BY CHARLES ABUEDE
The first four months of this year have delivered a spectacular example of why the global equities market does not correlate with the Nigerian Stock Exchange All-Share Index (NGX-ASI), as the US Nasdaq and the NGX-ASI, once again, head in conflicting directions.
Nigerian equity investors have had reasons to be cheerful with the continued performance of the index since the start of the year, thus giving domestic institutional investors a clear reason to take the big bets on the local equities.
With something to be joyous about, the Nigerian bourse, having disconnected itself from the global market, to move in a contrary direction, has reached a 13-year high after it crossed the 50,000 psychological points mark for the first time since September 2008 with a market capitalization in the region of N28 trillion at the start of May 2022.
On the global scene, however, policy rate normalisation in the advanced economies underpinned a risk-off sentiment towards global equities seen in line with analysts’ outlook for April for a bearish outcome in the month. To begin with, in the United States, equities trading bolted off the month on a positive note following encouraging sound bites around peace talks on the Russia-Ukraine crisis. However, those positive sound bites vanished while the policy normalisation narrative was renewed leading to significant selloffs across all equity categories both in value and growth.
Overall, the benchmark S&P 500 dipped 8.8 percent month on month, DJIA went southwards by 4.9 percent month on month and then the tech-heavy NASDAQ trended downwards by 13.4 percent month on month in April. Meanwhile year to date, the S&P 500 and the Nasdaq Composite are down 13.5 percent and 22.4 percent, respectively
Elsewhere, in Europe, equity market performance was bearish albeit slighter than the negative performance recorded in the US market as the lingering impacts of the Russian-Ukraine crisis was a key topic on the mind of investors in their attempt to cut through the improbability to identify companies poised to benefit from the crisis and those likely to record a depression in their performance.
Generally, European markets were mostly bearish for the month of April as the pan-European STOXX 600 benchmark lost 1.2 percent alongside the German XETRA DAX (-2.2%) and French CAC 40 (-1.9%) which closed the month lower. Conversely, the UK markets managed to eke out a marginal gain for the month as the FTSE 100 gained 0.4 percent month on month.
For the Nigerian equities market, the stellar start recorded in January was chiefly motivated by BUA Foods which has recorded a 48.8 percent return since listing on the NGX in January, the positive rally which was reflected in Seplat Energies which had a return of over 84 percent since the start of the year and the positions of investors in fungible stocks such as Airtel Africa and Seplat Energies.
Tremendously, the stellar performance of the local bourse in Nigeria extended into April as market investors became upbeat in their mood with aggressive positioning in the market with particular focus on consumer goods names as well as oil palm companies. Similarly, the better-quality sentiments were first kicked off by dividend reinvestment activities by investors but then again was further spurred on by the outstanding Q1-2022 earnings season.
Inspiring outings from firms like Okomu Oil, Guinness Nigeria, Nigerian Breweries, Unilever Nigeria, and Lafarge Africa, among others, prompted a buying extravaganza as investors’ interest jagged to a new level. Generally, the benchmark NGX All Share Index (NGX-ASI) gained 5.7 percent month on month in April to close the month at 49,638.94 points.
The rally in the Nigerian equities market was broad-based as all major sectors closed higher, led by the Oil & Gas sector which gained 19.1 percent month on month, as buying interest in tickers like Seplat Energies (+29.0%) and Oando Plc (+30.7%) sent the market higher month on month. Consequently, the rally in oil & gas stocks reflected the bullish sentiments in the crude oil market, particularly for Seplat Energies which was also anticipated to make a quarterly dividend payment. In addition, the announcement of a board meeting by Oando Plc prompted a buying spree in the stock.
Elsewhere, a solid outing for FMCG stocks in the first quarter of the 2022 earnings season reinforced the show of the Consumer Goods sector which gained 11.5 percent month on month and was principally led by month on month gains in Guinness Nigeria (+30.6%), Nigerian Breweries (+41.2%), and Cadbury Plc (+22.0%). In the same way, the Banking sector gained 6.2 percent resulting from buying pressure in counters like Fidelity Bank (+18.8%), and Zenith Bank (+9.4%).
And then the Insurance sector which gained 3.7 percent month on month joined the party resulting from upticks recorded in Aiico Insurance which gained 17.9 percent month on month and Custodian Investment Company which rose 10 percent during the month.
To sum up the rally, the Industrial Goods sector closed the month with a 3.3 percent month on month gain as the likes of Lafarge Cement and Dangote Cement recorded upticks by 13.9 percent and 6.9 percent respectively, month on month.
Considering the positive rally from the market in four months already, institutional investors are now taking the big bets on some of the major tickers with a revered change witnessed across boards based on the high expectation for a continued spook in yields in the fixed income space and causing equity investors to increase reallocations to equities.
For equities analysts at FSDH Research Capital, they opined that: “This narrative will likely continue for an extended period as bond yields are projected to continue the uptrend which would cause institutional investors to raise allocations to equities, particularly as new funds flow into the market. However, we advise investors to exercise patience and wait for the recent rally to cool off before taking positions in the market, as the market is over-stretched in the short term.
“Going forward, we see further room for upside in the Nigerian equities market, particularly among FMCG companies who have been able to finally pass on more cost increases to consumers. In addition, we continue to remain bullish on upstream oil & gas companies (particularly SEPLAT), and oil palm companies, following Indonesia’s decision to ban exports of palm oil which is expected to trigger a surge in CPO prices. Clearly, the trend of activities in the equities market has changed as domestic institutional investors are now taking bigger bets on Nigerian equities following expectations of prolonged bearish sentiments in the bonds market,” they concluded.
Also, equities analysts at Coronation Research said “Going into Q2, we expect the impact of market interest rate increases to be delayed. This may give breathing room to the market, particularly for stocks continuing to show top-line growth, steady margins and earnings growth.
“We continue to expect some agricultural stocks to prosper. Commodity prices, both hard commodities like oil and soft commodities like rubber and palm oil, are expected to remain strong, especially in the wake of the EU sanction on Russian energy and the announcement by Indonesia banning oil palm exports. Meanwhile, the strong secular growth trend in telecoms and data services continues to support stocks such as MTN Nigeria (+15.5% since 1 January). There are plenty of reasons for Nigerian equity investors to be cheerful,” they said.