Though, the equities market may not have performed spectacularly well since the beginning of the year, but the reality is that some investors have made money while some others have been hurt.
Each stock investor has reasons for buying a stock, likewise his trading temperament which depends on how much risk he can tolerate, what kind of research he is willing to do, where he thinks the economy is headed and how much of a hurry he is in.
Whether any investors is taking short or long positions in stocks, the whole essence is to increase returns on their investments –either through capital gains or dividend income.
Due to the way stocks are traded, investors can lose quite a bit of money if they don’t understand how fluctuating share prices affect their wealth. In the simplest sense, investors buy shares at a certain price and can then sell the shares to realize capital gains.
Capital gains are profits that occur when an investment is sold at a higher price than the original purchase price. Dividend income is paid out of the profits of a company to the shareholders.
For investors (active, passive or speculator) who are on a mission to realize capital gains, some stocks on the Nigerian Bourse have not helped that course since this year as shown in their record negative returns in the trading period ended Friday January 22.
Though, equities look good to benefit from robust system liquidity levels as investors continue their search for more attractive returns amid depressed fixed income (FI) yields, some listed counters have disappointed investors this year.
The stocks that have far underperformed the market this year as evidenced in their negative returns are: ABC Transcorp (-5.3percent), Caverton (-1.5percent), Cutix (-1.7percent), Daar Communications (-10percent), Dangote Cement (-4.5percent), FCMB (-2.4percent), FTN Cocoa (-9.1percent), John Holt (-2percent), Learn Africa (-3percent), MRS (-18.5percent), Neimeth (-11.2percent), and Oando (-8.6percent).
Other stocks investors have lost money this year are: Redstar (-0.9percent), Stanbic (-0.1percent), Sterling Bank (-2percent), UACN Property Development Company (-5.1percent), Unilever (-2.9percent), Union Dicon (-3.2percent), and University Press (-2.3percent).
These stocks and more may either reroute out of the red zone this week or move dipper into the negative territory. Note that if market watchers views on positive close by this weekend come to pass, not all these stocks above will be in red.
For instance, in their weekly stock picks, Meristem analysts gave “Hold” rating for stocks like Dangote Cement, meaning the upside potential of the stock over the next 12-months is between 5percent and 9.9percent when the current price is compared to the analysts’ fair value. The Hold rating implies that investors may either hold on to current unit or sell part.
Read Also: These stocks caused NSE’s negative start to new week
The analysts maintained their “Buy” ratings for stocks like FCMB and Sterling Bank. It means the upside potential of these stocks over the next 12-months is significantly high when their current prices are compared to Meristem fair value. Hence, investors may take positions on the stocks.
In the early trading days of the week, all investors’ attentions were on the Monetary Policy Committee’s (MPC) first meeting for the year which held on January 25 and 26, 2021.
Market in review
Nigeria’s equities investors lost about N82billion in the trading week to January 22 following increased activities of profit takers on the Bourse. The market’s performance indicator decreased by 0.42 percent in one week, which moderated this year’s positive return to +1.82percent.
All NSE sectoral indices closed the week in red, no thanks to NSE Banking Index which recorded the highest decline by -1.33percent, followed by NSE Insurance Index which dipped by -0.80 percent and NSE Industrial (-0.51percent). Others are: NSE Oil & Gas (-0.13percent), and Consumer Goods (-0.09percent).
The Nigerian Stock Exchange (NSE) All Share Index (ASI) closed lower at 41,001.99 points while the market capitalisation came down to N21.448trillion as against week-open high of 41,176.14 points and N21.530 trillion.
Analysts’ views
“This week, bargain hunting from market participants, stemming from the past week’s selloffs, and the outcome of the MPC meeting will drive market activities,” according to United Capital research analysts in their January 25 note.
“The market remains in a bullish mood, with investors looking for reasons to buy stocks, in spite of a record 50.03percent rise in the index last year and rising interest rates this year. On balance, we think the enthusiasm will endure in the short term but may wane over the coming months”, said Coronation Research analysts in their January 26 note to investors.
“The rally this year has been largely due to sharp rises in mid-cap stocks, notably Lafarge Africa and Ardova Oil and in these two cases the inspiration was corporate action which, necessarily, was impossible (or at least very difficult) to predict. Our sense is that the market still wants to move upwards but that, after a rally of 50.03percent in 2020 which was driven by the largest index weights in the market (example Dangote Cement, Airtel Africa, MTN Nigeria and BUA Cement), investors are hungry for new ideas”, the analysts further stated.
Although Coronation Research analysts do not try to anticipate overall market direction, however they are wary of the market at these levels. For instance, according to them last week “we made small notional sales in BUA Cement and took our notional cash position up from 5.1percent to 7.2percent. We will continue to trim our positions in the largest index weights this week and we will search for our own mid-cap ideas”,
“We expect that the outcome of the meeting and the Committee’s decision would largely influence the market direction this week. Although we do not rule out lingering profit-taking activities from last week, we reiterate that bargain hunting activities would dominate the week, setting the market up to a positive close”, according to Meristem research analysts in their recent note.
Also, GTI research analysts who expected cautious trading in the early days of the week did not rule out the further participation of institutional investors in the equity market to reverse last week’s negative sentiment.
