Stocks gain N1.51trn as Tinubu’s pro-market policies cheer investors

The Nigeria stock market benchmark performance indicators – the All-Share Index (ASI) and its equities Market Capitalisation – rose by 5.23percent or N1.51trillion, its highest daily gain two years, from preceding trading day’s lows of 52,973.88 points and N28.845 trillion respectively to 55,745.74 points and N30.353trillion.

In 9,916 deals, investors exchanged 1,078,230,806 shares valued at N15.799billion. The stock market’s year-to-date (YtD) positive return also increased to 8.77percent. Access Corporation, FBN Holdings, Transcorp, UBA, and GTCO were most traded stocks as

Stocks like Nigerian Breweries, Jaiz Bank, FCMB Group, and Eterna were topmost on the buy-side of the Nigerian Bourse. Nigerian Breweries rose most, from N38.50 to N42.35, adding N3.85 or 10percent, while Eterna moved from N7 to N7.70, up by 70kobo or 10percent. FCMB Group rallied from N4.20 to N4.62, adding 42kobo or 10percent.

Analysts at Nigeria’s equities market are optimistic that the pro-market policy direction of the President Bola Tinubu-led new administration will bring some cheer to equity investors. President Tinubu had on Monday highlighted the need for a unified exchange rate and a reduction in interest rates to drive up investment in the country. Barely hours after Tinubu said “fuel subsidy is gone”, long queues resurfaced across petrol stations in major cities as about 98percent of petrol stations shut their pumps.

CardinalStone research analysts in their May 30 note said, “We expect the early communication of the mostly pro-market policy direction of the new administration to bring some cheer to equity investors. Notably, potential improvement in FX market liquidity and removal of fuel subsidies could re-ignite foreign participation in the equities market from its current lows. There is also likely to be a bandwagon effect on the part of locals.

“We scope for a positive re-rating of the Nigerian equities market, which is currently trading at a 19.1percent discount to its 10-year average level despite boasting higher Return on Equity (ROE) (19.2percent versus a 10-year mean of 15.2percent) and adjusted dividend yield (6.5percent versus a 10-year mean of 5.2percent). In the medium term, overall macro improvements and a benign policy environment could enhance the fundamental values of equities and potentially support target prices”.

In the CardinalStone analysts view, the administration’s preference for a reduction in yields could be actualised by “first effectively combating supply-side drivers of inflation—the primary justification for the current hawkish monetary policy regime. However, resolving these supply-side issues will likely take some time, leaving latitude for high-interest rates in the near term, especially given the government’s borrowing needs vis-à-vis relatively tight liquidity”.

“The President’s commitment to ensuring that foreign investors and companies can repatriate profits and dividends suggest the likelihood of more liberal FX policies. Consequently, we see scope for a downward repricing of the naira to a more manageable level at the I&E window to compensate for inadequate supply as the CBN works on a potential unification of exchange rates, in line with the President’s disposition. Notably, the naira traded as high as N632/$ on Friday, 26 May 2023, possibly indicating a shift in CBN’s FX management stance.

“In the medium-to-long term, the impact of Dangote Refinery, subsidy removal, and an increase in the foreign portfolio and direct flows could provide material support for the currency,” said CardinalStone research analysts.

Also, United Capital Research analysts said in their May 30 note to investors that they see more room for extended bargain hunting among listed corporates “as investors look to reinvest dividends received across fundamentally sound stocks. We expect the slow reversal of yields in the fixed-income market to play a vital role in our expectations. More risk-averse investors will look to book some profit off profitable positions.

“Finally, as we advance, the recent 50basis points (bps) hike in Monetary Policy Rate (MPR) and the potential upward reversal of yields will remain substantial downsides to the bourse’s performance”.

They noted that last week, the local equities market closed green in four out of five trading sessions due to increased bargain-hunting activities across fundamentally sound stocks. Relatively lower share prices and strong corporate developments/actions in the market stimulated investors’ sentiment.

Expected illiquidity in financial system brings forth bearish sentiments in the sovereign secondary bonds market

Looking at the Bond market, United Capital research analysts said they expect bearish sentiments to resume in the sovereign secondary bonds market hinged on the expected illiquidity in the financial system.

“However, in the corporate bonds market, we expect the anticipated N4.5billion worth of coupon payments to drive bullish sentiments among investors. Similarly, we expect some buy-interests in the Eurobonds market as investors seek to reinvest the $105.9million inflows from coupon payments,” they added.

While reviewing the bond market last week, United Capital research noted that “the secondary bonds market closed bullish as marginal buy-interests among investors due to the N17.9billion coupon payments inflow drove rates lower”.

“Overall, the average yield across sovereign bonds declined by 7basis points (bps) week-on-week (w/w) to close at 13.98percent (previously 14.05percent). Similarly, corporate bonds traded on a bullish note, driven by the inflow of N2.1billlion coupon payments, as the average yield on corporate bonds fell by 14bps w/w to 13.86percent (previously 14percent).

“In the Nigerian secondary Eurobonds market, sentiments were largely bullish as investors sought to reinvest their funds from the $42.6million coupon payments. Thus, the average yields in the market closed lower by 56bps w/w to settle at 12.07percent (previously 12.63percent),” the analysts said.

Vetiva research analysts said they expect the sentiment in the bonds market to remain stable, “largely influenced by the latest MPR decision from the CBN. However, it is worth noting that the potential for buy-side action in the Nigeria Treasury Bills (NTB) segment cannot be ruled out, particularly if there is an improvement in system liquidity levels”.