Investment houses warn on bullish run, say it’s not sustainable

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Nigerian Stock Exchange, NSE•As investors gain N1.13trn in one month
•NSE emerges best performing Africa’s Stock Exchange

By Peter Egwuatu& Nkiruka Nnorom

At the backdrop of meagre yield in the money market the Nigerian stock market has resumed the new year, 2021 on bullish note, outperforming peers across Africa.

But despite the retention of the monetary policy regime which had driven the stock market bulls, investment analysts have put a caveat on sustainability of the bullish sentiment against macroeconomic factors including fragile corporate earnings environment.

The Nigeria Sock Exchange, NSE emerged as the best performing stock exchange in Africa in the period under review according to the Bloomberg World Equities Index ranking released weekend.

The ranking showed that NSE All Share Index, ASI occupied the 6th position on Price Return of 7.104% while Egypt occupied  7th position with 7.004% Price Return.

The positive return recorded by Nigerian stock market for January is in tandem with the projections by market analysts that had projected that the market would record positive return due to the significant drop in yields in the fixed income market which had led to migration of funds into the stock market coupled with the attractive dividend yields and better than expected earnings results released at the end of December 2020.

Analysis of performance indices 

Financial Vanguard analysis of the market for the month of January showed that the NSE ASI, a major performance indicator rose significantly by 5.3 per cent   to close at 42,412.66 points weekend from 40,270.72 points at the end of December 2020.

Similarly, another major performance indicator, market capitalisation which represents investors worth in value rose by 5.3 per cent or N1.13 trillion   to reach an all time high this year at N22.186 trillion from N21.056 trillion in December 2020.

Other sub indicator indices were also on the positive trajectory such as the Insurance index recording the highest return with 29.8 per cent to 245.91 points from 189.50 points. Banking index rose by 7.9 per cent to 424.04 points from 393.02;  NSE 30 Index climbed up 4.9 per cent to 1720.95 points from 1640.11 points; Consumer Goods index increased by 6.7 per cent to 1304.74 points from 1220.61 points;  Premium Index grew by 4.1 per cent to 3613.80 points from 3470.77 points;   and pension index up 7.5 per cent to 1492.60 points from 1388.64 points.

Analysts’ reactions

Analysts at Cordros Capital, a Lagos based investment firm stated: “ With the outcome of the Monetary Policy Committee, MPC aligning with market expectations amid negative real returns in the fixed income market, we expect the risk averse investors to recalibrate their portfolio towards fundamentally sound stocks with attractive dividend yields. However, we advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings.”

Commenting as well, analysts at Vetiva Securities Limited said: “The bullish run witnessed during the year was largely due to the significant drop in yields in the fixed income market which led to the migration of funds into the equity market, coupled with the attractive dividend yields and better than expected earnings results released during the year. “We maintain our positive projection into the first quarter of 2021, however, with the gains recorded in the last few sessions, the possibility of profit taking cannot be overruled in the coming week.”

Analysts at Afrinvest Securities Limited had this to say, “We believe the bullish momentum would be sustained in the coming week due to positive sentiments. Although, we may see some profit-taking activities.”

Analysts at CardinalStone Research, in its report on 2021 Full Year Outlook said: “In the equities market, we expect investors to take advantage of bargain hunting opportunities in cheap, fundamentally strong names with a track record of shareholder wealth creation or veritable evidence of structural breaks from previous constraints. Investors are likely to follow volatilities in these names and try to take advantage of mispricing when they occur.”

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