. Equities market may close positive this year– Analysts
ANgozi Amuche
Investors at the Nigerian Stock Exchange have renewed interest in the stock market following bargain hunting in the third quarter (Q3) of the year, as investors’ gain went up by N1.255trillion, to N14.25trillion.
This was inspite of the excruciating impact of the Coronavirus pandemic, which shut down the entire sectors of the economy and put millions of Nigerians out of work.
The lockdown ordered by the Federal Government to curtail the spread of the pandemic from March 30, 2020, had crippled business activities, with more adverse effects on most private organisations, which laid-off workers while few that remained had their staff salaries slashed.
Key financial indicators of the NSE, the All Share Index (ASI), went up by 9.61 per cent to close at 26,831.76 points on September 30, 2020 from 24,479.22 points at which it opened trading on July 1, 2020.
The market capitalisation for the period went up by N1.255 trillion, to N14.025 trillion from N12.770 trillion, while performance across the major sectoral indices was positive during the period as of September 25, 2020, with the NSE Pension index leading with 8.67 per cent gain.
NSE Premium index followed with a gain of 8.39 per cent, while NSE Banking index up by 7.28 per cent. NSE 30, Industrial Goods, Insurance, Consumer Goods and Lotus II indices closed Q3 in a positive territory with a gain of 6.79 per cent, 5.22 per cent, 4.52 per cent, 3.84 per cent and 3.42 per cent, respectively.
On the other hand, NSE Oil and Gas in the period under review declined by 2.28 per cent.
Trading activities on the market in Q3 was impressive as the market showed a rebound from COVID-19 pandemic. The three months in the quarter, July, August September closed positive.
Capital market analysts are of the view that the market witnessed return of foreign portfolio investors and institutional investors back during the period under review as bargain hunting persisted amidst earnings reporting season, monetary easing and drop in fixed income yield.
They pointed out that the negative returns on other investment windows propelled the flow of funds into equity assets, especially against the backdrop of the untamed inflationary pressures, especially the last two weeks of the quarter.
The Monetary Policy Committee (MPC) at the end of its meeting on Tuesday, September 22, 2020, voted to reduce the Monetary Policy Rate (MPR) by 100bps to 11.50 per cent, despite the rising inflation rate which rose to 13.22 per cent in August 2020.
Analysts said the recent decision by the MPC, alongside the expected sizable inflows into the financial system in four quarter (Q4), 2020, suggests that the low yield environment in the fixed income market will persist.
“Clearly, this makes the investment case for equities increasingly compelling, notwithstanding the rising country risk premium. As such, we expect to see continuous flow of funds into the equities markets, especially from local investors”, they stated.
A financial analyst, Mr. Kehinde Ademola, said the local investors and High Network Investors to a greater extent, drive the equities market. Although the volume and value have reduced, the market has been very steady.
He projected that the equities market would close positive this year.
In his response, the Vice President, Highcap Securities Limited, Mr David Adonri, stated that the equities market started poorly at the beginning of the year but recovered relatively at a point in the middle of the year.
He said the stock market gained as a result of the fiscal, monetary policies of the Federal Government and the Central Bank of Nigeria.
According to him, the CBN is embarking on Expansionary Monetary Policy, leading to investors surge interest in the equities market, while the Federal Government at the same time is implementing a palliative programme called Nigerian Energy Support Programme (NESP).
He said the N2.3trillion NESP has reflected in the economy, translating into the equities market recovery in nine months.
“Unfortunately, the economy does not have enough absorptive capacity; so a lot of that money is flowing into the equities market and foreign exchange market. That is why the equities market is propelling the growth of equities and that is the major reason,” he said.