Nigerian stocks extend losses with 0.91% dip as MSCI deletes major caps from frontier market index

The Nigerian equities market extended losses at the close of trade Wednesday as the Morgan Stanley Capital International (MSCI) released the results of its semi-annual index review in which FORTE (0.0%), FBNH (-2.5%), GUINNESS (+1.0%) and PZ (-8.9%) were removed from its Main Frontier Markets Index, which tracks large- and mid-cap stocks in the frontier universe.

All, bar FORTE (0.0%), were reclassified into its MSCI Frontier Small Cap Index.

Additionally, CADBURY (0.0%), DIAMOND (-1.8%), FCMB (-1.8%), GLAXOSMITH (0.0%), SKYE (0.0%) and STERLING (-2.0%) have been deleted from the MSCI Frontier Markets Small Cap Index. All changes will be implemented as of the close of market on November 30, 2017.

Market performance at the local bourse on the day fell 0.91 percent to settle at 36,617.45 points, while market capitalization pared N116.3 billion to N12.7 trillion. Accordingly, market year-to-date gain moderated to 36.3 percent.

The day’s negative close was primarily due to price depreciation in DANGCEM (-2.8%). Similarly, activity level softened with value and volume traded declining 2.7 percent and 22.7 percent to N3.3 billion and 184.2 million units respectively.

Sector performance was largely negative as three of five indices closed the trading session in the red wile one closed flat and the other gained on previous close.

The industrial goods index lost the most, down 1.5 percent on account of sell pressures in DANGCEM (-2.8%). Similarly, the insurance index shed 1.0 percent, dragged by losses in MANSARD (-2.4%), NEM (-4.8%) and LINKASSURE (-4.8%), while the consumer goods index lost 0.9 percent following price depreciations in PZ (-8.9%), UNILEVER (-5.0%) and NIGERIAN BREWERIES (-0.5%).

On the flipside, the banking index, up 1.0 percent, was the day’s lone gainer due to bargain hunting in GUARANTY (+2.3%) and ZENITH (+1.1%) whereas the oil & gas index closed flat.

Investor sentiment improved as market breadth, albeit still negative, increased from 0.3x at previous close to 0.6x (15 advancers/ 25 decliners) on the day.

The day’s top gainers were AGLEVENT (+8.5%), REDSTAREX (+5.0%) and LEARNAFRCA (+4.1%) while CILEASING (-9.0%), PZ (-8.9%) and UNILEVER (-5.0%) led laggards.

“Although we expect the MSCI index review outcome to weigh on stocks, which are being deleted or reclassified, we do not rule out the potential for bargain hunting on some large cap stocks which have dragged market performance in prior trading sessions,” said analysts at Afrinvest.

Nigeria set to sell longest-dated bonds, to meet with global debt investors in London, New York

Relatedly, stocks around the world extended losses Wednesday, with markets in Europe and Asia hit by a deepening rout in commodity prices and a weaker dollar.

Oil prices have dropped in recent sessions after climbing to two-year highs, pressuring stocks in the energy sector while sending bond yields lower amid declining inflation expectations.

S&P 500 futures declined 0.4 percent after the index fell to its lowest close this month on Tuesday. Shares of Target fell 3.9 percent, leading declines in premarket trading, after offering a muted profit outlook.

Brent crude oil fell 1.1% to $61.50 a barrel, bringing this week’s losses to more than 3% after the American Petroleum Institute’s reading of weekly U.S. inventories showed a surprising build in both crude oil and gasoline.

Energy and materials companies have been among the worst performers across global equity markets recently. Shares of Tullow Oil fell 3.2% on Wednesday and were down 11.4% from the start of the week, even as energy companies have been the key driver behind U.S. and European earnings growth the third quarter.

Some investors are concerned that lower oil prices could lessen investment plans from the energy sector into other parts of the economy. In the U.S. “essentially all investment we have seen recently appears to have been driven by the energy sector,” strategists at UBS wrote in a note.

Chinese iron-ore and steel rebar prices also fell sharply Wednesday after disappointing economic data from China at the start of the week and figures showing that steel production remained relatively strong in October.

Lower commodity prices tend to trim investors’ expectations for a rise in consumer prices. Yields on 10-year Treasurys fell to 2.343% from 2.381% Tuesday, while German yields fell to 0.362% from 0.394%, signaling a rise in prices.

Lower bond yields put pressure on shares of banks in Europe and Japan as higher interest rates tend to boost lenders’ profitability.