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Uptick in fixed yield triggers massive selloff in equities

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[FILES] The reception area at the Nigerian Stock Exchange in Lagos, Nigeria. PHOTO: Ruth McDowell/ 2019 Bloomberg Finance

The marginal uptick in yields in the fixed income market propelled massive selloff on the equity sector of the Nigerian Stock Exchange (NSE) last week, as the NSE All-Share Index (ASI), and market capitalisation depreciated by 1.66 per cent to close the week at 41,709.09 and N21.819 trillion, respectively.

Similarly, all other indices finished lower with the exception of the NSE Growth Index, which appreciated by 3.26 per cent, while the NSE ASeM Index closed flat.

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Analysts linked the slowdown in the equity space to the yield improvement recorded in the fixed income space last week.

According to them, this week’s trading sessions would be a mix of bargain-hunting and sustained profit-taking activities, even as the direction of yields in the fixed income market is expected to influence trading given the increase in marginal rates at the OMO auction this week.

The Chief Research Officer, Investdata Consulting Limited, Ambrose Omordion said:

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“Speculation seems to have slowed down in the equity space, on seeming yield improvement in the fixed income space, as market volatility continues to rise on the general decline of the key performance index and prices of stocks across all capitalisation size and sectors, except for the oil/gas that closed in the green.

“We expect the market to slow down its losing momentum and profits-taking, as bargain-hunters take advantage of the pullbacks to reposition their portfolios ahead of earnings expectations and reaction to numbers that would be unveiled, given that dividend yield remains relatively high.

He added: “The decline in Nigeria’s equity market is, notwithstanding, creating another entry opportunity for discerning investors as the benchmark All-Share index breaks down.

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“The price corrections or pullbacks have made some of the equities become more attractive for positioning, given the noticeable improvements in their yields.”

Also, analysts at Afrinvest Research said: “The equities market reversed last week’s bullish momentum with sell-offs dominating trades all week. We expect trading sessions to be a mix of bargain hunting and sustained profit-taking activities.

“The direction of yields in the fixed income market would also influence trades especially given the increase in marginal rates at the OMO auction this week.”

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Analysts at Codros Capital said: “With the moderation in the prices of bellwether stocks this week, we expect savvy investors to take advantage of this and make re-entry ahead of their FY 2020 earnings announcement.

“However, we note that the recent hike in OMO rates by the CBN will continue to stoke uncertainties on the direction of yields, keeping risk-averse investors on the side-lines.

“Thus, we expect zig-zag market performance in the week ahead. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

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A review of market performance last week showed that the Nigerian equities market resumed February trading on a bearish note, occasioned by sell-offs in 28 stocks, as the ASI declined by 0.13 per cent.

At the close of trading on Monday, the ASI fell by 54.76 points or 0.13 per cent to close at 42,357.90 points.

Accordingly, investors lost N29 billion in value as market capitalisation dropped to N22.158 trillion.

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The downturn was impacted by losses recorded in medium and large value stocks, including Nestle Nigeria, Julius Berger, Flour Mills of Nigeria, Vitafoam Nigeria, and Access Bank.

Following sustained profit-taking, transactions at the NSE closed bearish on Tuesday, as market capitalisation depreciated further by N164 billion.

The ASI fell by 314.11 absolute points, a 0.74 per cent fall to close at 42,043.79 points. Also, the overall market capitalisation lost N164 billion to close at N21.994 trillion.

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The downturn was driven by price depreciation in large and medium capital stocks, including Nigerian Breweries, Lafarge Africa, Ardova, BOC Gases, and Zenith Bank.

Trading at the NSE sustained a sliding profile on Wednesday, as more blue-chip stocks depreciated in price, causing the ASI to dip further by 0.10 per cent.

The ASI fell by 43.78 absolute points or 0.10 per cent to close at 42,000.01 points. Similarly, the overall market capitalisation lost N23 billion to close at N21.971 trillion

The downturn was impacted by losses recorded in medium and large value stocks, including Mills of Nigeria, Guaranty Trust Bank, Lafarge Africa, Champion Breweries, and UAC of Nigeria (UACN).

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Analysts at Afrinvest Limited said: “We believe the expectations of and trend in corporate releases will influence performance this week.”

The bears sustained dominance at the NSE on Thursday, as blue-chip stocks joined the league of losers, resulting in a further slide in market capitalisation by 112 billion.

The ASI dropped by 214.21 absolute points or 0.51 per cent to close at 41,785.80 points. Also, the overall market capitalisation lost N112 billion to close at N21.859 trillion.

The losses were driven by price depreciation in large and medium capital stocks, including Dangote Cement, Julius Berger, Northern Nigeria Flour Mills (NNFM), Champion Breweries, and Zenith Bank.

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On the activity chart, a turnover of 2.767 billion shares worth N29.685 billion was recorded in 31,380 deals by investors on the floor of the Exchange, in contrast to a total of 2.570 billion units, valued at N27.884 billion that changed hands in 31,466 deals during the preceding week.

The financial services industry (measured by volume) led the activity chart with 1.924 billion shares valued at N20.344 billion traded in 15,160 deals; thus contributing 69.54 per cent to the total equity turnover volume.

The conglomerate’s industry followed with 264.795 million shares worth N523.521 million in 1,528 deals. The third place was the consumer goods industry with a turnover of 197.407 million shares worth N3.366 billion in 6,240 deals.

Trading in top three equities namely, Union Bank of Nigeria Plc, First Bank Holding Plc, and Transnational Corporation of Nigeria (measured by volume) accounted for 859.867 million shares worth N4.250 billion in 2,459 deals, contributing 31.08 per cent to the total equity turnover.

About 22 equities appreciated at price during the week, lower than 41 equities in the previous week, and 60 equities fell, higher than 34 equities, while 80 equities remained unchanged, lower than 86 recorded in the preceding week.

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