After bullish close to 2020, Analysts Expect Stock Market Activities to Remain Upbeat
After a bullish close to 2020, analysts have expressed view that the Nigerian stock market activities will remain upbeat in 2021.
It would be recalled that the local bourse began 2020 on a positive note and though experienced a downturn with the onset of the covid-19 pandemic, closed the year on a positive note.
The NSE gained 50.03% year-to-date, making it the world’s best performing bourse, supported by the dovish monetary stance adopted by the Central Bank of Nigeria (CBN) and scarcity of foreign exchange which made it difficult for foreign investors to repatriate funds.
In an equity research note, curious analysts at CSL Stockbrokers limited are asking wow sustainable would the rally be in 2021?
The stockbroking firm said an analysis of the buying trend showed a lot of buying interest in tier 1 banking stocks.
These include stocks with high and consistent dividend yield and consumer names that saw improved earnings mainly on the back of the border closure such as Flour Mills and Dangote Sugar.
Market data shows that industrials such as Dangote Cement, BUA Cement and Wapco also saw significant gains.
Analysts believe that local investors fueled the bullish run in 2020.
According to the recently released NSE Domestic & Foreign Investment Report for November 2020, domestic transactions were up 53.5% month on month to N250.5bn (US$641.5m).
Meanwhile foreign transactions dipped 17.6% m/m to N67.3bn (US$172.4m).
Interestingly, despite the decline in value of transactions executed by foreign investors, the locals further deepened their participation.
Data shows that domestic share of total transactions in November was 78.8% compared with 66.6% in October with year to date performance at 65.3%).
Meanwhile foreign investors’ share of total transactions was 21.2% compared with 33.4% recorded in October as against year to date point at 34.7%.
Read Also: Foreign Portfolio Investors equity trading drops 30% in 12-month
On the domestic front, transactions remained dominated by institutional investors who traded N144.1bn (US$369.1m) while retail investors executed transactions worth N106.4bn (US$272.4m).
“We expect activity levels to remain upbeat in the near term.
“Our view is hinged on the fact that yields on treasury bills and bonds will likely remain low in the near term.
“As we expect system liquidity to remain high, we believe some of the liquidity will still flow into the local bourse”, CSL Stockbrokers stated.
The firm expects the discovery of vaccines to stem the pandemic which should be positive for oil prices.
“We expect the recent further devaluation of the Naira at the Investors & Exporters window (I&E), to slightly elicit foreign investors’ interest in the Nigerian equities market”, the firm stated.
That said, analysts expect many foreign investors to remain concerned about the country’s FX backlogs, macroeconomic fragilities and policy directions, thereby limiting capital inflows.
Similarly, Chapel Hill Denham stated that appetite for riskier assets in Nigeria last week essentially cemented December as one with a difference.
For one, in a three-day trading week, shortened by public holidays, the benchmark index rose by 3.79%, the impact of which supported a 14.9% cumulative return for December.
To underscore the extent of things, analysts stated that save for October (+13.8%) when the CBN’s accommodative policy drove fixed income yields to their lowest since data became publicly available, December returns outperformed every month of 2020.
Further, in terms of returns, December 2020 is the best since the history of the data.
Meanwhile, the Market’s Year-to-Date return notched higher to 50.03%, outperforming the impressive gains of 47.2% in 2013 and is beaten by only the 74.7% return recorded in 2007, which was largely speaking driven by margin lending.
Due to strong bullish close in the year 2020, stock market capitalisation inched up to N21.06 trillion.
Meanwhile, analysts noted that performance across the trading week was mostly bullish, as 3 of 5 sector indices closed the week higher.
NSE industrial goods index was the best performing sector last week gaining as much as 10.37% week on week (wow) on the back of strong interest in BUA Cement (+16.95% wow).
“Even as we struggle to see a justification for the investment case, we imagine that the capacity expansion plan by the company must have helped sustained interest in the stock”, Chapel Hill Denham stated.
In the same vein, the NSE insurance and NSE oil & gas indices closed in the green, rising by 1.74% wow and 0.19% wow, respectively.
The combined impact of the preceding helped neutered the weaknesses across the NSE banking (-0.56% wow) and NSE consumer goods (-0.50% wow) indices.
On a stock basis, NEM Insurance Plc was the best performing stock (+31.62% wow to N1.79), this was followed by BUA Cement Plc (+28.92% wow to N77.35), and C&I Leasing Plc (+20.65% wow to N5.20).
On the flipside, AXA Mansard Insurance Plc (-75.00% wow to N1.05), FTN Cocoa Processors Plc (-25.84% wow to N0.66), and AIICO Insurance Plc (-10.32% wow to N1.13) were the week’s laggards.
Market activity was understandably weaker when compared to the prior week, mostly due to a shorter trading week.
The average volume traded dipped by 12.6% wow to 602mn units, while the average value traded also reduced by 14.1% wow to N8.655bn.
Top traded stocks by volume during the trading week were AIICO Insurance Plc, Access Bank Plc, United Bank for Africa Plc accounting for 45.5% of the total equity turnover volume while Dangote Cement Plc (N11.129bn), MTN Nigeria plc (N4.216bn), and Zenith Bank Plc (N2.526bn) were the most traded by value.
“For the next few weeks, we see legroom for the market to sustain its positive performance, especially as fixed-income yields remain benign”, Chapel Hill Denham said.
Nonetheless, analysts said they do not expect broad-based gains, and as such, advise investors to remain choosy with fundamentally justified names.
“On our recommendations, in the Banking sector, we like Access Bank, Zenith Bank, Guaranty Trust Bank, Stanbic IBTC Holding, and FBNH.
“In the consumer goods sector, we like Nigerian Breweries, Dangote Sugar Refinery, Intbrew, UAC of Nigeria, and FCWamco.
“We also have buy ratings on Lafarge in the cement sector, Custodian & Allied in the insurance sector, Seplat in the Oil & Gas sector”, Chapel Hill Denham revealed.
After bullish close to 2020, Analysts Expect Stock Market Activities to Remain Upbeat
