Nigerian investors net N966.7b gains in Jan 2020 - The Nation Newspaper

By Taofik Salako

Investors in Nigerian equities netted N966.7 billion as capital gains in the first month of this year, as a strong rally in the early weeks of the year mitigated last week’s price depreciation. This technically implied that investors had in the first month recouped more than half of the N1.71 trillion lost in 2019.

Benchmark index for the Nigerian stock market at the weekend indicated average return of 7.46 per cent, equivalent to net capital gains of N966.7 billion. The All Share Index (ASI) – the value-based common index that tracks share prices at the Nigerian Stock Exchange (NSE) closed weekend at 28,843.53 points as against the opening index of 26,842.07 points for the year, representing an increase of 7.46 per cent. This implied a net capital gain of N966.7 billion on 2020’s opening market capitalisation of N12.958 trillion.

The stock market had recorded negative average full-year return of -14.60 per cent for the 2019 trading year, equivalent to net capital depreciation of N1.71 trillion for the year. It had recorded negative average full-year return of -17.81 per cent in 2018.

The January 2020 performance represents a fillip for hard-pressed investors amid expectations that attractive valuations and supportive fiscal and monetary environments could halt consecutive price depreciation at the equities market.

The ASI, which doubles as Nigeria’s sovereign equities index, had closed 2018 at 31,430.50 points, down from 38,243.19 points recorded as closing index in 2017. The 2019 pricing performance marked the fifth negative closing in six consecutive years. After a world-leading positive return of 42.3 per cent in 2017, the market had reversed to negative in 2018 with average full-year return of -17.81 per cent.

Sectoral analysis showed that the overall market performance in January 2020 was driven largely by gains recorded in the industrial goods and financial services sectors. The NSE Industrial Goods Index posted above average return of 14.39 per cent. The NSE Insurance Index appreciated by 4.91 per cent. The NSE Banking Index rose by 4.75 per cent while the NSE 30 Index, which tracks the 30 largest stocks at the NSE, appreciated by 8.25 per cent. The NSE Consumer Goods Index and NSE Oil and Gas Index however depreciated by 5.79 per cent and 4.19 per cent respectively.

Aggregate market value of quoted equities closed weekend at N14.857 trillion as against the year’s opening value of N12.958 trillion, an increase of N1.9 trillion. The difference between the benchmarked return of ASI and aggregate market value growth was due to the listing of BUA Cement during the month.

Based on market values, both the ASI and market capitalisation are correlated indices and without new listing or delisting, usually move simultaneously in the same direction. But the ASI is weighted, and as such adjusted for effect of new listing while the market capitalisation is a straight-line summation of share prices and issued shares. Thus, where the ASI and market capitalisation differ, the ASI is widely regarded as the true representation of the market condition.

Most analysts remained cautious about the short-term outlook for Nigerian equities, after the two-year consecutive decline.

Analysts at United Capital Plc projected that Nigerian equities may deliver a modest average return of some 5.3 per cent in 2020, although the overall market outlook remains susceptible to external shocks and domestic policies.

In its 2020 economic outlook report titled “A Different Playing Field”, United Capital stated that its base case scenario sees equities market returning +5.3 per cent in 2020, driven by local demand for high-quality dividend-paying stocks and increased system liquidity.

The report carefully considered events in the international economic environment, including the effects of the United States-China trade wars on the global economy, as well as piecing together the stance of the world’s biggest central banks from their decisions over the course of 2019. The report takes these parameters into consideration, combined with local happenings on the political and economic policy scene, to project the nature and movement of the economy and the financial market in 2020.

According to the report, the continued auction of high yield Open Market Operation (OMO) bills to foreign portfolio investors (FPIs) may keep foreign interest in local equity market tepid amid fears of a naira devaluation and confidence deficit in the economy.

The report noted that FPIs are likely to continue their flight to safety by swapping or selling equities for low-risk OMO bills pointing out that the outlook for stocks in 2020 was anchored on developments in the domestic and global economy with monetary policy as the biggest factor to watch.

“From all indications, the only justification for an uptick in the equities market is the lower yield environment, supported by increased local currency liquidity. However, this will not be enough to trigger a major rally in the absence of the demand from FPIs,” United Capital stated.

Analysts at CardinalStone, an investment banking group, urged investors to focus on fundamentally strong stocks to hedge against fluctuations in 2020. In its outlook for 2020, analysts at CardinalStone selected a portfolio of 10 stocks including four leading banks, two largest cement manufacturing companies, two consumer goods companies, a telecommunication company and a conglomerate with diverse businesses.

According to the report, there is substantial scope for capital gains in a portfolio consisting of Zenith Bank, United Bank for Africa, Guaranty Trust Bank, FBN Holdings, Lafarge Africa, UAC of Nigeria, Flour Mills of Nigeria, Nigerian Breweries, MTN Communications Nigeria and Dangote Cement.

The report noted that the leading banks have headroom for growth while the investment case for the duo of Lafarge Africa and UAC of Nigeria have become compelling following recent restructuring efforts.

The report stated that the performance of a few other consumer names is likely to be buoyed by debt refinancing initiatives while the two largest companies, MTN Nigeria and Dangote Cement, will benefit from reduced regulatory tension and strong market positioning set to buoy growth for respective duo.

“We expect improvement in the domestic economy on the back of the structural changes that began in 2019. Notwithstanding, per capita income is likely to remain frail with scope for further changes in consumption patterns and, possibly, excess capacity for a few companies,” CardinalStone stated.