Asset managers book half-year profits, reshuffle portfolio

Asset managers in Nigeria are optimistic that the second half of the year will be better than the first half in terms of performance of equities, as they move to reselect stocks that will make up their management portfolio in the second-half (H2) of 2017.

The Nigerian stock market wrapped-up the first-half (H1) of this year with over N2.2trillion gain. Notably, the value of listed equities rose remarkably from year-open level of N9.246trillion, to N11.452 trillion, as at June 30. The benchmark Index closed the H1 at 33,117.48 points, from 26,874.62 points at the beginning of the year.
The NSE All Share Index has gained 23 percent year to date, to become one of the best performing stock markets in the emerging and frontier space.
The broad-based half year rally saw top performing stocks coming from diverse sectors, including healthcare firm May & Baker, with an eye popping 312 percent return, financial services firm, Stanbic IBTC (+120%), Industrial goods firm, Cement Company of Northern Nigeria (+94%), Agriculture firm Presco (+82%) and services sector firm, Airline services and logistics Plc (+80%).
“The second half of the year would present investors the opportunity to see which companies have been swimming naked, as performance adjusts to the new FX pricing environment and lowering inflation pressure,” said Abiodun Keripe, head of research at Elixir Investment Partners Limited.
“We believe the market will be focused more on earnings, which will be the biggest driver for H2, barring any negative shocks from crude oil price, which potentially can upset the gains made so far by the Central Bank of Nigeria (CBN) and the market,” Keripe said.
Stocks have benefited from a number of catalysts, including decent first quarter results for banks, the emergence of the Investor and Exporters FX window, MSCI frontier market index weighting boost and relatively cheap valuations in the frontier market space.
The NSE banking index is the best performing sector this year, with a 45 percent gain, followed by the premium index (+31%), industrial goods (+21%) and consumer goods(+11%).
Total transactions at the stock exchange increased by 274.51 percent from N54.90 billion recorded in April 2017 to N205.61 billion (about $0.67 billion) in May 2017.
Net foreign inflows were positive for a second month running and increased by 670 percent, to N51 billion in May, from N6.63 billion in April, according to data from the exchange.
However, stocks fell on Friday, after a two-day rally, as asset managers booked profit ahead of their half-year fund returns, traders said. The index fell 0.46 percent on Friday, dragged lower by losses in the banking, cement and petroleum sectors.
“The fall in the market is as a result of month-end profit-taking by some institutional investors and individuals,” said a stockbroker.
Investors may now be focused on upcoming Half Year results for clues to the sustainability of the rally. Results are expected to start trickling in from mid July 2017.
Nigeria’s largest lender by market capitalisation, Guaranty Trust Bank (GTB) sent out notices to customers’ last week saying:
“Branches will close early on Friday, 30th June 2017 to enable us complete our half year audit exercise.”
Stocks have outperformed other asset classes, like bonds and average Real Estate rental yield in six months. An investor who placed N1 million in the top performing stock, May & Baker, in January, would be having a portfolio worth N4.12 million today.
Looking into the second half of the year, there should be more FX inflows via foreign investment, although the fixed income space may benefit more, as investors wait to see stronger recovery in fundamentals, according to Elixir’s Keripe.
“If the claim that FPIs were testing the waters in H1 is true, we can also expect some more inflows, provided macro fundamentals move from improving to stabilising,” Keripe said.
“I think that for the portfolio managers, it is a good time for them. In May, we saw about five times the participation of foreign investors. May participation redefined the market slogan that says ‘fail in May and walk away’.
“In the Nigerian market, it was not like that because foreign inflows into Nigerian equities jumped over 400percent in May 2017”, said Abiola Rasaq, head of investor relations at United Bank for Africa Plc.
The analyst said improved FX liquidity, greater prospects of economy exiting recession, increasing crude oil production and pricing, as well as moderating inflation, are factors that asset managers considered in their stock selection process. Most of Portfolio Managers stock picks in H2 are in Consumer Goods, Manufacturing, and Financial Services sectors.
“Portfolio managers are beginning to see the future from now. In my view, things are generally improving. Today, with relative stability in FX, some FMCG companies will be getting better margins. Also, manufacturing companies are now able to get significant requirement of their FX, either through the CBN intervention, or through the Investors’ and Exporters’ (I&E) FX window”, Rasaq said.
Ayodeji Ebo, managing director at Lagos-based investment house, Afrinvest Securities Limited, still sees the financial services sector as the major driver of the stock market, adding that as Portfolio Managers rebalance their portfolio, profit taking will continue in the industrial goods.
Hopefully, this month most listed companies, particularly the early birds, will release their H1 scorecards, further giving investors the direction on where to place their monies.
“I expect that the margins will improve and FX losses are not going to resurface”, Rasaq said, adding that increased spending by consumers may have impacted the H1 volumes of consumer goods companies, with positive impact on topline growth.
With government focus on infrastructure, the products of the industrial goods sector will be patronised and this will lead the boost in the demand for their shares, Ebo said.
Analysts believe the major advantage investors have for investing in the banking sector, is the gradual recovery in their FX liquidity on the back of CBN policies. Also, improvement in trade activities gives investors hope of improved earnings.
“We expect performance to remain stable in the interim”, said research analysts at United Capital Plc. These analysts expected investors to begin to take position, ahead of the upcoming H2-2017 earnings session.
“We highlight the continued economic recovery over the period and more importantly, the improved FX liquidity, amidst periodic intervention by the CBN and the introduction of the Investors and Exporters (I&E) FX window, as key drivers of the improvement of foreign transactions”, said research analysts at Lagos-based Vetiva Capital Management.
The analysts noted that the broad sector gains and the firmly positive market breadth, signaled further gains however highlighted profit taking, as investors moved to lock in their profits. The Nigerian stock market wrapped-up the first-half (H1) in the positive, despite month-end profit-taking by some institutional investors and individuals.