Chinwendu Obienyi

There is likely to be cautious trading opportunities for investors trading on the floor of the Nigerian Stock Exchange (NSE) even as the market braces up for more corporate earnings releases to dictate the performance of the market.

Daily Sun investigations revealed that sentiments remained weak in the domestic market amid rising COVID-19 cases in the country as well as persisting FX illiquidity. However, a one-off gain on Thursday, driven by a surge in Dangote Cement (+6.5 per cent), led the domestic bourse to its largest weekly gain in seven weeks.

At the close of transactions on Friday, the NSE All-Share Index and market capitalization both appreciated by 0.58 per cent and N73 billion respectively to close the week at 24,427.73 points and N12.743 trillion respectively. Analysing by sectors, the Oil & Gas (-4.7 per cent) index led the losses, followed by the Insurance (-0.8 per cent), Banking (-0.6 per cent) and Consumer Goods (-0.4%) indices. However, the Industrial Goods (+0.6 per cent) index was the sole gainer for the week with analysts noting that the events of the first half of the year cautions against an overly optimistic outlook for the second half of the year (H2 2020).

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The equities market had kicked off the year amid stronger optimism propelled in part by the unattractive fixed income yield environment and the hunt for high dividend yielding stocks by investors. However, the outbreak of the COVID-19 pandemic and the economic fallout swiftly put an end to the early optimism, with the resulting fear and uncertainty dictating market sentiment for the rest of the first half.

As the pandemic continued to spread with Nigeria recording its first case, stocks lost 9.1 and 18.8 per cent in February and March due to lockdown and elevated external risks. In early April, sentiment worsened on the back of weaker oil prices, fueling exits that dragged the year-to-date (ytd) return to a low of -23.0 per cent. However, interests from local bargain hunters mostly drove the market performance in April (+8.1 per cent) and May (+9.8 per cent) into positive territory. The benchmark index settled at a ytd return of -8.8 per cent in the first half of 2020 (H1 2020).

Analysts who spoke to Daily Sun said the recovery pattern in late H1 2020 would be sustained due to an improvement in risk appetite mostly from the locals and an improvement in external conditions.

In a report titled the Nigerian Economic and Financial Markets H1:2020 Review and H2:2020 Outlook – Opportunity in a Crisis?, Afrinvest said, “we note that the downside risks to our expectation include tightening of the partial economic reopening due to new wave of the COVID-19 spread, lower oil prices, MSCI’s classification of the Nigerian market as a standalone, continued FX illiquidity and weaker than anticipated economic and earnings growth.