February 28, 2022

Rising oil prices favour equities market amidst Ukraine/Russia war

By Peter Egwuatu

Despite the mixed performance of stock markets across the globe due to the geopolitical tension arising from the invasion of Ukraine by Russia, the Nigerian equities market scaled up last week by 0.4%  Week-on-Week, WoW, to close at 47,328.42 points from 45,140.48 points.

The geopolitical tension had triggered price upswing in global commodity markets, especially oil which trades above $105 per barrel last weekend, over 6.0 percent WoW appreciation.

Furthermore, the positive sentiments which returned to the local bourse made investors to take advantage of the moderation in share prices to make re-entries into companies with attractive dividend yields.

Notably, bargain hunting in Seplat, gaining  7.5%, Guaranty Trust Bank 2.7%, International Breweries 4.8%  and MTN Nigeria 0.8%, drove the weekly gains.

Accordingly, market capitalisation which represents the value of all investments on the Exchange rose by over N101 billion to close at N25.507 trillion from N25.406 trillion.
The Month-to-Date, MtD, and Year-to-Date, YtD, return settled at 1.5% and 10.8%, respectively.

However, activity levels were weaker than in the prior week, as trading volumes and value declined by 3.2% and 37.0% WoW, respectively.

Meanwhile, analysts have expressed concern that the rising oil price would cause pains for Nigeria as subsidy cost by government would rise far above previous estimates, resulting in more borrowing and higher budget deficits.

Commenting on the market development, analyst at InvestData Consulting Limited, said: “The movement in oil prices can support the positive economic trends and market fundamental, as oil and energy sector players benefit more from crude oil price now at its 9-year high.

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‘‘We expect sustained positive sentiment on income investors accumulating position ahead of the release of more 2021 audited financials with corporate actions to boost positive vibes during this earnings season and rallying oil prices as it trades at $105.”

Commenting as well, analysts at Cordros Research, a Lagos based investment house, stated: “In the weeks ahead, we expect the NGX floor to be flooded with corporate earnings as more companies publish their audited 2021 Full Year numbers, accompanied by dividend declarations. As things stand, we believe investors have fully priced-in dividend expectations.

‘‘Hence, we think positive surprises from dividend-paying stocks would provide a catalyst for increased buying activities. ‘‘Notwithstanding, we advise investors to seek trading opportunities in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings”.

Vanguard News Nigeria