Nigeria: Foreign Investors’ Exit, Higher Money Market Instrument Yield Depress Stock Market By N107.66bn in Nine Months


Darasimi Adebisi

The stock market of the Nigerian Exchange Limited (NGX) in nine months of 2021 has dropped by N107.66billion, attributable to foreign investors exit, double-digit inflation rate and movement of liquidity to money market instruments.

Analysis of the stock market performance during the period revealed that the NGX Limited market capitalization lost a total of N107.66 billion or 0.51 per cent to close as at September 30, 2021 at N20.956trillion from N21.063trillion at the commencement of trading this year.

The market capitalization had lost a total of N1.297 trillion in the first half (H1) of 2021 to N19.760 trillion as investors moved to fixed income instrument, leading to foreign investors foreign investors outflow outpacing inflow between January and August of 2021.

Specifically, foreign investors inflow between January and August 2021 was N123.46billion compared with N139.39billion outflow in the months under review.

Capital market analysts had stated that January was another great month as the nation’s stock market started the 2021 on a bullish note, extending the sharp market recovery and bull ascendance, driven by positive sentiment, inflow of funds from the fixed income market, oscillating oil price, among other factors.

Also, the NSE All Share Index, which tracks the general market movement of all listed stocks shed 0.21 per cent to close September 30 at 40,221.17 basis points from 40,270.72 basis points at which it opened trading for 2021.

Expect for Banking, Consumer Goods and Insurance indices that recorded 5.6 per cent and 1.07 per cent and 8.68 per cent decline respectively, other indices recorded modest growth in nine months sectoral performance.

On the other hand, NSE Industrial, Lotus II, NSE 30, Pension, Premium and Oil/Gas indices recorded a year-to-date gain of 1.8 per cent, 2.07per cent, 2.1 per cent, 11.8 per cent, 17.27 per cent and 62/4 per cent respectively as at September 30, 2021.

The stock market in January had started on a positive note having gained N8 trillion in 2020, and appreciated by N1.124 trillion in January.

However, the positive sentiments that pervaded the stock market between January and February was cut short-lived over the anticipated reversal in the yields on fixed income (FI) instruments that weaken investors’ appetite for stocks in months that followed.

They, however, hinted that the stock market performance in nine months of 2021 witnessed movement of investors to money market instruments and exit of foreign investors over foreign exchange scarcity.

In a chat with THISDAY, the Vice Chairman, Highcap Securities Limited, Mr. David Adnori attributed stock market decline performance to higher yields in money market instrument, stressing that the stock market in the fourth quarter is expected to appreciate.

According to him: “The stock market decline because of movement of assets to money market instruments.. However, impressive result of listed companies attracted investors to stock market between July and August.

“The rebound in the stock market was sustained because of steady increase in global oil prices. The recovery of the stock market could have been better but insecurity in the nation’s led to hike in inflation rate and investors have to react negatively.”

On his part, stockbroker and capital market analyst, Mr. Rotimi Fakayejo expressed optimism that the stock market in 2021 might close positive despite numerous challenges.

According to him: “In my option, the stock market has performed better despite all odds. In the same period, Dangote cement with N280 as at September has reached one-year high. I think securities listed on NGX have maintained stability, resilient and impressive earnings. There is likely hood that the stock market might close positive.”

On outlook for H2, 2021, Analysts at Cordros Capital said, “Despite the yield retracement in the FI market, we do not think investors should give up on the possibility of a market rally in the second half of the year as we still see scope for positive market performance.

“Our view is underpinned by prospects of improved macroeconomic conditions which will enhance corporate earnings; the possible return of FPIs, who have been net sellers of Nigerian equities thus far; interim dividends that accompany the Q2 earnings season, and stock-specific events such as GTB’s implementation of a holding company structure and the likelihood of a second tranche of share buy-back by Dangote Cement.”

Cordros Capital had explained that, “Despite the yield retracement in the FI market, we do not think investors should give up on the possibility of a market rally in the second half of the year as we still see scope for positive market performance.

“Our view is underpinned by prospects of improved macroeconomic conditions which will enhance corporate earnings; the possible return of FPIs, who have been net sellers of Nigerian equities thus far; interim dividends that accompany the Q2 earnings season, and stock-specific events such as GTB’s implementation of a holding company structure and the likelihood of a second tranche of share buy-back by Dangote Cement.”

Cowry Asset Management Limited in its report titled ‘Review, Outlook and Investment Strategies for H2 2021’, said that “Nevertheless, against the anticipated growth in real output, expectations of increased corporate profits and an expected moderation in fixed income yields, we expect the equities market climb northwards in H2 2021.

“Therefore, we expect investors to bargain hunt for undervalued stocks; particularly of those companies likely to sustained, and possibly increase, interim and/or final cash dividend payments. This will be more appropriate for investors seeking passive income on a long-term basis while having enough cash on hand for strategic investing.

“Active investors/ speculators should focus more on growth and high beta stocks while also looking to by the dip while having enough speculative cash on hand for tactical maneuvers. Again, investors should be wary of those factors that could create economic headwinds and adjust their portfolios appropriately.”

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Author : This Day

Publish date : 2021-10-01 12:06:33

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