BUSINESSDAY’s
NIGERIA STOCKWATCH
Thursday 04 March 2021
EQUITIES TO END 2021 UPBEAT In spite of capital reversal to fixed income instruments threat, current bearish trend
• Shortage of alternative assets drove equity growth in 2020, TB down 444 bps YTD while equity delivered double digit return • Risk of capital reversal into fix income instruments real • All share index down 3.27% year to Feb 25 • Slide fuelled by investors watching on the sideline, slow pace of vaccine distribution • Oil price 40% rise YTD build confidence of improved forex earning, further economic recovery • 15.3 x PER ( compared with other frontier markets) presents entry opportunities for investors GODFREY OBIOMA
T
he equities market will end positive in 2021 in spite of belief that fixed income instruments like OMO, Treasury Bill and bonds are likely to present new leg of opportunities in the New Year. Sentiment towards fixed income instruments is buoyed by perception that the CBN may soon resume tight monetary policy, leading to rise in interest rate and spike in yields from Omo, TBs and Bonds. Rise in liquidity, shortage of alternative assets and fund managers’ search for real return on investment in the face of galloping inflation were parts of the reasons for the 2020 equity market double digit rally. This continued in January 2021 with investors believing that the slowdown in fixed income instruments will last for a long time. But the bullish run was halted early February. By February 25, the All share index had lost 3.27 percent while market capitalization declined by 3.25 percent. The downtrend was driven by growing information that the CBN may resort to tight monetary policy to reduce pressure on the foreign exchange market; moderate inflation and attract floating funds in the global market. Also adding to the bear market is the attitude of investors who are waiting on the sideline for market correction, and slow pace of Covid-19 vaccine distribution. But fund managers say the equities market remain attractive but may not deliver returns as high as it did in 2020. Abiodun Keripe, managing director, Afirnvest Research believes the Nigerian equities are underpriced at 15.3 x price earnings
• Expectation of good corporate earnings and dividend payment remain investors attraction to equities • 10% market cap to GDP signals potential for equities growth • Stocks in resilient sectors like Telecom, Banking, Argic to drive market • Strategic portfolio mix of equities, fix income assets advised • Equities to end 2021 with 12% return • Covid -19, oil price, CBN policy thrust (flexible or tight monetary ); lack of co-ordination between monetary and fiscal policies present risk factors. ratio compared with its peers in the BRIC nations. Expectation for impressive corporate earnings and positive outlook for dividend payment from companies in the resilient sectors of the economy also present the equities as attractive assets. Unlike in matured and some emerging markets, ratio of market capitalization to Gross Domestic Product (GDP) is still low in Nigeria at 10 percent. But keripe says this shows that the market has great potential for growth. The uptick in the price of crude reflects increased economic activities and oil demand from China and other developed nations. Usoro Essien, Head, Renn Stockbrokers said if the trend continues, it will build more confidence in the Nigerian economy, grow foreign exchange from oil and the nation’s external reserves, a development he believes will have positive spillover effect on the stock market, Investment Advice As the threat of capital reversal grows, fund managers said the harvest for returns this year will be for discerning investors who are research focused. Abiodun Keripe advises investors to opt for diversified portofolio that will include both equities, treasury bills and other government instruments in their asset selection. Keripe canvasses for stocks in the telecom, banking, and agriculture sectors that deliver returns above inflation. Continues on page 03