The rout in global equity markets that erased $11 trillion since the end of March may be reaching a floor as battered valuations, particularly among tech stocks, attract dip buyers.
The cheering news locally for Nigeria’s domestic equity investors is that this year’s trend shows little or no correlating between the global equity markets and that of the Nigerian Exchange Limited (NGX).
The first four months of this year have provided a spectacular example of no strong link between global and Nigeria’s domestic equity market with the US Nasdaq (-25.71percent) and the NGX All-Share Index (NGX-ASI) (+21.51percent as at May 9) heading in opposite directions.
Three out of the four past months closed in green
In January, Nigeria’s market rose by 9.15percent, February (+1.65percent), March (-0.91percent), April (+5.09percent), and as at May 9 the market had risen by 4.56percent with significant upside potentials.
Stocks have outperformed the market
Interestingly, May 9 data showed some Nigerian stocks far outperformed the market. Meyer Plc for instance rose by 552.2percent this year to N3, followed by Wema Bank Plc which was up by 420.8percent year-to-date (YtD) to N3.75, Presco (N178 or 102.7percent ytd), Guinness Nigeria Plc which rose to N99.45 as at May 9, up by 155percent YtD, Academy Press (N1.85 or 270 percent), and Learn Africa (N2.40 or 105.1percent).
Other stocks and their year-to-date increase as at May 9 are: PZ Cussons (+86.9percent), Seplat (+84.6percent), SCOA (+86.5percent), NAHCO (+81.6percent, ETI (+48.3percent), Fidelity Bank (+45.5percent), Jaiz Bank (+51.8percent), Cadbury (+69.3percent), Champion Breweries (+56.2percent), International Breweries (+49.5percent), Nigerian Breweries (+54percent), and Northern Nigeria Flourmills (+25percent)
Also, investors in Conoil have seen the stock value rise by 43.2percent since this year, Eterna (+43.8percent), Oando (+26.7percent), UACN (+36.8percent), Cornerstone (+26.1percent), Royal Exchange (+26.1percent), United Capital (+34.3percent), Julius Berger (+34.2percent), Fidson (+66.4percent), Courteville (+44.7percent), Airtel Africa (+46.6percent), and MTNN (+26.4percent).
Major drivers of record rally year-to-date
New listings, oil price rally, companies better-than expected full year earnings as well as their positive first-quarter (Q1) scorecard, among others factors including encouraging signs of economic recovery have placed Nigeria’s market on the bull route.
Read also: Stocks gain N700bn in 3-day trading week
Will “Sell in May and Go Away” happen?
Though, the only drawback of historical patterns is that they don’t reliably predict the future. Amid record positives in the Nigerian equities market, the question now is whether the market’s maxim “Sell in May and Go Away” will be defied. “Sell in May and go away” is an adage referring to the historically weaker performance of stocks from May to October compared with the other half of the year. The market had opened this week with a remarkable N521billion gain, driving higher this year’s record positive return to a high of 21.51percent as at May 9.
For market analysts, the odds are more for a possibility of gains
“The equity market ended transaction for last week positive, maintaining a bullish trend despite the US Federal Reserve rate hike. Investors continued to take position in both large and medium stocks across all sectors of the market. We expect this trend to continue, as investors search for stocks with good fundamentals and positive returns,” according to Lagos-based GTI Securities Limited.
“We anticipate a calm atmosphere in the domestic equities space, as investors are likely to revert to standoffish positions in the space following a relatively strong earnings season. We expect to see some profit-taking in the coming week, emphasising high-yield positions”, said United Capital research analysts.
For Meristem research analysts, they view the hike in rates in the United States and United Kingdom as global macroeconomic dynamics that might filter into the local market.
“Specifically, opportunities for capital repatriation on large-cap stocks that have dual listing (Airtel Africa and Seplat) could drive buying activities. Some stocks still present decent upsides to spur buying interest.
“We however note that foreign participation in the Nigerian equities market is not as strong (circa 20percent). There is also some room for profit taking on some tickers on some tickers that have gained appreciably in recent weeks. Summarily, our view is that the odds are more for a possibility of gains. Hence, we expect the market to close positive this week,” Meristem analysts further stated.
“The Bulls continue to dominate the market, amid strong first-quarter (Q1) financial performances and positive investor sentiment. We expect the green closes to persist at the start of the week, although we do anticipate some profit-taking on last week’s strong performers,” said Vetiva analysts in their May 9 Breakfast Report.
Coronation research in their May 9 note to investors said the Nigerian equity market is disconnected from global markets. “The NGX –All Share Index has reached a 13-year high, crossing the 50,000 mark for the first time since 2008. The solid start in January was primarily driven by the listing of BUA Foods (+48.8percent since listing), the rally in oil prices reflected in Seplat (+84.6percent since 1 January), and investors taking positions in fungible stocks (Airtel Africa and Seplat.
“In addition, low short-term market yields have continued to encourage participation in risk assets bringing a 9.15percent month-on-month (m/m) gain for the index in January, the highest monthly gain since December 2020 and the highest January gain since 2018.
“Though the market was flatter in February and early March, better-than-expected FY 2021 earnings, positive earnings expectations for Q1 2022, corporate actions, and investors taking positions ahead of FY 2021 dividend payments continued to support the market.
“Domestic naira-based investors continue to dominate activity, and we believe that they are sensitive to changes in market interest rates. According to the NGX domestic and foreign investment report for March 2022, domestic investors’ share of total transactions improved to 77.2percent in March from 75.3percent in February, while foreign investors’ share was down to 22.8percent from 24.8percent in February. Going into Q2, we expect the impact of market interest rate increases to be delayed. This may give breathing room for the market, particularly for stocks continuing to show top-line growth, steady margins and earnings growth,” Coronation Research stated further.
They continue to expect some agricultural stocks to prosper. “Commodity prices, both hard commodities like oil and soft commodities like rubber and palm oil, are expected to remain strong, especially in the wake of the EU sanction on Russian energy and the announcement by Indonesia banning oil palm exports. Meanwhile, the strong secular growth trend in telecoms and data services continues to support stocks such as MTN Nigeria (+15.5percent since 1 January). There are plenty of reasons for Nigerian equity investors to be cheerful,” Coronation research analysts stated.
