•Set for another bloody week
•Global market reels
•How to invest profitably – Analysts, dealers
By Peter Egwuatu & Nkiruka Nnorom
DESPITE the buckling of the severe bear run on Friday, investment analysts as well as securities dealers have indicated that the Nigerian stock market may record more bloody sessions this week. The market had 15.6 percent on the back of Coronavirus (COVID-19) induced oil price crash last week.
They, however, said that strategic positioning could rescue proactive investors from the on-going free fall and advised investors to pick stocks with long-term investment horizon.
In alignment with other global equities market, the major indicator of the Nigerian stock market had, the All Share Index (ASI), last week, fell to 22,734.07 on Friday from 26,279.61 as investors sold off across board.
The ASI had fallen to 22,695.88 points on Thursday, March 12, 2020, before recovering slightly by 0.17 percent on Friday.
Accordingly, the Month-to-Date (MTD) and Year-to-Date (YTD) losses increased to 11.9 percent and 15.3 percent respectively.
Financial Vanguard’s analysis of the sectorial performance showed that activity in all the sectors closed negative led by the banking sector with 26.8 percent loss. The consumer goods sector followed, falling by 14.9 percent, while the oil and gas, industrial goods and insurance sectors fell by 7.1 percent, 5.7 percent and 5.1 percent respectively.
Recall that the market has risen by 10.3 percent on January 24, 2020 when it peaked at 29,628.40 points as a result of the Central Bank of Nigeria (CBN) directive that barred local investors from the Treasury Bills (TBs) auction.
Meanwhile, equities investors have lost N1.85 trillion in the ensuing bearish run as the market capitalisation of all listed equities declined to N11.847 trillion from N13.694 trillion at the beginning of the week. The losses would have been heavier but for the minor gain of N19 billion.
Across the globe, equities markets saw their worst performance since the 2008 financial crisis with Coronavirus panic-selling hitting nearly every asset class. During the week, US (Dow Jones Industrial Average (DJIA) recorded a 18.0 percent negative return, while S&P fell by 16.5 percent. In the European market (STOXX Europe depreciated by 14.8 percent; FTSE 100 dropped by13.9 percent as investor fears heightened over just how much damage the fast-spreading COVID-19 virus will wreak on the global economy.
In Asia, Japanese Nikkei 225 fell by 16.0 percent, while Chinese Shanghai Stock Exchange suffered reduced losses at 4.8 percent as the spread of the coronavirus has slowed domestically and many factories have resumed work after lengthy virus-related stoppages. In the emerging markets, MSCI EM crashed by 12.7 percent, while at the frontier markets, MSCI FM recorded 14.9 percent negative return with significant losses in South Korea (-13.2%) and Kuwait (-17.9%) weighing down the respective indices.
In their projection, analysts at Cordros Capital said: “Looking ahead, we still see sizeable legroom for further downslide in risk assets as investors continue to run towards safety in the face of the precipitous decline in oil price.”
Similarly, analysts at Cardinal Stone, another Lagos-based investment banking firm, noted that the market would likely remain bearish in the short term as investors remain cautious amidst Coronavirus concerns and depressed oil prices.
According to them, the equities market may be set for another close at the end of the year with the unfolding events.
They, however, stated that the on-going sell-offs present bargain hunting opportunities for mid-to-long term investors who look to take position in fundamentally justified counters ahead of an inevitable change in tide.
In their report titled: “Nigeria Economy: Backed to the Wall”, they said: “Nigeria’s equity market has been adversely affected by concerns about the quick spread of the Coronavirus since mid-January, mirroring sentiments in other global markets. The bourse has since eroded earlier gains recorded after a startling start to the year which saw it standout as one of the best performing equity markets globally.
“In addition to health-related concerns, a failed Organization of the Petroleum Exporting Countries (OPEC+) attempt to extend production cut agreement cascaded to an oil price war and the worst Nigerian daily equity market performance in 2020. Clearly, our revision of Nigeria’s growth and inflation expectations for 2020 suggest that the equities market may be set to close in the negative for a third straight year.
“Considering the negative crude oil price outlook for Q2’20 and Q3’20, we again bring to the fore the strong correlation between the ASI performance and crude oil prices in the last four years which indicates that the all share index has largely tracked oil prices overtime.”
Also, analysts at FSDH Merchant Bank stated that with the YtD return at -15.31 percent, the markets may remain volatile in the near term and advised investors to buy quality stocks with a long term investment horizon.
ASHON allays investors’ fears
Meanwhile, the Association of Securities Dealing Houses of Nigeria (ASHON) has assured the investing public that the market would soon bounce back.
Although ASHON acknowledged the high level of downswing in the market in the last couple of days, it stated that fundamentals of the quoted companies remained strong.
Responding to Vanguard over the market volatility, ASHON’s Chairman, Patrick Ezeagu, said: “Nigeria’s stock market remained part of the global exchanges and as such any development in the global market would impact on its operations.
“The effect of the coronavirus is gradually affecting trading all over the world and whatever happens elsewhere reflects in our market. The centre of it all is China and being a major world power both in productive and consumption capacities, any ill wind affecting China would naturally cause a big sneezing to the rest of world. Investors should not panic. The share prices will bounce back. The companies’ fundamentals remain strong; many investors are taking advantage of the bearish run to beef up their portfolios.”
Commenting on why the market had in the early part of the first quarter enjoyed rally only to be moderated by prolonged bearish trend, Ezeagu said: “There were a lot of positive policy pronouncement which influenced investors’ perception, hence the rally. These are attributable to the policy of the Central Bank of Nigeria (CBN) on Open Market Operation (OMO) Bills, the new national budget cycle, the expectations of members on the outcome of the demutualization of the Nigerian Stock Exchange (NSE) and generally, the traditional optimism following a new year, which was our own January effect.
“The sector of the economy that has been so resilient has been agriculture, which has always been part of our daily lives in which we have a long value chain and levels of participation. These offer a wide range of opportunities for medium to large scale enterprises.”
Also speaking, Mallam Garba Kurfi, Managing Director/CEO, APT Securities and Fund, said that though the Nigerian equities market was indirectly impacted by the Coronavirus disease, but the fear of naira devaluation on the back of fall in crude oil price exacerbated the free fall seen in the market last week.
According to him, with over 50 percent decline in crude oil price, the Nigeria’s Foreign Exchange (FX) and reserve risk falling by more.
He, however, noted that the CBN’s effort to continue to defend the Naira and assurance that the naira would not be devalued would instil some confidence in the market and urged the federal government to validate the CBN’s position by making similar pronouncement in order to reduce the fear of devaluation.
He stated that the volume traded, which amounts to 45 billion units per week with an average of 9 billion units per day, signals confidence in the market, adding that Friday’s positive also raised confidence.
According to him, investors would continue to patronise the market given the double digit dividend yield, single digit interest rate in the money market and inflation in the double digit.