• Monday, April 15, 2024
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Surge in stock market to gain momentum in 2013 on back of falling bond yields

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Nigerian stock market bulls say last year’s surge in share prices will continue throughout 2013, citing falling bond yields and strong earnings as powerful lures for investors to return to the market, according to Reuters.

Nigeria ended 2012 as the second best performing stock market in Africa behind Uganda, after index rose 35 percent.

So far this year, it has risen 18.2 percent, vastly outperforming emerging market peers, which are down on average 1.3 percent this year.

In the first six weeks of trading, the index climbed to a 4-year high, breaking through the 33,000 resistance level on bargain hunting for banking shares seen as cheap after they reported strong third quarter earnings

 

Improved liquidity from a market-making programme on equities introduced last September has also helped build confidence.

Analysts expect the momentum to continue this year.

“We expect … the (Nigerian) index to reach 38,000 mark … if earnings growth is sustained”, Funmi Akinluyi, Silk Invest’s sub-Saharan Africa investment director, said.

Earnings for the majority of listed firms, including full-year results for banks, are due to be released from this month, and most analysts expect them to show significant growth.

Diamond Bank expects 2012 profit to hit N30 billion, the lender said during the release of its nine month results, where it posted N23.2 billion profit, compared with a loss of N16.3 billion in 2011.

The index of Nigeria’s top ten banks has risen 20.5 percent so far this year on earnings expectations.

Adeniyi Falade, managing director at Crusader Sterling Pensions, expects stocks to gain 20 percent overall this year, driven by strong earnings and a naira that has steadied at 157 level against the U.S. dollar, thanks partly to central bank intervention, making it more attractive for offshore funds.

“We will have 15 percent (allocation in stocks in 2013) … compared with 10 percent last year”, Falade said. He said bond yields were close to inflation, so real returns were near zero.

The most liquid 3-year and 5-year sovereign bonds are 10.55 percent and 10.32 percent, respectively, almost touching the latest January inflation figure of 9 percent,

Reuters data shows.

Last October, JP Morgan added Nigerian government bonds to its emerging market index, which triggered a sharp fall in bond yields of more than 300 basis points across maturities.

Nigeria’s stock index has surged but remains less than half its value before a 2008 banking crisis.

Analysts say banks, a late comer to last year’s stock rally, still have room for growth relative to emerging market peers.

For instance, Nigerian lenders are trading on an average price to book ratio of around 1.2 times, and return on equity of 18 percent, compared with the emerging market average of 1.6 times price to book and a return on equity of around 14 percent, an analyst at FBN Capital says. He cites UBA, Diamond Bank and Skye Bank as top picks