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Investors Gain N1.3tn as Stock Market Rises to N19tn

The Nigerian stock posted another record performance last week as market indicators hit new highs while investors gained N1.334 trillion in five days.

The continued flow of funds into the stock market on the back of investors’ continued search for attractive returns pushed the market capitalisation from N17.092 trillion to N19.236 trillion, while the Nigerian Stock Exchange (NSE) All-Share Index (ASI), rose from 34,250.74 to 36,804.75 or 7.46 per cent, which are new highs.

The stock market has gained N6.321 trillion year-to-date, appreciating from N12.915 trillion to N19.236 trillion.

In the face of negative returns in the money market and fixed income securities, the equities market has remained investors’ preference for some months now.

That high demand was sustained last week with the market gaining in all the five trading sessions.
According to analysts at Greenwich Trust Research, investors resumed bargain-hunting last week in search of competitive returns as yields, though improved, remained unattractive in the fixed income space, considering the sustained inflationary pressure in the economy.

“In light of this, the sentiment in the market was strongly bullish and broad-based, reinforced by last (previous) week’s decline in the market which presented buying opportunities for counters trading at relatively attractive prices.

Next (this) the market will likely remain upbeat buoyed by end-of-year portfolio re-balancing by fund managers, or even the “Santa-Rally”. We however do not rule out intermittent profit-taking that could slow down the uptrend in the market,” they said.

Analysts at Cordros Research said in the short term, they still see scope for expansion in valuation multiples as the hunt for alpha-yielding opportunities, in the face of increasingly negative real returns in the fixed income market, remains positive for stocks.

“However, we advise investors to take positions in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings,” they said.

Commenting on the market performance, a stockbroker and Chief Executive Officer, Sofunix Investment and Communications Limited, Mr. Sola Oni, said investment in money market instruments and fixed income securities are currently not attractive because their negative returns due to low yield and double-digit inflation.

“Investors would naturally opt for where they can generate optimal profit. At the moment, equities are the major option that can meet the investment objectives of many discerning investors. Our stock market is forward-looking. Investors have realised that third quarter (Q3) results of many companies have signaled better performance for the year-end results which will begin to roll in as from early 2021. Therefore, sustained massive demand for equity is not unconnected with investors’ anticipation of higher dividend payout and possible declaration of bonus shares. Portfolio re-alignment is going on in favour of equity investment. We should also appreciate that investment in equity can be used as a hedge against inflation,” Oni said.

Looking ahead, analysts at InvestData Research, said they expect the positive trend to continue depending on the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current dividend yields provided by the pullbacks and bargain hunters take advantage of the situation to reposition. According to them, investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations.

“ A breakout of 36,000 points will confirm a new uptrend as the market awaits the circular flow of funds to settle in higher yields instruments with a shorter timeframe, while waiting to see the impact of the adjustment in CBN policies. A breakout of this resistance level will create buy opportunities for discerning traders and investors. Also important is the fact that technical indicators reveal overbought on the weekly and daily chart.

“The strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped to reposition investors’ portfolios on the strength of sectoral and company’s performances.”

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