After taking a serious beating this year due to weak crude oil price and coronavirus selloff, stocks seem to be enjoying some sort of stability since the start of the second quarter. Data obtained from Nigerian Stock Exchange shows that quarter to date return in the stock market was about 12.89 percent as at Friday last week.
While most analysts were tempted to point to the rising crude oil prices as the reason for the boost in investors confidence in the local market, others pointed out that the All Share Index was already rising for 2 consecutive weeks prior to the price rebound in crude oil price.
However, the recent surge in market prices has still not been able to send stock prices to where they were at the start of the year. The NSE ASI year to date performance is now -10.42 percent, an improvement from where it was at the end of Q1 but still about 5,500 points below its 2020 peak level of around 29,710 points it reached on January 20 this year.
Most analysts surprise turn of events in the market could be as a result of investor excitement as most companies tend to pay dividends at the start of the second quarter of the year. Analysts also told BusinessDay that most companies have seen their stock price decline precipitously this year and investors noticing that these stocks possess very high dividend yields are now snatching up these stocks as bargain hunting continues broadly across the market.
Most of the bargain hunting is happening around the banks who have been paying huge amounts in dividends despite fears that their asset quality may not be in its best shape this year considering prolonged partial city lockdowns and weaker oil prices. The high dividends yield in bank stocks is definitely attracting investors as most trades in the market during the past week were in the financial services companies.
According to NSE weekly report, the Financial Services industry (measured by volume) led the activity chart with 1.385 billion shares valued at N11.813 billion traded in 17,117 deals; thus contributing 83.35% and 64.89% to the total equity turnover volume and value respectively. The Services industry followed with 53.551 million shares worth N128.065 million in 1,003 deals. The third place was the Consumer Goods industry, with a turnover of 53.444 million shares worth N2.780 billion in 3,607 deals.
Investors will be hoping that the current upswing in stock prices is further supported by rising crude oil prices which has now jumped above $30 for the first time in weeks. The stock market will need more catalyst to continue its rebound path but the gradual reopening of the economy and stronger oil price appear to be enough for now.
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