Stock market defies high earnings, suffers fifth weekly loss

Despite the significant rally in global oil prices coupled with attractive dividend yields from several listed firms, the reign of the bears continued unabated on the Nigerian Stock Exchange (NSE) as the market suffered a fifth weekly loss last week.

Consequently, the NSE All-Share Index (ASI) and market capitalisation depreciated by 1.18 per cent to close the week at 39,331.61 and N20.578 trillion respectively.

Similarly, all other indices finished lower except NSE Industrial Goods and NSE Sovereign Bond Indices rose by 1.39 per cent and 0.07 per cent while the NSE ASeM Index closed flat.

The drop in indices may, however, be attributed to growing concerns about the uptick of yields in the fixed income market.

For instance, last week, the open buyback (OBB) and overnight rates opened the week at 6.0 per cent and 6.8 per cent respectively, higher than 5.7 per cent and 6.3 per cent recorded in the previous week as system liquidity settled at ₦336.2 billion.

On Tuesday, following inflows worth ₦130.5 billion, system liquidity rose to ₦401.7 billion as OBB and OVN fell to 4.3 per cent and 4.8 per cent respectively.

OBB and OVN rate further appreciated on Friday, to close the week at 15.3 per cent and 16.3 percent respectively despite system liquidity settling higher at ₦563.5 billion.

In the treasury bills secondary market, the performance was bullish as average yield across benchmark tenors trended lower by 5bps w/w to close at 1.7.per cent.

Analysts predicted a sustained uptrend in yields in the fixed income market with anticipations of double-digit yield on the average, over the short term.

According to them, the prevailing trend in the stock market revealed liquidity and sentiment challenges, as capital has continued to flow from equity to fixed income assets.

However, they believed that the current mood with lingering price corrections in the stock market creates buying opportunities, especially for dividend and income investors.

Analysts at Codros Capital said: “We expect investors to take advantage of the significant moderation in the share prices to make a re-entry in dividend-paying stocks in the week ahead.

“However, we believe investors will remain reluctant to leave gains in the market. As such, we expect intermittent profit-taking to continue due to uncertainties about the direction of yields in the FI market.

“As a result, we think the market will be choppy. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

Analysts at Investdata Consulting Limited said: ” The drop in indices may not be unconnected with the need by investors to rebalance their portfolios, as they move their funds towards the money market, because of its seeming safety.

“That, notwithstanding, there are many others not comfortable with the volatility in the stock market who are migrating also, even though it offers higher yields than the prevailing rates and yields in the money and bond market in the short to medium term.

“The need for safety of capital has seemingly overwhelmed the knowledge that it remains a veritable hedge against the country’s spiraling inflation, which would get worse because of the recent food blockade, the effect of which would not go away in a hurry.

“However, for those not risk-averse, armed with a fair knowledge of how to navigate the equity market, there can be no better time to lock in for juicy returns than now.

“But you require the discipline to ask yourself why you are going into any particular stocks- dividend, capital appreciation, or preservation of your funds. This must also be followed by a timeframe- short, medium, or long-term.”

A review of market performance last week showed that upticks in BUA Cement and 11 others lifted trading on the NSE, as the market resumed the first trading session in March in an upward note on Monday, causing market capitalisation to increase by N69 billion.

The ASI gained 131.74 absolute points, representing a growth of 0.33 per cent to close at 39,931.63 points.

Similarly, the overall market capitalisation value rose by N69 billion to close at N20.892 trillion.

The uptrend was also driven by price appreciation in medium and large capitalised stocks amongst which are; UAC of Nigeria (UACN), AIICO Insurance, Veritas Kapital Assurance, BUA Cement and Neimeth International Pharmaceuticals.

As measured by market breadth, market sentiment remained negative, as 29 stocks declined, relative to 12 gainers. UACN recorded the highest price gain of 6.67 per cent to close at N8.00 kobo.

The NSE reversed positive sentiment to close on a downturn on Tuesday, occasioned by price depreciation in the shares of Nestle Nigeria and 25 others, causing ASI to depreciate by 0.59 per cent.

At the close of trading, the ASI contracted by 234.01 absolute points, representing a decrease of 0.59 per cent to close at 39,697.62 points. The overall market capitalisation value lost N122 billion to close at N20.770 trillion.

The downturn was driven by price depreciation in large and medium capitalised stocks amongst which are; Nestle Nigeria, Flour Mills of Nigeria, Ardova Plc, Lafarge Africa and Unilever Nigeria.

Sell-offs persisted on the equity sector of the NSE on Wednesday, as more blue-chip stocks depreciated, resulting in a further slide in market capitalisation by N92 billion.

At the close of trading on Wednesday, the ASI fell by 175.56 points or 0.44 per cent to 39,522.06 points. Accordingly, investors lost N92 billion in value as market capitalisation declined to N20.678 trillion.

The downturn was impacted by losses recorded in medium and large capitalised stocks, amongst which are; MTNN, Lafarge Africa, International Breweries, Dangote Sugar Refinery and Oando.

Market sentiment, as measured by market breadth, was negative, as 30 stocks lost, relative to 16 gainers. Seplat Petroleum Development Company (SEPLAT) recorded the highest price gain of 10 per cent to close at N583.00 kobo.

The NSE extended losses to four consecutive trading sessions, on Thursday, even as more blue-chip stocks depreciated, causing the ASI to plunge further by 0.40 per cent.