Nigeria’s Equity Market Loss N1.37tr After 7-Month Bull-Run, Investors Await Elixir

Market Roundup for February

The month of February was a red one for the Nigerian Stock Exchange, halting seven successive months of rally and wiping out January’s gains, after the All-Share index caved in to sell pressure, amidst profit taking and price corrections.

This coincided with the rising yields in the fixed income market, thereby creating buy opportunities for discerning investors and technically inclined traders, even as the market broke down the 40,000 strong support mark in February. The downtrend occurred on the back of pullbacks and lower traded volume when compared to transactions recorded in January, as early filers continued to hit the market with mixed numbers and dividend news that translated to better yields. 

During the month also, there were announcements of breakthroughs in the Coronavirus vaccines, a situation expected to drive oil prices at the international market, propelling global and domestic economic recovery.

In the midst of this also was the news of the outbreak of deadlier variants of the COVID-19 pandemic in its second wave; made worse by the rising insecurity across the country with kidnappings across the country and mass abduction, especially of school children becoming a daily occurrence. Add this to the incidences of policy mismatch between the fiscal and monetary authorities, then you have a very unfriendly situation that threatens economic recovery, fresh from exiting recession, the second in four years.

According to the National Bureau of Statistics, Nigeria’s Q4 GDP turned mildly positive at 0.11% from Q3’s 3.62% contraction.

The seeming economic recovery and the rise of crude oil above the nation’s $45 budget benchmark are positive signs for the equity market, going forward, despite the ongoing portfolio realignments, due to improving yields in Treasury Bills and Bonds.

With the expected influx of more audited earnings reports and rising inflation in the new month, reversal is underway to halt the selling sentiments as dividend yields of blue-chip and growth stocks become better and more attractive.

The composite index closed activities for the second month of the year on a negative note, as Friday’s market dip suggests a trend continuation as the market is yet to respond to the mixed numbers as released due to liquidity.

As noted earlier, the audited scorecards of various listed companies released so far have given insights into what we should expect from different sectors and individual stocks. The possibility of prices reversal is high, amidst portfolio reshuffling on the strength of the 2020 full year numbers and corporate actions. 

In the 20 trading sessions of February, the NSE All-Share index recorded loses in 16 sessions and was up in just four trading days, resulting in 6.16% loss throwing the NSEASI year-to-date into a of 1.17% loss. This happened owing to price corrections, despite strong fundamentals, and high dividend yields that attracted more inflows to the market.

Specifically, during the month, the NSEASI lost a total of 2,612.77 basis points, closing at 39.799.89bps, after touching low of 39,792.23bps from highs of 42,472.56bps for the month, compared to the 42,412.66bps at which it opened, on high selling pressurethat impacted negatively on the index and stock prices, pushing them down to breakdown various support level and psychological lines. Market capitalization fell by N1.37tr, closing at N20.82tr, from N22.19tr, representing a 6.19% value loss. The month’s total ‘sell’ volume was 100%, halting the seven-month bull transition, while volume index for the period was 1.33.  

Transacted volume for the period was down by 24.34%, at 8.92bn shares, as against 11.79bn units recorded in the preceding month, just as market breadth for the month was negative with decliners outnumberingadvancers in the ratio of 78:22 to short-lived the seven months of up market as liquidity flow out of equity assets as a result of factors mentioned above.

Bearish Sectorial Performance

Performance indexes across the sectors and market fell, except for the NSE Energy and NSE Growth index that closed the month higher by 4.36% and 9.33% respectively. As shown by the chart below, the NSE Insurance, Banking, Industrial and Consumer Goods indexes depressed the market the most during the month, worse than the general market. The NSE Insurance index lost a total of 17.82%, driven by profit taking and selloffs in the underwriting industry.

Others are represented in the chart below, revealing investors’ negative sentiment and indecision among traders, as the market’s Price-To-Earnings Ratio is below 15times.

Best And Worst Performing Stocks For February

The best-performing stocks for the month under review were predominantly low and medium caps across the Oil/Gas, Services, Consumer goods, and insurance sectors, led by Lasaco, which gained 192.86% as a result of share reconstruction. It was followed by McNichols’ 56.86%; and the 24.24% notch by Academy Press. Guinness Nigeriaclimbed 21.32% up, on market forces and seeming improvement in its earnings; just as Morison Industry chalked 10%; among others.

The worst performing stock was Linkage Assurance, which lost 37.78%, amidst profit taking and market forces; followed by Royal Exchange Assurance’s 32.50% drop due to selloffs from its recent rally. Northern Nigeria Flourmills ’s share price declined by a further 27.48% showing display of power by players who are accumulating while others are booking profit. Sunu Assurance and Consolidated Hallmark Insurance lost26.67% and 25% respectively.

Technical View

The NSE’s Index action for the month was bearish, halting the V-shape recovery trend, as the index pulled back to breakdown some strong support levels of 42.000, 41,000 and 40,000 marks ahead of more audited financial reports. At the same time, it is trading above its 50-Day Moving Average on the monthly chart, despite the negative sentiments and low traded volume.

The trading patterns and momentum going forward are likely to change, as investors react to the expected audited full-year earnings news, portfolio rebalancing and repositioning, with dividend news and recovery oil prices.

Market technicals for the month were negative, a situation expected to change in the new month, that is the peak of the earnings reporting season.

Market Outlook

Mixed trend is expected to continue in the new month, even as the market outlook remains mixed and dicey due to likely price corrections, or pullbacks that may happen in the first week of March. The anticipated correction in the new month will strengthen recovery.  Despite the rising inflation, insecurity and the second wave of coronavirus, as this wave will further boost the healthcare sector due to government and CBN commitment to enhance public health.

But investors at this point should not be greedy. Instead, your decisions must be guided by investment goals and exit strategies, even as the healthy inflow of funds into the equity assets due to prevailing low rates in money market is likely to continued even as the last MPC meeting has reduced fear of funds leaving the market in the interim.

Again, the current breakdown of support levels offers traders opportunities to position for the short term, while investors should target fundamentally sound, and dividend-paying stocks for possible dividend income and capital growth.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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