Nigerian investors beat global anxiety with N2.07tr gains in two months

Nigerian investors beat global anxiety with N2.07tr gains in two months thumbnail

By Taofik Salako, Deputy Group Business Editor

Nigerian equities closed weekend with net capital gains of N1.17 trillion last month, bringing the total net capital gains in the past two months to N2.07 trillion despite the global and national anxieties over the Coronavirus pandemic.
Average gain over the past 60 days stood at about 19 per cent, placing most high-dividend yield stocks with positive real return when adjusted for inflation and average cost of capital.
Most active stocks carried double-digit returns as several stocks closed weekend at their highest prices in the past 12 months. Stocks with 52-week high prices included BUA Cement, Julius Berger Nigeria, Neimeth International Pharmaceuticals, May & Baker Nigeria, Custodian Investment and Cutix Plc.
With a two-month average return of 28.94 per cent in the banking sector and 30.56 per cent in the consumer goods sector, several mid and large-cap stocks in the financial services and real sectors are trading around their highs, above their 12-month average prices.
Aggregate market value of all quoted equities at the Nigerian Stock Exchange (NSE) closed weekend at N13.168 trillion as against N11.101 trillion and N11.997 trillion recorded in March  and April 2020.
The benchmark index for Nigerian equities market, the All Share Index (ASI) of the NSE, at the weekend, peaked at 25,267.82 points compared with 21,300.47 points and 23,021.01 points recorded in March and April 2020.
Other sectoral indices showed considerable positive returns over the two-month rally. The NSE 30 Index, which tracks the 30 largest quoted companies, carries a two-month average return of 21.49 per cent. The NSE Insurance Index posted average gain of 10.39 per cent. The NSE Oil and Gas Index indicates average gain of 6.06 per cent while the NSE Industrial Goods Index recorded average return of 15.80 per cent.
Although the four-month average year-to-date return is still negative at -5.86 per cent, investors in the insurance and industrial goods stocks are out of the woods already. The NSE Insurance Index carries a year-to-date return of 4.76 per cent while the NSE Industrial Goods Index stands with double-digits gain of 12 per cent.
Most analysts attributed the sustained rally to cautious optimism that Nigeria may brace the odds of the pandemic and come out relatively better than many other countries.
Senior Research Analyst, FXTM, Lukman Otunuga, at the weekend attributed Nigeria’s resilient performance to better-than-expected macroeconomic performance and relatively positive outlook, when compared against peer and advanced economies.
Nigeria’s economy expanded by 1.87 per cent in the first quarter of 2020, bucking the global trend of recessions triggered by the Coronavirus pandemic. While the first quarter 2020 represented a contraction by 0.68 per cent compared to the 2.55 per cent growth rate recorded in the fourth quarter of 2019 and 0.23 per cent, when compared to 2.10 per cent growth witnessed in first quarter 2019, it beat most analysts’ expectations.
According to Otunuga, Nigeria’s resilience against tumbling oil prices and the negative impacts of COVID-19 not only beats expectations, it won the first quarter 2020 round during which other larger and developed economies lost growth and confidence on a massive scale.
The United States economy contracted by 5.0 per cent while Gross Domestic Products (GDP) in the United Kingdom shrank by two per cent. In the Eurozone, the economy declined by 3.8 per cent.
“While Nigeria has not escaped the spread of coronavirus, at 8,915 infected and 259 deaths at the time of writing, the virus’ economic impacts were constrained relative to other regions,” Otunuga noted.
He pointed out that as the worldwide economy slowly gets back on its feet, Nigeria could be strongly positioned for a quicker-than-expected recovery, at least on the basis of the first quarter data.
He however cautioned that there are still uncertainties that could moderate the performance of the Nigerian economy, noting that the negative impacts of the Coronavirus pandemic, low oil prices and slowing global growth may be felt across the economy for the rest of the year.
“The Naira remains exposed to negative shocks, foreign exchange reserves have fallen to $33.4 billion and inflation has jumped to 12.34 per cent in April 2020, the highest since April 2018, meaning the Central Bank of Nigeria may have little room for maneuvre. Concerns over a coronavirus driven economic recession has prompted the CBN to reduce the Monetary Policy Rate (MPR) to 12.5 per cent, from 13.5 per cent in May. Although lower rates may promote economic growth, this may come at the expense of rising inflationary pressures. Given the current uncertainty around oil prices, the priority may be to boost consumption and continue diversifying the economy,” Otunuga said.
He said Nigeria’s outlook might be supported by its resilience and growing economic diversification, despite concerns that reduced budget, possible relapse in global oil prices and fear of a second wave of pandemic could mitigate overall economic performance.
“Economic data over the coming weeks will be critical in assessing whether Nigeria was able to weather the tornado of domestic and external risks in first quarter. I’m watching for data from the banking sector on credit reports in June. Inflation and labour force numbers are also set for release and are significant benchmarks of economic health. Any serious deterioration or unexpected strengths in these numbers could set the tone for the second half of the year,” Otunuga said.
He cautioned that investors must avoid either irrational euphoria or unreasonable negativity under the circumstances.
Analysts at Afrinvest Securities noted that while the weakest Nigerian economic performance may be in second quarter 2020, there could be a partial recovery in second half 2020 due to the reopening of the cities on lockdown domestically and in countries with extensive economic relationships with Nigeria.
Afrinvest Securities stated that the long gaining streak may also trigger further bargain-hunting in the period ahead.
Analysts at FSDH Group also cautioned that Nigerian equities market may remain volatile in the near term.
“We advise investors to accumulate quality stocks at lower levels with a long term investment horizon,” FSDH stated at the weekend.
Analysts at Cordros Securities also agreed that “risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions”.
“Thus, we continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks,” Cordros Securities stated.
The sustained rally in the past two months has helped to mitigate investors’ losses. Investors had recorded net loss of about N2.68 trillion in the first quarter of the year with average return for the three months closing at -20.7 per cent. Investors had lost about N2.56 trillion or an average of 18.75 per cent in March, the first month after the country recorded its first confirmed case of Coronavirus. Nigerian equities had lost N1.35 trillion in February with average decline of 9.11 per cent, counterbalancing net capital gain of N966.7 billion that accrued in January 2020.
Nigerian equities had suffered two consecutive declines in 2019 and 2018. Investors in Nigerian equities had lost about N1.71 trillion in 2019 with negative average full-year return of -14.60 per cent. The ASI had recorded negative average full-year return of -17.81 per cent in 2018.

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The Nation Newspaper

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