Stock Market Investors Gain N1.124trn in January on Sustained Momentum

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Investors in the Nigerian equities market continued their reaping streak as they recorded another gain in January, following sustained high demand for stocks.
Having gained N8 trillion in 2020, investors witnessed a growth of N1.124 trillion in January.

The market capitalisation of listed equities rose from N21.063 trillion to N22.187 trillion, translating into a gain of N1.124 trillion or 5.3 per cent.

The Nigerian Stock Exchange (NSE) All-Share Index (ASI) ap preciated 5.3 per cent from 40,270.72 to close the month at 42,412.66, which was the best performance among the African markets.
Low yields in the fixed income market and other factors had last year propelled the nation’s equities market to close as the best performer globally.

Although some profit-taking was expected in the 2021, sustained bull run following persistently low yields in the fixed income space and investors positioning in fundamentally sound stocks with attractive dividend yields ahead of the earning season, made the market deliver another record performance in January.

However, the growth recorded in the first month of 2021 was not unexpected because most market and investment analysts had predicted a sustained bull run in the greater part of the first half of the year.
For instance, analysts at Norrenberger Financial Group, a leading financial services group, had said equities market were likely to remain favoured in 2021.

“The Nigerian equities market in 2021 will be shaped by system liquidity, corporate earnings, attractive corporate dividends, foreign exchange and foreign portfolio investors. The fixed income market may likely return to higher yields on the back of overbought in the equities securities market, local borrowings, and monetary policies,” they said.

Analysts at Cordros Securities Research said the market performance would be primarily determined by domestic participation, which will be supported by the low fixed-income income yield environment, liquidity surfeit, investors positioning for dividends and stronger corporate earnings growth (mostly on the low base in 2020).

“We expect the Nigerian Stock Exchange (NSE) All-Share Index (ASI) to record a positive performance in 2021, albeit substantially lower when compared to 2020. ASI currently trades at a P/E (x) of 12.5x, making it just about fairly valued compared with its seven years average of 12.2x, but still cheaper compared to frontier market peers of 15.1x,” they said.
Last week alone, the market appreciated by 3.3 per cent with analysts at Greenwich Merchant Bank envisaging a continuous uptrend.

According to them, increased bargain hunting across top counters was witnessed last week, as investors positioned across fundamentally sound counters in anticipation of the full year corporate earnings releases.

“We also note the key policy rate was left unchanged at the Central Bank of Nigeria (CBN) Monetary Policy Committee’s meeting in week, alongside the other policy parameters. Hence, we expect factors like the kick-off in the earnings season, and the persistently low yields in the fixed income space should drive activities next week. We envisage the market will maintain its uptrend, countered by pockets of profit-taking by contrarian investors,” they said.

Similarly, analysts at Cordros Securities said with the outcome of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting aligning with market expectations amid negative real returns in the fixed income market, they expect risk-averse investors to recalibrate their portfolio towards fundamentally sound stocks with attractive dividend yields.
“However, we advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings,” they said.

According to the Chief Research Officer, Investdata Consulting Limited, Mr. Ambrose Omordion, the market performance was helped by the influx of unaudited corporate earnings offering insight into what investors should expect from the 2020 December year-end audited earnings reports.

“This is in the midst of positive sentiments that have been helped by the decision of the CBN MPC to leave rates unchanged, following which funds continue to enter the market as indicated by the money flow index and sentiment report. We advise that players should take advantage of breakouts to position in dividend-paying stocks, with numbers likely to beat expectation, given that the factors driving the rally remain intact. We note too that trading patterns are supporting mispriced stocks and high yield dividend-paying companies,” he said.

Omordion explained that the numbers (companies’ results) released so far are providing a more directional investment strategy for investors, but the continued upward trend could also be linked to the several moves by the government, especially through the CBN to take the economy out of recession.

“We note too that corporate earnings and indeed the stock market are already pointing to a recovery from recession. Despite these moves, we advise that traders and investors should play with caution, considering the sharp movement in the market and happenings around the globe,” he stated.

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