Nigeria’s equities market has returned to the bull path with a record N1.005 trillion investors garnered in just two trading days into this week.
The market powered higher Tuesday afternoon of October 6 as the Benchmark Index posted its biggest daily gain in more than five years.
Also, the All-Share Index (ASI) of the Nigerian Stock Exchange (NSE) climbed 4.92 percent at the close of the day’s trading session, its biggest daily gain since April 1, 2015.
“I will tie the driver to the low-interest environment and to the realisation that low-interest rate might be here for a while,” Yinka Ademuwagun, research analyst, FMCGs, United Capital plc, said.
Afrinvest Research analysts had anticipated a sustained bullish run this week “as investors continue to position in fundamentally sound stocks ahead of earnings releases for the third quarter.”
The market strengthened its positive return of +7.70 percent at the close of trading session on Tuesday – thanks to stocks like Dangote Cement plc (+9.86%); MTNN plc (+5.70%); Nigeria Breweries plc (+10%); Stanbic IBTC Holdings plc (+7.17%), and Zenith Bank plc (+4.94%) that occupied the top advancers’ table.
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The stock market opened this week with its ASI and capitalisation at 26,985.77 points and N14.105 trillion, respectively, but increased to 28,909.37 points and N15.110 trillion.
“This month, we expect that the positive sentiment in the equities market will be sustained, as investors position for third-quarter (Q3) 2020 earnings publications.
“Also, we expect some of the scheduled OMO maturity of N1.7 trillion in October 2020 to filter into the equities market as investors continue to search for alpha returns.
“Overall, we are of the view that the equities market is not only in correction mode but set for a positive close for the year,” Lagos-based analysts at United Capital said in their October 6 note.
Furthermore, with a year-to-date return of 7.03 percent the NSE ASI stood added 1,354.81 points at market close on Tuesday, marking the 12th consecutive day rally.
“The rally is due to strong renewed interest from domestic institutional investors as well as foreign portfolio investors who have their funds in the country,” Ayo Ebo, senior economist/head, research and strategy, Greenwich Merchant Bank said, adding that the stance of the CBN at the last MPC meeting showed that the interest rate might remain low for a longer time amid high inflation.
According to Oscar Onyema, CEO, NSE, the low yield environment has positioned the equities market as a credible investment option for domestic, institutional and retail investors.
Analysis of NSE data shows that domestic investors have accounted for almost 60 percent of the trading activities in 2020 compared to the average of 51 percent in the last four years.
“Significant OMO maturities (N567.7bn) are expected to flow in on Thursday, thus many institutional and HNIs are taking positions in the market given lack of high yield alternatives,” Ayorinde Akinloye, a research analyst at CSL Stockbrokers Limited, said.
While interest rates have always been high in Nigeria due to the monetary system in vogue since 2009, which sought to use FGN bonds/T-bills and OMO bills as means of attracting US dollar to stabilise the naira, the recent OMO policy by the CBN, which prevents domestic investors from participating in the auction, has sent yields to its worst record.
Effect from October 23, 2019, the apex bank banned non-bank locals (individuals and corporates) from participation in its OMO at both the primary and secondary markets.
“Investors are taking a position in stocks with consistent dividend payment history and high dividend yield relative to the fixed income market,” Ebo said.
BusinessDay analysis of the players driving the rally in the NSE shows that only a few stocks, which seem resilient to investors, are topping the gainer’s chart.
While the rally in the stock market has been linked to only a third of the benchmark index’s 153 members, analysts believe the weak state of the Nigerian economy is the reasons why investors are only putting their funds on stocks that show resilience.
While noting several challenges faced by investors in Nigeria capital market, Onyema explained at the recent ‘Investment and Capital Market Digital Dialogue’ by BusinessDay that policies around the unification of exchange rate, resolution of the country’s FX liquidity crisis as well as naira stability could help boost both domestic and foreign investors’ confidence in the market as well as in government commitment to economic stability.
Grappling with dollar crisis caused by the double whammy of the coronavirus pandemic and a deep plunge in prices of crude oil, the country’s biggest earner, Africa’s biggest economy for the first time in more than four years could not attract any foreign investor to invest in the Nigerian bond as a move to ration dollars heightened investors’ fear in the economy.
There were no subscribers to the country’s bond instruments in the second quarter of 2020, according to capital importation data by the National Bureau of Statistics.
Iheanyi Nwachukwu & Endurance Okafor
