• Friday, March 29, 2024
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BusinessDay

Investors’ wishes at odds with history as market may further decline in H2

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If historical performance is ever a fair indicator of future performance, then investors should be getting ready for deeper market selloffs as BusinessDay analysis shows that in the past 30 years, the Nigerian Stock Exchange All Share Index typically declined 80 percent of the time in the second half of the year after a negative performance in the first half of the year.

Interestingly, 2019 is only the sixth time in the last three decades that the stock market has declined in the first half of the year after bearish sentiments pulled the market lower by -4.66 percent in H1.

According to data compiled from Central Bank of Nigeria’s Statistical Bulletin, the other five times a negative performance was reported in the stock market during the first half of the year were 1998 (-8.51 percent), 2008 (-3.52 percent), 2009 (-14.59 percent) and 2015 (3.46 percent), all resulting in a full-year negative double-digit return performance. 2005 was the only year that the stock market declined in H1 and then rebounded in the second half of the year. In H1 2005, the stock market declined by -9.56 percent before appreciating by 11.69 percent in H2, leading to a full-year performance of 1.01 percent return.

“Historically, the first half of the year is typically a good period for investors and the second half is typically less impressive as investors scramble to own shares in the first half of the year to pick up dividends which they typically sell in the second half of the year. If the market doesn’t do well in the first half, it’s unlikely investors will be willing to enter in the second half of the same year as sentiments may become more bearish,” said Tochukwu Okafor, a lecturer in Banking and Finance Department at Covenant University.

The “H1 optimism rally” and the “H2 pessimism rally” have become a norm in the Nigerian market since year 2000. In the first half of the year since 2000, the stock market has delivered positive returns in 16 out of 18 years while in the second half of the year, the market has rallied only nine times out of the last 18 years.

This means that if you were a probability-driven technical investor, you will easily see that there is an 88 percent chance of an upside in the stock market in the first half of the year and a 50 percent chance of suffering a market loss by staying invested in the second half of the year.
Obinna Uzoma, a Lagos-based economist, explained that “it is unlikely that the market is going to suffer a selloff in the second half of the year based on historical trend as the past performance is not always indicative of future results”.

“There has just been a lack of confidence in the economy and policies that drive the market,” he said.

The equity market started the year on a negative note with the All Share Index (ASI) of 31,430.50, declining by 4.66 percent in H1’19 (+0.09 percent; H1’18) to 29,966.87. On the other hand, the market capitalisation recorded 12.67 percent increase from N11,720.72 billion to N13,205.54 billion in H1’19, buoyed by the listing of 20.35 billion units of MTNN shares on Thursday, May 16, 2019, thereby contributing about N1.83trn to market capitalisation making it the second most capitalised stock on the Nigerian Stock Exchange, following Dangote Cement.

On a sectoral basis, all segments of the market closed negative for H1’19. Specifically, the negative performance of 4.66 percent recorded in ASI was driven by YTD losses in banking stocks (-8.10 percent), insurance stocks (-0.90 percent), consumer goods stocks (-14.90 percent), oil and gas stocks (-15.70 percent) and industrial goods stocks (-11.1 percent).

 

IFEANYI JOHN