Consulting said players should be on the lookout, as more companies expectedly send in their 2020 financials, giving the market an upward push or downward pull, depending on the strength of these numbers.

According to them, with the pullbacks impacting positively on dividend yields, income investors should target ‘stocks with a dividend yield of 7.5 per cent and above in the short term, since the equity market remains the best window for hedging against the nation’s spiralling inflation.

“Despite, the seeming profit booking across many of the sectors, these corrections are creating ‘buy’ opportunities for players that understand the dynamics of the market,’ irrespective of what is happening on the fixed income side, especially with oil price selling now above $65 per barrel and breakthroughs in vaccines will help to drive global and domestic economic recovery,” they said.

Investdata advised that with the mixed macro-economic indices emanating from the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN), in the face of changing market trends and trading pattern, that is now of concern to retail and institutional investors, players in the equity market should invest wisely.

“One way of navigating the murky waters is to be guided by your set investment objectives, particularly entry and exit strategies, 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 support the current trend, a big rotation in sector trends would also guide you, going into the future,” Investdata said.