Chinwendu Obienyi
For the sixth consecutive session, Nigeria’s stock market sustained its positive performance as the bulls showed no signs of an early retreat, posting gains on all trading sessions.
Analysts had predicted that profit taking would dominate activities on the floor of the Nigerian Stock Exchange (NSE) in the prior week, however, sentiments were strong as investors reacted to positive developments on the forex market, better-than-expected corporates earningsß (majorly bank stocks) and improved economic activities.
As a result, the domestic bourse recorded its largest gain in almost a month as its All Share Index (ASI) rose 1.2 per cent, week-on-week (w/w), to 25,605.64 points – the highest since March 9, 2020. Consequently, market capitalisation increased by N154 billion to settle at N13.358 trillion, while year-to-date (ytd) loss moderated to -4.6 per cent.
Analysis by Daily Sun reveal that a total turnover of 2.209 billion shares worth N10.957 billion in 18,013 deals were traded by investors, in contrast to a total of 1.072 billion shares valued at N7.384 billion that exchanged hands in the prior week in 16,684 deals.
Furthermore, investors have pocketed N33 billion from an opening value of N12.882 trillion to N13.212 trillion at the end of August 2020. Thus, in addition to the N113 billion gain in July, the stock market has posted at least N146 billion in two months even if it does not match up to the figure of N399 billion decline recorded in the month of June.
The figure is not all that bad considering the current state of the economy and despite the impact of the COVID-19 pandemic on all fronts, the capital market appears to be an investment haven for investors for now.
Investigations done by Daily Sun reveal that domestic participation as well as earnings from quoted companies on the NSE have been the driving force behind the gain witnessed at the market.
For instance, the total value of transactions completed by domestic investors surpassed that of the total value of transactions completed by foreign investors by 32.98 per cent in July 2020.
According to data obtained from the NSE’s Domestic and Foreign Portfolio Investment (FPI) report, domestic participation stood at 66 per cent as against 34 per cent on the part of foreign participation.
Also, institutional investors outperformed retail investors by 6 per cent even as retail transactions increased marginally by 0.62 per cent from N32.34 billion in June 2020 to N32.54 billion in July 2020.
According to market watchers, the main factors behind the bullish streak include recent stability in the foreign exchange (forex) market which has provided the needed market confidence in boosting market liquidity relatively, earnings from companies as well as increased participation from domestic investors.
Speaking to Daily Sun via a telephone chat, Managing Director, APT Securities, Kurfi Garba, said, investors have picked the capital market as a better option to invest due to the attractive dividend yield on stocks which was undervalued.
He said: “Investors are looking for options as to where they can invest their money and we are all aware of the CBN’s recent directive dropping savings account interest rate to 1.25 per cent per annum, is that an investment compared to inflation that is close to 13 per cent. The money market is not a yielding haven for investors now as rates are down because of the current figure of inflation. For bonds, they do not come to the market daily and so the next option is the capital market.
“Most of our stocks are undervalued and looking at the dividend yield, most of the stocks give up to 15 or 20 per cent. For instance, UCAP pays up to 50 kobo, but a few weeks ago, they were around N2.50 and so a stock that gives you 50 kobo and is trading at N2.50, that is 20 per cent. The dividend yield even without price appreciation is enough to encourage investors to invest and so the capital market is a better option. The truth is that any return that is below inflation is a negative return”.
Corroborating him, Managing Director, Afrinvest Securities Limited, Ayodeji Ebo, explained that returns on fixed income investments are very low at the moment compared to potential returns gotten from equities with risk.
According to him, domestic investors have been the major players in the last few months, close to 60 per cent on a cumulative basis and so on a dividend yield perspective, the equities market looks very attractive.
“Looking at interim dividends declared from quoted companies, some of them have a 2 to 2.5 per cent dividend which is higher than a 90-day treasury bill and by the time these companies pay final dividend, one will be getting a 10 per cent yield on investments compared to fixed income instruments.
So most of these investors, particularly the domestic ones are repositioning themselves after they saw that most earnings from companies were not that disappointing despite the impact of the COVID-19 and so they are positioning themselves for the long term. We will continue to see some form of marginal gains this month and investors would remain cautious and we expect participation from domestic investors to increase at the end of September”, Ebo said.
For their part, Cordros Capital, said, “Our view continues to favour cautious trading as risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to seek trading opportunities in only fundamentally justified stocks”.