As index drops 0.4%

By Nkiruka Nnorom

Amidst a marginal drop in the stock market index, investment analysts see a sustained bullish trend till end of first quarter 2021, Q1’21, before a short term reversal in the second quarter of the year (Q2’21). The reversal would be driven by an anticipated rate reversal in the fixed income market.

They,  however, said that yield environment in fixed income may not return to double digit despite the rate reversal, thereby making room for continued uptrend in equities.

Recall that stock investors had resorted to short term sell-off in their portfolio late last year after the Central Bank of Nigeria (CBN)    issued 81-day Special Bills worth N4 trillion at 0.5 percent discount rate to hasten  economic recovery and deepen the financial market.

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Average yield across all instruments in the fixed income market had expanded by 28 basis points (bps) to 0.4 percent  following the anticipation of issuance of the Special Bill by  CBN.

In their economic projection for the year,   analysts at  United Capital Plc, said:  “In 2021, sentiment for stocks depends on the direction of monetary policy, particularly in relation to the yield environment. A sharp reversal of rates is likely to trigger a sell-off in the equities market considering that the current average market price-to-earnings (P/E) valuation multiple (15.2x) is considerably higher than the 5-year historical average (11.9x).

“While we predict that the rate reversal, which appeared to have been triggered in December 2020, will become more apparent from Q2-2020, the yield environment may not reverse to double digits until late 2021 or later.

“Accordingly, our prognosis for the Nigerian stock market in 2021 is that domestic interest, fueled by dividend expectations, is likely to sustain the market rally in Q1-2021.”

Making a similar projection,   analysts at Cordros Capital, said: “The market will be delivering further upside in the first half of 2021 before retracing slightly in the second half on an expected reversal in fixed income yields.

“The sources of risks remain plenty, the macro story remains uninspiring, and valuations are elevated. However, we think that the mix of elevated liquidity, low interest rates, attractive dividend yields, and earnings recovery argues in favour of an extension of the equity bull market into 2021.”

Meanwhile, the equities market ended the  first trading week of 2021 in the red, as losses recorded on the second and last trading days eroded gains from the other trading days of the week.

Accordingly, the All-Share Index declined by 0.4 percent to close at 40,120.22 points.

Breakdown of the week’s trading showed that selloffs in Dangote Cement Plc (-8.1%), Guinness Nigeria Plc (-5.0%), Unilever Nigeria Plc (-5.0%), and MTN Communication Nigeria Plc (-2.8%) drove the weekly loss.

Also, investors lost N78 billion at the end of the week as the market capitalisation declined to N20.978 trillion from N21.056 trillion at the beginning of the year.


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