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Coronavirus alters outlook of Nigerian equity market

…analysts see opportunity in healthcare stocks

If the spread of Coronavirus(COVID-19) is not curtailed as soon as possible, the Nigerian equities market will continue to sink and the market will experience a further decline. As Coronavirus continues to rear its ugly head in Nigeria, the nation’s equities market is one of the worst-hit as dealers now trade remotely in an already pressured market.

Following the order of President Muhammadu Buhari on Sunday, March 29, cessation of all movements in Lagos, Ogun and the FCT commenced from 11pm on Monday, March 30 for an initial period of 14 days. The lockdown is part of the government efforts to check the spread of Coronavirus in Nigeria.

As at last weekend (March 27), the cumulative value of Nigeria’s listed stocks was N11.393trillion, which implies that investors have lost N1.6trillion year-to-date (Ytd) when compared to N13.019trillion they were valued as at January 3, and a negative return of -18.55percent.

Analysts expect the record bearish performance to continue in the coming week as Nigeria’s economic outlook remains uncertain.

Crude oil which is the major source of Nigeria’s foreign exchange (FX) earnings now trades at a record low. As the beginning of this week,

Brent crude traded at $23.30 per barrel signalling a worsening of prospects for crude in a world ravaged by the deadly Coronavirus outbreak. Naira was recently ‘adjusted’ to N380/$.

“Looking ahead, we still see sizeable legroom for further downslide in risk assets as investors continue to run towards safety in the face of the fast-spreading coronavirus pandemic and the rout across global markets”, according to Lagos-based research analysts at Cordros Capital.

“The market saw some bargain hunting as we ravel with the Virus. If the menace continues into the year, the market will be suppressed further. If it is curtailed in the shortest time, the market will still remain subdued on the back of reduced confidence that has plagued the economy even before the outbreak of COVID-19”, FSDH research analysts said.

“The outbreak of COVID-19 has severely altered the outlook of the Nigerian equity market, reversing the gains recorded in the wake of the year. Its impact has sent the NSE ASI to a record low level”, FSDH Research analysts said in their macroeconomic review of first-quarter of 2020.

“Despite the decline in participation in the market generally, investment inflow was largely dominated by domestic investors. On the other hand, outflow was dominated by foreign investors given the weak global confidence across equities markets due to the Coronavirus pandemic”, the analysts noted.

The Nigerian equity market continued to shed foreign and local participation as total transactions dropped by 37percent to settle at N148.5 billion in February 2020. Domestic investors displayed apathy as foreign participation expanded to 49.04percent up from 29.86percent in January while domestic participation stood at 51.96percent down from 70.14percent in January.

“We expect to see continued interest in Healthcare stocks, as fiscal and monetary actions in Nigeria are tilted towards improving the state of the existing healthcare system. Also, we expect buying interests in stocks with strong fundamentals, as the current relatively lower prices provide attractive entry points for investors,” said United Capital Research analysts.

“We anticipate a positive trading pattern due to the attractiveness of most counters at current price levels, though the continued spread of the Coronavirus as well as the

declining Crude oil prices continue to pose a threat”, said Vetiva Research analysts.

Before now, analysts at Financial Derivatives Company had last month predicted persisting negative market sentiment due “too weak economic fundamentals, low incentive to trade – international investors, unattractive to profit-seekers – repeatedly reported losses despite attractive valuations, and low liquidity – low daily trade relative to market capitalisation”.

The stock market benchmark performance indicator – the NSE All-share Index ( ASI) and Market Capitalisation had depreciated by 1.52percent and 1.51percent to close the week ended March 27 at 21,861.78points and N11.393trillion respectively.

All other indices finished lower with the exception of NSE Banking, NSE Insurance, NSE-AFR Bank Value and NSE MERI Value which appreciated by 2.06percent, 3.25percent, 3.47percent and 2.93percent while NSE ASEM Index closed flat.

Thirty- five ( 34) equities appreciated in price during the review trading week, lower than thirty- five ( 35) in the preceding week. Thirty (30) equities depreciated in price, higher than twenty- seven (27) equities in the preceding week, while ninety-nine (99) equities remained unchanged, lower than 101 equities recorded in the preceding trading week.

The market recorded a total turnover of 1.452 billion shares worth N14.918 billion in 21,828 deals in contrast to a total of 2.804 billion shares valued at N32.559 billion that exchanged hands the preceding trading week in 31,715 deals.

The Financial Services industry ( measured by volume) led the activity chart with 1.224 billion shares valued at N10.590 billion traded in 14,944 deals; thus contributing 84.32percent and 70.99percent to the total equity turnover volume and value respectively.

The Conglomerates followed with 50.261 million shares worth N61.457 million in 442 deals, and the Consumer Goods industry, with a turnover of 47.276 million shares worth N2.509 billion in 2,225 deals.

Trading in the top three equities namely, Zenith Bank Plc, Guaranty Trust Bank Plc and FBN Holdings Plc (measured by volume) accounted for 713.795 million shares worth N8.610 billion in 8,608 deals, contributing 49.18percent and 57.71percent to the total equity turnover volume and value respectively.

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