• Monday, March 04, 2024
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Stocks trading down in Q2 as investors weigh elections risks

Stock market fails to stay on loss path

At the Nigerian Bourse in second-quarter (Q2), average daily volume of stocks traded declined by 7.29percent to 384.10million units against a high of 414.29 million units recorded in Q2 of 2017.

The NSE Facts Sheet shows total volume of stocks traded in Q2 declined by 5.71percent to 23.05billion, while average daily transactions in Q2 at 4,382.52 represent a decline of 2.93percent.

Some analysts did not rule out the impact of rising uncertainty ahead of Nigeria’s 2019 general election on equities trading activities and the decisions of foreign investors to repatriate their matured fixed income investments due to low yields.

“Due to a strengthening US dollar, higher US interest rates, and treasury yields, naira assets began to experience marked pressure by Q2-18. Despite political concerns, we believe risk-off sentiment may be exaggerated given that economic fundamentals in Nigeria remain broadly supportive”, the analysts said in their recent daily insight “how intense will the foreign bears be in H2-18?”, according to Kayode Tinuoye-led team of research analysts at Lagos-based United Capital Plc.

Though, the decline seen in trading activities in second-quarter runs contrary to record great flows in 2017 and first-quarter (Q1) of 2018, but the research analysts at United Capital still expect a continued flight from equity to fixed income investments “as coping strategies for higher volatility in the financial market”.

Read also: Stock market dips by 1.20% in week ended March 31

Trading figures from major custodians and market operators at the NSE showed that foreign investors outperformed domestic investors by 9.07percent in June 2018.

Total domestic transactions reduced by 31.87percent, from N125.32billion in May to N85.37billion in June 2018. Foreign transactions also reduced by 46.92percent from N192.95 billion to N102.41 billion within the same period.

There was a 22.71percent decrease in foreign inflows from N62.06billion in May 2018 to N47.96 billion in June 2018. However, there was also a significant reduction in foreign outflows which reduced by 58.40percent from N130.89billion to N54.45billion within the same period

Total transactions at the nation’s bourse reduced by 41percent from N318.27 billion recorded in May 2018 to N187.78billion (about $614.1 million) in June 2018.

Month-on-month (Mom), the total transactions which stood at N212.23billion as at April 2018 and N318.27billion in May 2018 declined remarkably to N187.78billion as at June 2018.

The Nigerian Stock Exchange services the largest economy in Africa, and is championing the development of Africa’s financial markets.

Recent reversal in stocks’ downward trend can be attributed to bargain hunting investors who are taking advantage of lower prices as well as those investors who are strategically positioning ahead of more first-half (H1) 2018 results and the relative stability seen in the economic environment.

Worthy to note that in Q2, the value of transactions across all products on the NSE totaled N359.33billion and represented an increase of 49.31percent, from Q2’2017 level of N439.78 billion.

Also in Q2, the equity turnover velocity also increased by 1.96 percentage points to 10.35percent, from 8.39percent in Q2 2017. The dividend yield for the 52-week period ending June 30, 2018 was 4.53percent, compared to 5.11percent for the previous year.

At the end of Q2 2018, the average PE ratio of The Exchange’s listed equities stood at 21.83 compared to 21.07 in the previous year.

In Q2 2018, the average daily value traded across all products on the NSE, increased by 46.82percent to N5.99 billion ($16.58 million), from N4.08 billion in the corresponding quarter of 2017; while the number of transactions recorded during the quarter decreased marginally by 2.93percent.

“The equity markets across the globe recorded mixed performances in the month of June. The signal of possible trade wars between the US and China might have had a negative impact on the global equity markets”, FSDH Research analysts noted in their monthly strategic report.

They noted that the performance of the equity market between July and June in the last five years shows that the market recorded negative performances in 2014, 2015 and 2016; while it appreciated in 2013 and 2017. “Despite the fact that the equity market recorded more losses than gains in the last five years, the equity market is showing signs of recovery. We expect the equity market to appreciate from the current levels as investors take position in the market ahead of the release of HY1 2018 results,” FSDH research analysts said.