The Nigerian Exchange (NGX) Limited market capitalisation stood at N19.760 trillion at the end of June, 2021, marking the first half (H1) of the year.
This translates to N1.29 trillion investment loss for investors when compared to N21.05 trillion the stock market capitalisation opened the year with.
Since the beginning of the year, the market has witnessed more of profit-takers, hence, leading to a sustained bearish run at some points, hence, eroding all the profits the market made last year.
The positive sentiment that pervaded the equities market in the second half of 2020 extended into the early part of the year 2021, but was short-lived as an earlier-than-anticipated reversal in the yields on fixed income (FI) instruments dampened appetite for stocks.
The NSE All Share Index, which tracks the general market movement of all listed equities shed 5.87 per cent to close H1 at 37,907.28 basis points from 40,270.72 points at which it opened trading for 2021. Similarly, market capitalisation, the total market value of listed companies’ outstanding shares lost N1.297 trillion, closing lower at N19.760 trillion, compared to the opening value of N21.057 trillion on January 4, 2021.
Performance across the major sectoral indices was negative in the period under review. NSE Industrial Goods, Banking, Lotus II, NSE 30 and Consumer Goods indices closed in negative territory with a loss of 8.09 per cent, 6.92 per cent, 5.53 per cent, 3.78 per cent and 0.31 per cent, respectively.
On the other hand, NSE Pension, Insurance and Premium indices recorded a year-to-date gain of 5.18 per cent, 5.15 per cent and 1.38 per cent as at June 25, 2021.
According to Nigeria Exchange Group’s data, the value of transactions executed by domestic investors declined by 58.4 per cent to N76.90 billion as of May 2021 from N184.91 billion in January 2021.
On the other hand, foreign investors continued to exhibit apathy towards the local bourse due to lingering liquidity constraints in the FX market and protracted delays in implementing structural reforms.
Accordingly, foreign investors have remained net sellers of Nigerian equities, as the total outflows of N107.22 billion for January to May 2021 outstripped inflows of N91.32 billion during the same period.
Also, foreign investors’ share of transactions fell to 17.5 per cent as of April 2021, the lowest since the NGX began compiling the current data series
On H1, 2021 review, analysts at Cordros Capital Limited said: “Following an impressive start to the year wherein the ASI gained 5.3 per cent in January, domestic investors have sold down equity investments in reaction to the rapid yet expected changes in yields in the FI market.”
Chief executive officer of Sofunix Investment and Communications, Sola Oni, noted that transaction in the stock market in the first half year was moderated by foreign investors’ apathy following devaluation of the naira and inflationary pressure as well as insecurity.
“The period was characterised by relative stability in price movement and this made it difficult for arbitrage opportunities. It was a period that investors in dividend paying companies enjoyed return on their investment.
“The extent to which the challenges of the first half are addressed will determine transaction mode of the second half. But discerning investors who seek professional advice from their securities dealers will always recoup their investment, regardless of the nature of the operating environment,” he said.
The managing director, Highcap Securities Limited, Mr. David Adnori, said: “The decline can be explained from excessive rally that led to appreciation of equities by about 50 per cent in 2020.
“That rally was baseless and provoked by expansionary monetary policies of CBN and NESP. With recovery in the debt market, there has been a sustained correction in equities despite improving macroeconomic conditions. This correction will fizzle out in due course but the ambitious debt financing programme of FGN can truncate this expectation.”
Analyst at PAC Holdings, Mr. Wole Adeyeye, attributed the equities market decline in the first half of 2021 to profit-taking from the gains recorded in 2020, drop in foreign portfolio participation and migration of local investors to fixed income market.
According to him, most local investors who bought stocks at lower prices in 2021 exited their position in H1, 2021. Also, most local investors migrated to fixed income market in H1, 2021, to take advantage of relatively high yields on less risky securities.
“We may likely see reversal of bearish trend in the second half of 2021 as we expect investors to take advantage of undervalued stocks and position themselves for interim dividend payments.
“Also, the recent intervention of the CBN in FX market and movement from official exchange rate to Investors & Exporters exchange rate is expected to result to stability of naira in the FX market, which may attract foreign investors into Nigeria’s equities market in the second half of 2021,” he explained.
A stockbroker with Calyxt Securities Limited, Mr. Tunde Oyediran said: “Despite the security challenges and high level of inflation, the loss in market is minimal, indicating some level of confidence in the market. Except for deliberate government policies and actions that will address the lingering security challenges and its attendant problems, the market may experience further drop. But towards the year end we may experience market recovery.”
On the outlook for H2, 2021, 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.”