… Fallout of low yield in money market instruments
Despite the prevailing economic downturn and the devastating effect of the COVD-19 crisis, the Nigerian stock market sustained eight consecutive months of bull-run from April 2020, even as investors’ fortunes soared significantly by N1.130 trillion in January.
For instance, the All-Share Index (ASI) gained 5.32 per cent to close on January 29, 2021, at 42,412.66 basis points from 40,270.72 points at which it opened for the year. Market capitalisation for the period rose by N1.130 trillion to close at N22.187 trillion up from N21.057 trillion.
Also, the sectoral performances were positive; the NSE’s Insurance index recorded the highest rise during the month, gaining 29.77 per cent. The NSE Oil and Gas index followed with a monthly gain of 12.43 per cent, while the NSE Banking index rose by 7.89 per cent in January.
Operators at the weekend linked the early boom to the low yield environment in the fixed income market, which is expected to continue in the short term going by the position of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meeting.
The Head of Research, FSL Securities Limited, Victor Chiazor, said: “The positive sentiments experienced in the market are as a result of the low yield environment in the economy, which is expected to continue in the short term going by the position of the CBN MPC team.
“Full-year earnings for most of the listed companies are also expected to come out strong, going by their nine months results while we project most of them to repeat similar dividends declared for the full year 2019.
“For this interest inequities to be sustained into most part of the year, fixed income yield has to remain low while corporate earnings for the first quarter of 2021 needs to be positive to keep investors interested in the equities market.”
The Chief Executive Officer, Investdata Consulting, Ambrose Omordion, said transaction volume remained on the rise in January, with a positive breadth that reflected strong liquidity fundamentals and investor confidence.
He said there were also anticipations of a bumper harvest in the 2020 full-year results following the improved Q3 numbers and unaudited full-year earnings released so far in the market.
He noted that despite lingering economic downturn, compounded by the Coronavirus (COVID-19) pandemic, fueled by recession, positive buying sentiments for blue-chip and growth stocks have continued to wax strong as the earnings reporting season draws closer.
Omordion added that with positive breadth, there is the possibility of high dividend yields that will attract more inflows to the market.
However, he warned that volatility is expected to continue in the new month, even as the outlook remains mixed due to likely price corrections, or pullbacks for a few days due to profit-taking and portfolio reshuffling ahead of year-end and 2021 corporate actions.
“The equity market has maintained its uptrend and recovery since April 2020, despite the seeming disconnection from the current economic realities, sustaining seven consecutive months of bull-run, with transaction volume on the rise, with a positive breadth that reflected strong liquidity fundamentals and investor confidence.
“Trading on the NSE in January, the first month of the year ended on a positive note, even as Friday’s market rally suggests a trend continuation with gaps being filled ahead of the release of more audited earnings reports especially by early filers in February and an eventual portfolio reshuffling along with sectors and companies’ performance.
“Many equities are selling new 52-week highs despite the country’s rising inflation especially in December 2020. Irrespective of the ongoing recession, positive buying sentiments for blue-chip and growth stocks continued to wax strong as the earnings reporting season drew closer.”
He said all the sectorial performance indexes and other NSE indices were bullish within the month except for the NSE Growth index that closed 3.22% in the red.
The best-performing stocks for the month under review were predominantly low and medium caps across the consumer goods, insurance, agribusiness and oil marketing sectors, led by Champion Breweries, which gained 261.63 per cent. It was followed by Livestock Feeds’ 85.61 per cent and the 73.08 per cent gain notch by Linkage Assurance. Mutual Benefits Assurance climbed 59.26 per cent up on positive sentiment for sector recapitalization moves; just as NCR chalked 59.18 per cent, among others.
During the month, the MPC at its 277th meeting unanimously voted to retain the MPR and other key parameters at their current rates; hold Monetary Policy Rate (MPR) at 11.5 per cent, maintained the asymmetric corridor around the MPR at +100/-700bps, retained Cash Reserves Ratio (CRR) at 27.5 per cent, and Retained liquidity ratio at 0.0 per cent.
Also commenting, the President, Ibadanzone Shareholders Association, Eric Akinduro, described the performance of the market in January as very encouraging.
“Some of the factors which I believe are responsible are quarterly results of these companies, which to us show positive signals towards the full-year result. Also, market watchers believe that prices will still rise due to dividend declaration. Looking at dividend yield, which most of the time is up to 10% compared to what is obtainable in the money market is another factor that is driving the market presently.”
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