Capital gains on shares hit their highest level in 7 months at 1.2 billion naira

* Development driven by the rebound in crude oil prices – Analysts

By Nkiruka Nnorom

The Nigerian stock market has rebounded dramatically, with figures for the third quarter of 2021 showing capital appreciation of around 1.196 trillion naira.

Analysts attributed this development to the recent rise in international crude oil prices as the third quarter earnings season is expected to produce positive numbers.

The move was also broadly in line with analysts’ speculation that the market would improve despite the negative sentiment that had pervaded most of the first half (S1’21) about rising rates on income instruments. fixed during the period.

Recall that the market fell 6.2% in the first half of 21 after the benchmark All Share Index (ASI) fell to 37,907.28 points in June 2021, resulting in losses of 1.3 trillion naira for investors.

However, the trend began to reverse in July and peaked with a move north at the end of the third quarter.

The price of crude oil rose to over $ 80 / barrel in September and is expected to cross $ 90 by the end of the year.

Specifically, the market capitalization of all listed stocks, which represents the wealth of investors, rose to 20.956 billion naira at the end of the third quarter of 21, from 19.760 billion naira at the start of the quarter, an increase by 6.05%.

Likewise, the All Share index hit a seven-month high, rising 6.11% to 40,270.72 points at the end of the review period, from 37,907.28 points at the start of the quarter, moderating thus the annual cumulative (Y-to-D) of losses at -0.1%.

It also reflects the trend in the third quarter of 20 when investors gained 1,255 trillion naira after market capitalization appreciated to 14,025 billion naira at the end of the period from 12,770 billion naira. at the start of the quarter, which represents an increase of 9.8%.

Explaining the rebound in profitability, Ambrose Omorodion, COO, Investdata, said: and the seasonality of the last quarter, as activities in the fixed income market are unclear despite the slight increase in rates during one-year treasury bill auctions that closed at 7.5%.

Month-to-month price movement

Meanwhile, the monthly breakdown of trading statistics showed the market started the year on a positive note, with investors earning 1.131 trillion naira in January. However, the trend reversed in February, with all gains made in January wiped out, resulting in losses of 1.38 trillion naira for investors following the change in investor preference for fixed income securities. .

Average primary market Treasury bill (TB) yields rose to 3.67 percent at the end of February from 1.28 percent in January. This resulted in an increase of 186 percent.

The market maintained the streak of losses in March 2021, but at a slower pace, with investors again losing 395 billion naira.

However, the two straight months of losses were reversed in April following the reallocation of assets to equities during the companies’ impressive annual financial statements as well as heightened confidence bolstered by rising oil prices. As a result, investors earned N417 billion in April.

Analyst Commentary

Financial analysts have expressed optimism about the market outlook, saying the year will end up. They said, however, that the uptrend may not be strong as fixed income investments are expected to remain relatively attractive even in the second half of the year (S2’21) given inflationary pressures and the depreciation of the naira against foreign currencies, in particular. especially the dollar.

For analysts at Cowry Asset Management, “We believe that the marginal recovery of the benchmark in S2’21 would be driven by an appreciation in the prices of stocks of companies with attractive dividend yields, wider margins, an increase. of earnings per share (EPS) and an average equity return.

In addition, companies whose share price trades above their net worth per share (EVS) and achieves higher profitability with a falling leverage ratio are expected to experience some level of capital appreciation at during the last months of 2021. “

In his opinion, Mallam Garba Kurfi, Managing Director of APT Securities & Fund Limited, said: “This is related to the expectation of good results in the third quarter and the rise in crude oil prices. They all leave hope for a better return by the end of the fourth quarter. I still thought that ASI would positively close by the end of the year.

Also speaking, Invesdata’s Omorodion, said that taking a position in large-cap stocks that control 70% of the market’s benchmark supported the rebound.

Regarding the outlook, he said: “This rebound which has pushed the Nigerian Exchange (NGX) index to cross the psychological line of 40,000, should continue if company figures exceed expectations to maintain the uptrend observed during of previous quarters, given the negative impact of the naira. devaluation and currency market crisis.

Cordros Capital analysts have also expressed the possibility of a sustained market rally in the remaining part of the year. They based their optimism on the possible return of foreign portfolio investors (REITs), who have so far been net sellers of Nigerian stocks, and the expectation of dividend payments, among others.

“In the bond market, we believe yields are at a resilient level, so we expect the naira curve to inflate from the second half of the year. We believe that the reduction in government supply and the government’s deliberate efforts to reduce the overall cost of borrowing will facilitate lower yields, albeit above 2020 levels, in the months to come ”, they declared.

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