Did you hear about last week’s stock market rally and wonder what happened after months of consecutive losses, or perhaps why you didn’t invest beforehand to join the league of investors smiling to the bank?
Well, you haven’t missed so much. Santa Claus probably came a bit early this year and it’s almost unlikely it would leave immediately. So, let’s get to the details.
The holiday-shortened week was a remarkable one for stocks listed on the Nigerian Stock Exchange (NSE), particularly those trading in the banking sector. Some investors whose wealth had been chopped off by negative market sentiments since the year began heaved a sigh of relief as main equity gauge jumped 2.04 percent on a week-on-week basis to sustain gains recorded in the preceding week.
The impressive performance was largely driven by some OMO maturities owned by local big investors – mostly pension fund managers and insurance companies – which could not find their way back to the OMO market following CBN’s restrictive policy.
Consequently, these local investors who were scavenging for alternative investment outlets piled into the treasury bills primary market auction, a move that sent the real returns on the short-term government debt instruments to the negative zone – lower than Nigeria’s 11.24 percent inflation rate in October.
However, with Nigerian stocks trading at more than 16 percent below its value when the year kicked off, investors shrugged off equity risk to take advantage of high dividend yield stocks in the banking segment of the market, leading to Santa’s early arrival.
The sustainability of this, at least in the short term, depends on a number of factors which include inflows from OMO maturities which can’t be reinvested, treasury bills and bond auctions, as well as high dividend yield in fundamentally sound stocks.
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The OMO market is expected to witness six more maturities amounting to N3.32 trillion before the year runs out, according to Lagos-based investment house, ChapelHill Denham.
This implies with holdings of domestic corporates and individuals in the market which is estimated at about 25 percent of outstanding OMO bills equal to about N829.25 billion would have to seek for investment opportunities in bonds, treasury bills, equities among others.
The Debt Management Office (DMO) will auction two more FGN Bonds before the end of the year, according to the FGN bonds issuance calendar for the fourth quarter of 2019.
The federal government plans to raise N300 billion from the bonds, indicating foreign portfolio investors and banks which account for a larger share of the market would leave less than N150 billion for the local non-banks and individuals.
Consequently, it is estimated that N680 billion worth of liquidity would be left for investment placement in either treasury bills, equities or other assets.
However, the CBN indicated it would still conduct an NTBills auction this month to rollover about N150.6 billion worth of maturing papers on November 28.
While demand for the issuance may become weak given the lower rate environment on TBills which crashed to single digits at the last primary market auction, BusinessDay estimates if local non-banks and individuals account for half of the successful bids at the auction, at least N605 billion will be hunting for investable instruments aside OMO, NTBills and Bonds.
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This creates an opportunity for equities to remain bullish in the short term, even though fundamentally sound stocks with high dividend yield will most likely be the greatest beneficiaries. This and other factors were considered in the compilation of this watchlist.
While this stock watchlist is not a BUY, SELL or HOLD signal, it gives a list of equities that you can put on their radar to make more informed investment decisions. It is wise to consult your financial advisor before making any investment-related decision.
Investors should understand that equity investment in a company will not automatically guarantee good returns. While you could gain so much money, you also stand the chance to lose all your capital. So, it requires having good knowledge of the industry the company operates, its corporate disclosures, micro and macro-economics, your risk tolerance, as well as the ability to understand financial statements among others.
Among the stocks to monitor this week based or recent developments in the market are tier-one lenders Zenith Bank, United Bank for Africa (UBA) and GTBank. These banks currently have the highest dividend yields of 14.85 percent, 11.49 percent and 9.48 percent in the sector, respectively.
These stocks correspondingly delivered 12.12 percent, 11.66 percent, and 4.55 percent worth of returns to investors in the past week on the Nigerian Stock Exchange (NSE).
Wema Bank, Access and Fidelity Bank trailed for being the best-performing stocks at the local bourse last week. Wema Bank gained 18.64 percent to close at 70 kobo, Access Bank jumped 17.39 percent to N10.80, while Fidelity surged 12.57 percent to settle at N2.06.
Conversely, Ikeja Hotel, Total Nigeria, and PZ Nigeria made this watchlist for being the worst-performing stocks last week. Ikeja Hotels lost 10.31 percent of its market value to close at 87 kobo, Total Nigeria dropped 9.98 percent to N110.90, while PZ Nigeria fell 9.91 percent to N5.
Finally, with the decision of Red Star Express to raise additional capital of N1.34 billion through a rights issue between November 11 and December 18, the stock had a place among the list of stocks to keep an eye on. The stock remained unchanged last week at N4.45.
