Nigeria’s equity market has gained 2.4 percent since the Central Bank of Nigeria restricted non-banks from purchasing Open Market Operations (OMO) bills.
The directive has forced non-banks from pension funds to money managers to pile into equities. Investors also fleeing from negative real return in Treasury bills are also rotating to the equities market.
The new found attraction to equities is aided by Tier-one banks from Zenith to United Bank for Africa which already have dividend yields higher than the one-year treasury bills.
Analysts are however torn between what will happen to stocks in the near term. While some see negative real returns on Nigerian debt forcing investors to take position in equities thereby driving the market higher others beg to differ, saying the underlying weak economic fundamentals may soften appetite for stocks.
“Equity investors have been disappointed by low growth and had hoped to see a convergence of exchange rates, rapid reform of the electricity sector and greater efforts to attract foreign direct investment,” said Charles Robertson, the chief economist at Renaissance Capital.
Robertson implied that economic reforms addressing these challenges will be required to sustain any stock rally.
Despite the recent rally, stocks are down 14 percent year to date and are some of the worst performers globally.
In the same vein, an economist, John Ashbourne, who attributed the poor stock market performance to low confidence, “expects the market will continue to struggle in 2020.”
“It is difficult to see, in the short term, what could change to boost investors’ confidence in policymaking and growth,” Asbourne said.
The National Bureau of Statistics on Friday said economic growth expanded 2.28 percent in the third quarter, as economic growth continues to under perform population growth of 2.6 percent.
The performance of the NSE is a consequence of pessimism about the economy and the ability of listed firms to deliver profits, and fear of a future foreign exchange crisis.
These factors have left many funds only willing to invest in short-term securities which limit their exposure to future currency problems.
Those two drivers of the sluggish NSE performance are set to remain at least for the next year unless there is a change in policy direction, according to Nonso Obikili, chief economist at BusinessDay.
The lack of growth and absence of short-term catalysts has made consumer companies on the NSE unattractive for investors.
The story may have changed recently, but the common thread in the views shared by analysts is that the economy will need some tough reforms if the stock market rally is to be sustained.
A total turnover of 1.416 billion shares worth N17.249 billion in 20,303 deals were traded last week by investors on the floor of the Exchange in contrast to a total of 2.084 billion shares valued at N33.867 billion that exchanged hands the prior week in 21,849 deals.
The Financial Services industry (measured by volume) led the activity chart with 880.236 million shares valued at N8.089 billion traded in 12,488 deals; thus contributing 62.15% and 46.90% to the total equity turnover volume and value respectively. The Conglomerate industry followed with 283.854 million shares worth N1.587 billion in 841 deals. The third place was Consumer Goods industry with a turnover of 80.804 million shares worth N2.349 billion in 2,871 deals.
Trading in the Top Three Equities namely, UACN Plc, FBN Holdings Plc and Access Bank Plc (measured by volume) accounted for 554.855 million shares worth N4.310 billion in 4,113 deals, contributing 39.18% and 24.98% to the total equity turnover volume and value respectively.
