Since the recent 25 basis points (bps) increase in monetary policy rate (MPR) by the Central Bank of Nigeria (CBN) and the release of underwhelming half-year (H1) earnings by some listed Nigerian companies, many investors are seeking ways to maximise returns and minimise risk.
Since the inauguration of President Bola Tinubu on May 29, the Nigerian Stock Exchange (NGX) All Share Index (ASI) has extended its lead over its main challengers on the continent – Johannesburg Stock Exchange (Joburg) and Nairobi Stock Exchange 20 (Nairobi) index. The NGX opened this week with remarkable return of +27.48percent year-to-date (YtD).
Oil & Gas stocks are leading the bull charge as the sector’s index is up this year by 99.46percent (as at Monday August 7), followed by banking stocks as evidenced in the sector’s index which is up this year by 61.50percent. Other growths recorded across key sectors show insurance sector index which is up 54.05percent, and NGX consumer goods index which has risen by 50.32 percent. It is only NGX industrial index that is underperforming in the market with return of 18.65percent.
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At the most recent Lagos Business School (LBS) executive breakfast session, Financial Derivatives Company (FDC) analysts said that “contracted margins and poor corporate earnings will slightly dampen investor confidence in teetering Nigerian economy and its impact on stock valuations”.
The analysts see need for investors to diversify their equities portfolio, adding that investment in valuable capitalised stocks with strong growth fundamentals is important.
They noted that, “Capital preservation will remain priority for conservative investors. Long term and conservative investors will watch out for market dip and position in stocks with promising upsides”.
Though they noted that the Nigerian Exchange Limited (NGX) All Share Index (ASI) gained 5.53percent in July, but it was a dip from gain of 9.38percent in June.
They added that market performance was dampened in July by underwhelming corporate earnings, coupled with investors gradual exit of equities for attractive fixed income yields. Oil and Gas sector topped gainers list driven by blockbuster earnings from industry players, the aftermath of fuel subsidy removal.
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The analysts at Financial Derivatives Company who further noted that underwhelming half year (H1) 2023 corporate earnings sent shock waves to the market in the last trading week of July, also noted that hike in effective interest rate pulls investors out of equities for risk free securities.
“But divergence between the policy rate and effective rates could make investors stick to attractive share prices,” they added.
In their August 7 weekly stock recommendation, Lagos-based Meristem research analysts said, “We anticipate that the upbeat mood in the market will persist this week, as investors continue to seek bargain hunting opportunities on stocks at attractive entry prices. In addition, the expectation of half year (H1) 2023 earnings results especially in the banking sector could prompt investors to take a long position in the tickers.
“Furthermore, we do not expect the T-bills auction scheduled this week to cause a significant flow of funds from the local bourse. Nonetheless, we do not rule out the likelihood of profit taking on tickers that have appreciated significantly. Overall, we anticipate the overriding sentiment in the market to be positive during the week”.
Also, analysts at CardinalStone Research said in their August 4 commentary that, “In our view, market performance would likely be driven by positioning ahead of potential interim dividend declarations, system liquidity & its impact on yields, and emerging geopolitical trends. For interim dividend play, investors could monitor volatilities and seek to enter banking names such as UBA, Access Corporation, Zenith Bank, and GTCO.”
United Capital research analysts in their investment views said, “This week, we expect the bullish sentiments in the equities market to persist on the back of the market’s attractiveness over the depressed rates in the fixed-income market.
“Also, we believe the positive sentiments around the new policy direction will continue to drive the rally in the market. Lastly, the recent S&P upgrading of Nigeria’s outlook from negative to stable would further drive positive sentiments”.
Coronation research analysts, “The first seven months of 2023 have seen strong rallies in global equity markets and in the NGX All-Share Index. Investment conditions have been favourable, even if consensus forecasts for global growth are regularly toned down.
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“The equity market is substantially interested in trading banks at the moment. Some of the heaviest weights in the NGX All-Share Index (notably Airtel Africa, Dangote Cement and BUA Cement) did not experience much stock turnover last week and their prices did not change.
“By contrast, turnover in the banks was high, and having hit lows mid-week, some bank stocks (example FBNH, Zenith Bank, UBA and GTCO) rallied on Thursday and Friday. As explained last week, we remain committed to an overweight in banks (a near-double overweight) as this is based on our fundamental view that they are beneficiaries from currency liberalisation and the return of liquidity to the banking sector at the instigation of the CBN”.
