By Nkiruka Nnorom

…Operators project further rally

EQUITY investors recorded a whooping N2.17 trillion gains last week following renewed interest and search for higher yields. This comes as investment analysts said that the rally seen in the equities market would continue to the near future, as investors continue to switch from fixed income to equities in the face of negative real returns in fixed income.

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Specifically, the equities capitalisation, which represents investors’ wealth, rallied by 16.4 percent increase or N2.17 trillion to N15.175 trillion from N13.199 trillion at N13.199 trillion at the beginning of the week.

This increase was also fuelled by the listing of BUA Cement, Thursday, following the merger of Cement Company of Northern Nigeria (CCNN) and Obu Cement, both subsidiaries of BUA Cement, which resulted in increase in the market capitalisation to over N15.2 trillion from N13.8 trillion at the close of the day’s trading.

Similarly, the benchmark All Share Index (ASI) posted a whopping 9.1 percent week-on-week (w/w)  gain, the largest weekly return for two years (January 12, 2018: +10.0%), to become the world’s best-performing stock market for the week. The index rose to 29,415.39 points at the end of the week.

Recall that the Central Bank of Nigeria (CBN), October 2019, barred local investors from participating in secondary market (Open Market Operation, OMO) treasury bills auction.

This triggered excess demand in the fixed income space leading to sharp decline in yields on fixed income instruments, especially the Nigerian Treasury Bills (NTBs), thereby leading to shift by investors to higher yielding risky assets.

Cowry Asset Management Limited has projected that the year 2020 would be favourable for the equities market following the low interest rate and global rising oil price.

Investment analysts and securities dealers stated that dividend yield is becoming more attractive, combining to fuel the movement. The early-year rally at the nation’s premier securities exchange, they noted,  is also driven by higher oil prices.

The analysts at Cowry Asset Management, a Lagos-based investment banking firm, in their report titled “Outlook and Investment Strategies for 2020”, said that investors are expected to make a switch from fixed income securities yielding negative real returns to equities presenting positive real returns both in terms of dividend yields as well as possible capital appreciation, especially in the first quarter of 2020.

“We expect 2020 to be a favourable year for equities against the backdrop of low interest rate environment. This is because companies would be able to access funds at cheaper cost, thus reducing their interest expense and positively impacting their bottom lines,” analysts at Cowry Asset said.

Also, analyst at United Capital Plc, another investment banking firm, said that the only justification for an uptick in the equities market is the lower yield environment, supported by increased local currency liquidity.

They, however, opined that lower yield environment alone would not be enough to trigger a major rally in the absence of the demand from Foreign Portfolio Investors (FPIs).

“For equities, the continued auction of high yield OMO bills to FPIs may keep foreign interest in local equity market tepid amid fears of a naira devaluation and confidence deficit in the economy. Again, FPIs are likely to continue their flight to safety by swapping/ selling equities for low-risk OMO bills. Yet, our outlook for stocks in 2020 is anchored on developments in the domestic and global economy with monetary policy as the biggest factor to watch.

“Overall, our base case scenario, sees equities market return at +5.3% in 2020, driven by local demand for high-quality dividend-paying stocks and increased system liquidity,” they said.

In the same vein, analysts at Cordros Capital said: “Looking ahead, while we expect profit-takers to dominate activities this week, we still see significant legroom for a further rally as the elevated maturities from fixed income instruments hunt for investment vehicles.”

“Investors are willing to see if they can take one more risk as much as possible,” said Ayodeji  Ebu, Managing Director/Chief Executive Officer, Afrinvest Securities, adding that,  “I don’t think it is sustainable because the local investors do not have the capacity to take on risk.

David Adonri, Managing Director/ Chief Executive Officer, Highcap Securities and Investment, speaking, said: “There is competition between the debt and equities market. Now that the yield is declining very fast, so, financial assets are migrating back to equities. Yields on equities are expected to, at least, surpass that of debt.

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“After awhile when the yield in-balance has been sufficiently corrected, the market will stabilise.”



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