Nigeria: Stocks capital gains hit a 7-month high at N1.2trn 

Stock: The Nigerian stock market has seen a spectacular rebound with figures for the third quarter of 2021 showing a capital appreciation of around 1,196 trillion nairas.

Analysts attributed the evolution to the recent spike in oil prices on the international market that occurred at a time when it is speculated that the third-quarter earnings season will show positive figures.

The evolution was also largely in line with analysts’ speculation that the market would improve despite the negative sentiment that had prevailed for most of the first half of the year (H1’21) about the rate increase in fixed income instruments during the period.

Recall that the market had fallen 6.2 per cent in the first half of 21 after the benchmark All Share Index (ASI) fell to 37,907.28 points in June 2021, causing losses of 1.3 trillion dollars for investors.

However, the trend began a reversal in July and culminated in a move north at the end of the third quarter.

The price of crude oil rose to more than $ 80 a barrel in September and is expected to exceed $ 90 by the end of the year.

Specifically, the market capitalization of all listed stocks, representing investors’ wealth, increased to N20.956 trillion at the end of the third quarter of 21 from N19.760 trillion at the beginning of the quarter, representing an increase of 6 .05 per cent.

Similarly, the All-Share Index posted a seven-month high, increasing 6.11 per cent to 40,270.72 points at the end of the review period from 37,907.28 points at the beginning of the quarter, thus moderating the year-to-date (Y-to-D ) losses to -0.1 per cent.

This also reflects the trend in Q3’20 when investors earned N1.255 trillion after the market capitalization appreciated to N14.025 trillion at the end of the period from N12.770 trillion that started the quarter, representing an increase of 9.8 per cent.

Explaining the rally in profitability, Ambrose Omorodion, Chief Operating Officer at Investdata, said: “The nation’s equity market rallied in September to end the month and quarter positively thanks to rekindled buying interest in US stocks. first-class, value and growth ahead of the third-quarter corporate earnings report. and the seasonality of the last quarter, since the activities in the fixed income market are not clear despite the slight increase in the rate in the auction of one-year Treasury bills that closed at 7.5 per cent”.

Price movement month to month

Meanwhile, the month-over-month (M-o-M) breakdown of the trading statistics showed that the market started the year on a bright note with investors gaining N1.131 trillion in January. However, the trend reversed in February, as all gains recorded in January disappeared, causing losses of $ 1.38 trillion for investors following the change in investor preference for fixed income.

Average yields on primary market treasury bills (TBs) had risen to 3.67 per cent at the end of February from 1.28 per cent in January. This translated into an increase of 186 per cent.

The market continued its losing streak in March 2021, albeit at a slower pace, and investors again lost Naira 395 billion.

However, the two months of consecutive losses were reversed in April following the reallocation of assets to equities during the companies impressive annual financial statements, as well as increased confidence fueled by rising oil prices. As a result, investors made N417 billion in April.

Analyst commentary

Investment analysts have expressed optimism about the market outlook, saying the year would end on the upside. However, they affirmed that the upward trend may not be strong since investment in fixed income is expected to remain relatively attractive even in the second half of the year (H2’21) given the inflationary pressure and the depreciation of the naira against foreign currencies, especially the dollar.

Analysts at Cowry Asset Management, “We believe that the benchmark’s marginal rally in H2’21 would be driven by the appreciation of the stock prices of companies with attractive dividend yields, wider margins, increased earnings per share ( EPS) and a higher average equity return.

“Additionally, companies that trade their shares above their value of capital per share (EVS) and record higher returns with a decreasing leverage ratio should see some level of capital appreciation in the final months of 2021.”

In his opinion, Mallam Garba Kurfi, Managing Director of APT Securities & Fund Limited, said: “This has to do with the expectation of good third-quarter results plus the increase in crude oil prices. Everyone is hoping for better performance at the end of the fourth quarter. He still believed that ASI will close positively by the end of the year.

Also speaking, Invesdata’s Omorodion said that taking positions in large-cap stocks that control 70 per cent of the market’s benchmark index supported the rebound.

On the outlook, he said: “This rally that pushed the Nigerian Exchange (NGX) index to break the psychological line of 40,000 is expected to continue if the corporate numbers exceed expectations of maintaining the uptrend as seen in the previous quarters, considering the negative impact of the naira devaluation and exchange market crisis “.

Analysts at Cordros Capital also expressed the possibility of a sustained market rebound in the remainder of the year. They based their optimism on the possible return of foreign portfolio investors (FPI), who until now have been net sellers of Nigerian stocks, and the expectation of dividend payments, among others.

“In the fixed income market, we believe that yields are at a resistance level, so we expect an inflexion in the naira curve from the second half of the year. We believe that the government’s supply reduction and the government’s deliberate efforts to reduce the overall cost of borrowing will facilitate a drop in yields, albeit above 2020 levels, in the coming months, ”they concluded.