Stock Market Rout: Prices to Tumble in H1:2021 –Analysts

Stock Market Rout: Prices to Tumble in H1:2021 –Analysts

Amidst the recent stock market rout, some analysts are projecting that prices of listed equities will tumble through the first half.

In a renewed bearish trend, market has slipped into negative after yields repricing in the fixed income segment as conservative big portfolio investors converted stocks to cash.

In a new report, ARM Securities Limited is projecting that stock market will trend southward in the first half of 2021 due to noted developments.

Year to date, the Nigerian stock market has started a downward movement despite initial rally recorded early in the year.

In February, bears took over the market with stocks valuations declining through the month of March against expectation after the market outperformed the global index in 2020.

Noticing new development in the equities space, analysts at ARM Securities was forced to review its initial outlook.

“We see a need to review our equities market expectation for H121 following recent developments in the fixed income space”, ARM Securities said.

Nigerian Stock Market Gasps for Air as Sell-offs Persist

Surprisingly, analysts said they have seen an upward re-pricing in open market operations (OMO) yields in the secondary market very early in the year.

It closed at an average of 6.29% at the end of February 2021, which analysts consider a significant jump compared to an average yield of 1.89% a month ago.

Similarly, average yields in the fixed income space, according to data from FMDQ, has also shown material increase in February 2021 compared to the previous month.

Analysts said these combined with expectations for further devaluation in the Naira weighed negatively on investors’ sentiments in the equities market leading the NSEASI to record its first monthly loss in the year 2021 in February where it declined by 6.16%.

This followed a 5.32% month on month gains in January 2021 where analysts said they saw broad based improvement across different segments of the market except for Cement which shed 0.11% in February over the same period according to ARM Securities equity’s tracker.

The firm added that while the losses recorded in the Cement segment was largely in line with its expectations following strong gains in 2020 which analysts anticipated could trigger profit taking on some of the names in the segment, it had expected same to play out in the Telecommunication segment.

However, analysts stated that the Telecommunication segment recorded gains in January 2021 contrary to expectations, albeit posting a slower month on month improvement of 7.99% as against 25.09% month on month gains in December 2020.

“We note that all other segments, still referencing our equities tracker, posted month on month improvement in January 2021 which is broadly in line with our expectations”

Just as earlier highlighted that the NSE- All share index posted its first monthly loss of 6.16% in February 2021.

This was largely driven by broad based selloffs in the market with the exception of the Oil & Gas segment which according to our tracker shows a gain of 11.87% month on month.

The biggest losers in February were the Brewers whose value tumble by 15.00% below January price, Banking 9.11% and Cement 7.60% segments.

ARM Securities explained that the overall equity performance in February 2021 points to a net outflow of funds from the market.

“This is contrary to our expectations that proceeds from profit taking in some segments would be channeled into other segments of the market that either underperformed or recorded mild gain in 2020 and are perceived to be positioned for a recovery in 2021 as the negative impact of covid-19 eases”, ARM Securities explained.

It added that the broad-based sell-off across most of the counter, based on tracker, is most likely a reaction to the upward re-pricing in yields in the fixed income space.

“Given our expectations that yields may continue to push northwards going into the remaining part of first half of 2021, we see the potentials for more profit taking in the equities market which may eventually lead to a negative performance at the end of the first half”, ARM Securities noted.

Stock Market Rout: Prices to Tumble in H1:2021 –Analysts