Despite its positive start to this week, Nigeria’s equities market decreased by 0.33 percent or N184billion on Tuesday as mixed feelings still trail stocks.
While more investors shift focus to fixed income securities, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and Market Capitalisation decreased from preceding day’s highs of 102,042.32 points and N55.836 trillion respectively to 101,707.7 points and N55.652trillion. The stock market’s year-to-date (YtD) return decreased to 36.02percent at the close of trading.
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CardinalStone research analyst said in their recent note titled ‘mixed sentiments across markets’ that, “In February, we expect bearish sentiment in the local bourse as investors take profits and shift towards the fixed-income market. However, selloffs are expected to create attractive entry opportunities into tickers with positive exposure to interest rate”.
“In particular, savvy investors may rotate into fundamentally sound banking stocks and companies that have low leverage and robust cash positions,” they further said.
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In 8,614 deals, investors exchanged 263,192,299 shares worth N4.300billion. PZ led the laggards after its share price dropped from N27.85 to N25.10, down by N2.75 or 9.87percent, while Honeywell Flourmills share price rose most, from N3.93 to N4.32, up by 39kobo or 9.92percent.
The Central Bank of Nigeria (CBN) last week Wednesday sold record N1.8 trillion worth of Treasury Bills, nearly two times the N1 trillion on offer. That was the highest amount of cash raised through T-Bills in a single auction since the CBN started tracking data.
Treasury Bills are a form of short-term government debt that is issued by the Central Bank. At the Primary Market Auction (PMA), T-Bills totalling N1trillion (N200billion, N200billion and N600billion across the 91-day, 182-day, and 364-day instruments, respectively) were offered.
The stock market had decreased last week by 2.45 percent as investors started to rotate funds in search of higher yields on Treasury Bills (T-Bills).
“Last week’s T-Bill auction achieved high rates, with the yield for 1-year reaching 23.4percent and settling at 20.60percent in the market. We are in for a period of high yields, but unless they visibly work (example attract foreign investors, reduce inflation) they may not be around all year,” said Coronation research analysts in their February 12.
With low-risk assets providing more attractive yields, some investors are expected to reprice dividend yield upwards, thereby leading to a correction in the short term in the equities market.
“The market recorded its first negative weekly close as sentiment remained bearish amid rising rates in short-term fixed income instruments. We expect a mixed trading session this week, as investors trade cautiously in the market,” also said Vetiva research analysts in their recent note.
Unlike the volatility seen in stock market, T-Bills are considered one of the safest investments available because they are backed by the full faith and credit of the government.
Also, the Lagos-based CardinalStone research analysts said in their recent view that “we expect bearish sentiments in the equities market to persist as some investors will likely continue to rotate out of equities to take advantage of high yields in the fixed-income in the short term.”
“Nevertheless, this will create strong re-entry opportunities for stocks like banks that typically benefit from a high interest rate environment and other companies with low leverage,” they noted further.
“Our tactic is to maintain our holdings in banks, anticipating a potential rally on the back of strong full year 2023 earnings performances and dividend announcements. We have restored our position in Dangote Cement to a notional neutral weight as the rally in cement names continues to wane.
“Nevertheless, we might see some excitement in the sector upon the release of Full Year 2023 earnings. Ditto for MTNN. This week, we would actively monitor these positions and if need be, provide mid-week commentary on portfolio changes,” according to CardinalStone research analysts in their February 12 note.
According to United Capital research analysts, “We expect the technical adjustment of the All-share index to continue. Also, given the market’s anticipation of a hawkish stance by the Monetary Policy Committee at its next meeting, we expect investor focus to shift towards the fixed-income markets. Nonetheless, crucial corporate disclosures such as dividend declarations are set to move the market”.
Meristem research analysts said, “This week, we anticipate the market to close on a positive note driven by increased bargain hunting activity especially as investors seek value in fundamentally sound stocks that present attractive upside potential”.
“However, higher yields in the fixed income market and potential jitters over the Monetary Policy Committee (MPC) actions may limit inflows into the Nigerian equities market.
“Additionally, there is a prevailing negative sentiment as market breadth remaining below 1x for the third consecutive week. Overall, we project that the local bourse should end the week in the positive territory,” Meristem research analysts further noted in their February 12 note.
