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Income volatility, Q3 earnings lift NSE index further by 5.30%

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Profit-taking towards the end of the week, the crash in money market rates, and investors repositioning ahead of the Q3 corporate earnings season triggered increased buying interests on the equities sector of the Nigerian Stock Exchange (NSE).

At the close of transactions last week, the All-Share Index (ASI), and market capitalisation appreciated by 5.30% to close the week at 28,415.31 points and N14.852 trillion, respectively.

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All other indices finished higher with the exception of the NSE ASeM Index which closed flat.

Analysts explained that investors were attracted by the currently low market valuation amid the continued low-yield environment in the fixed income space.

According to them, the performance also reflects an improvement in risk appetite despite looming uncertainty surrounding the business terrain due to the pandemic.

However, they predicted a bearish outlook this week, amid continued profit-taking activities.

For instance, analysts at Afrinvest said: “While we expect the soft gains in the domestic market to be sustained, we note that investors are likely to extend the profit-taking activities into the week ahead. Hence, we maintain a bearish outlook.”

Codros Capital said: “We expect the market might continue to benefit as domestic investors seek alpha-yielding opportunities in the face of increasingly negative real returns in the fixed income market.
“However, we advise investors to trade in only fundamentally justified stocks as the weak macro environment remains a significant headwind for listed companies.”

A review of market performance last week showed that the NSE continued in an upward note on Monday, even as more high capital stocks appreciated in price, causing the market capitalisation to increase further by N297 billion.

The All-Share Index (ASI), rose by 568.72 points, a 2.11 growth per cent to close at 27,554.49 points. Similarly, the overall market capitalisation gained N297 billion to close at N14.402 trillion.

The upturn was impacted by gains recorded in large value stocks, including Airtel Africa, SEPLAT Petroleum Development Company, MTN Nigeria Communications (MTNN), Presco, and Guinness Nigeria.

United Capital Plc had predicted that the bullish sentiment in the equities market will persist given the expected increased liquidity, limited outlets, and the cheap valuation in the stock market.

Also, analysts at APT Securities and Funds Limited said: “With money market interest rates at historical lows, investors had limited options to place funds in equities giving rise to inflows from local Investors, which is the major driver for the stock market performance in recent times.”

On Tuesday, the NSE market capitalisation hit the N15 trillion mark, as investors jostled for higher capital stocks, amid expectation of market rebound.

At the close of trading on Tuesday, market capitalisation rose by N708 billion from N14.402 trillion on Monday to N15.110 trillion within a few hours after trading commenced.

Also, the volume of shares traded soared significantly, as investors traded 749.468 million shares valued at N9.495 billion in 8,075 deals. The price movement chart showed that Dangote Cement emerged as the highest price gainer with N14.2 or 9.86 per cent to close at N158.20 per unit share.

This was followed by MTN Nigeria’s 3.70 per cent profit to settle at N140 per unit share. Nigeria Breweries, Stanbic and Zenith Bank followed with N3.5 (7.17 per cent), N2 (4.94 per cent), and N1.7 (8.95 per cent) to close at N52.3, N42.5, and N20.7, respectively.

Chief Research Officer of Investdata Consulting Limited, Ambrose Omordion, attributed the rise in indices to the crash in money market rates due to the Monetary Policy Committee’s (MPC) recent decision to lower interest rates to 11.5 per cent.

He said low money market yields and retail investors repositioning ahead of the third quarter (Q3) earnings-reporting season had continued to boost the flow of funds to equity assets for the 12th successive sessions.

“The positive sentiments signal a recovery, as traders and investors abandon defensive stocks for growth and dividend-paying equities likely to deliver better returns in the short and long-term.

“This is an impressive performance, indicating that the market is being supported by increased liquidity and buying interests.”

However, barely 24 hours after experiencing its highest climb in many months to the N15 trillion mark on Tuesday, renewed profit-taking by investors at the Exchange, made the bears regain control on equities transactions on Wednesday, thereby reversing the 14 days of consecutive bull runs as market capitalisation shed N143 billion.

The All Share Index (ASI), fell by 275.02 points or 0.95 per cent to 28,634.35 points. Accordingly, investors lost N143 billion in value as market capitalisation declined to N14.967 trillion.

The downturn was impacted by losses recorded in medium and large capitalized stocks, including MTN Nigeria Communications (MTNN), Unilever Nigeria, Zenith Bank, Guinness Nigeria, and Lafarge Africa.

Analysts attributed the profit-taking activities to investors selling part of their holdings in blue-chip stocks to book profit amid the recent rise in price. Analysts at Afrinvest Limited, said: “We expect bargain hunting in the next trading session to be driven by high liquidity and lower yields in the fixed income market amid the anticipation of the third quarter (Q3), 2020 corporate earnings release.

Sell-pressure continued on the stock market on Thursday, as more blue chips stocks depreciated in price, resulting in further losses in market capitalisation by N46 billion.

The All-Share Index (ASI), decreased by 88.13 points, representing a decline of 0.31 per cent to close at 28,546.22 points. Similarly, the overall market capitalisation lost N46 billion to close at N14.921 trillion.

The downtrend was impacted by losses recorded in large and medium value stocks, amongst which were; Dangote Cement, Nigerian Breweries, Conoil, BUA Cement, and Ardova Plc.

However, market breadth closed positive, with 26 gainers versus 17 losers. Eterna recorded the highest price gain of 10 per cent to close at N3.30 per share.

Further breakdown of last week’s trading showed a turnover of 3.140 billion shares worth N35.372 billion was recorded in 35,099 deals by investors on the floor of the Exchange, in contrast to a total of 1.532 billion shares valued at N16.901 billion that changed hands in 17,882 deals during the preceding week.

The financial services industry (measured by volume) led the activity chart with 2.325 billion shares valued at N25.816 billion traded in 21,306 deals; thus contributing 74.05 per cent and 72.99 per cent to the total equity turnover volume and value respectively.

The oil and gas industry followed with 200.567 million shares worth N1.012 billion in 1,977 deals. The third place was the industrial goods industry, with a turnover of 149.200 million shares worth N3.631 billion in 2,991 deals.

Trading in top three equities namely Zenith Bank Plc, FBN Holdings Plc, and United Bank for Africa Plc. (measured by volume) accounted for 1.236 billion shares worth N15.724 billion in 9,774 deals, contributing 39.36 per cent to the total equity turnover volume.

A total of 79,691 units of bonds, valued at N108.241 million were traded last week in 23 deals compared with a total of 103,480 units valued at N123.507 million transacted last week in 24 deals.

About 53 equities appreciated at price during the week, higher than 36 equities in the previous week, and 14 equities depreciated lower than 15 equities previously, while 96 equities remained unchanged, lower than 112 recorded a week earlier.


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