The Nigerian Stock Exchange (NSE) All-Share Index (ASI) in the past few weeks has been bearish. Year to date gains has since dropped to 6.6% from January’s high of 15.95%.
Investors have however increasingly shifted their focus to smaller cap stocks. In Wednesday’s trading session, Jaiz Bank was the top gainer as it appreciated by 10%. Learn Africa was last week’s top gainer, up 18.56%. Prior to that, LASACO Assurance emerged as the top gainer, up 21.2%. For the week ended 13th April, Wema Bank was the 2nd best gainer, up 32% and topped only by GSK Consumer (which has been in the news due to its payment of a special dividend).
And what about Thursday’s trading session? The top 8 in descending order were Oando, Courteville, Eterna, Fidson, Wema Bank, Sovereign Insurance and Hallmark Insurance and Equity Assurance. Apart from Oando, these are all small-cap stocks with limited upsides in the medium to long-term.
These stocks are often referred to as Jump in Jump Out “JIJO” stocks and are typically bull traps that we like to avoid by all means. Despite the risks inherent in JIJO stocks, investors still find them very attractive and flock towards them at the slightest sign of a bull run.
Characteristics of JIJO stocks
Just like Ponzi schemes (not saying they are Ponzis) JIJO stocks have the incredible knack of returning huge returns in the short term. From experience, they can return as high as 120% over a period of two months before receding.
Don’t rely on Fundamentals
Also, they need not have strong fundamentals to attract investors. JIJO stocks, more often than not, do not pay dividends, are not up to date with results and sometimes, are perpetually loss-making. Nevertheless, investors flock to them like fleas.
JIJO stocks are also lowly priced, giving investors an impression that they are cheap; whereas the stocks are often regarded as being cheap when their price earnings ratio and price to book ratios are well below industry average or trading below their perceived intrinsic value. For most investors who love JIJO stocks, a stock with a share price of 50kobo can get you 200,000 units with just N100,000.
When they move, they gallop
Because of their low costs, the prices can rise rapidly as you don’t need so much in terms of market capitalisation to acquire enough volumes that can turnover. Share prices rise or fall when volumes turnover via transactions.
In a bull trap, stocks that have been declining in price suddenly start climbing. This spike is temporary however and is usually followed by a sharp and sustained decline in price. In fact, when the price starts dropping, you hardly see anyone looking to buy.
How to benefit from this
Some experienced investors that we have spoken to explained that they take short-term positions in such stocks because of the lucrative returns and the adrenalin rush of trading high-risk equities. They enter the stocks currently bubbling and exit at 15-20% after a few days. Cheap transaction fees mean that a round trip (a buy and sell transaction) would only cost a maximum of 3.2%.
Most of them told us that they set an exit target and when they hit it, they bail out. “Those who get trapped here often do so either because they are greedy, or are not paying attention to market trends” one trader who declined to be named explained to Nairametrics.
Newbies should be cautious
We do not like trading JIJO stocks and avoid them.Trading in such stocks is like engaging in a Ponzi scheme; the first movers are typically the ones who make the most money, while those who come in at the tail end of the ride, typically lose out. You really have to be trading stocks for a living and have a knack for high-speed adrenalin pumping trade.
Retail investors, who have returned to the market following last year’s stellar performance, should be cautious. They would be best served if they stuck to blue chips and mid-cap stocks with fundamentals.
Nigerian stocks end near stalemate, despite gains from Nestle, Airtel, Dangote
A total volume of 568million units of shares, valued at N7.32billion exchanged hands in 8,928 deals.
Nigerian bourse ended Monday’s trading session near a stalemate, as the All Share Index dropped slightly by 0.04% to close at 34,121.78 points. Thus, the YTD performance currently stands at 27.56%.
A total volume of 568million units of shares, valued at N7.32billion exchanged hands in 8,928 deals. ZENITHBANK was the most traded shares by volume and valued at 79.7million units and N1.91billion.
- Market sentiment was negative, as market breadth came in at 9.2x with 46 decliners and 5 advancers.
- The sectorial performance was bearish as Banking, Consumer Goods, Insurance, Oil & Gas were down by 4.72%, 2.07%, 2.07%, and 1.62% respectively, while the Industrial index closed as the lone gainer, up by +2.72%.
- NSE Banking Index: Down by -4.72%, on sell-offs in WEMABANK (-9.09%), ACCESS (-8.14%), UBA (-6.10%), and ZENITHBANK (-5.66%).
- NSE Consumer Goods Index: Fell by -2.07%, due to sustained losses in GUINNESS (-9.55%), PZ (-9.43%), and FLOURMILL (-8.43%).
- NSE Insurance Index: Dipped by -2.07%, on price decline in CUSTODIAN (-10.00%), CHIPLC (-9.38%), and LINKASSURE (-9.09%).
- NSE Oil & Gas Index: Dipped by -1.62%, as ARDOVA (-10.00%) and OANDO (-9.97%) declined in price.
- NSE Industrial Index: Up by +2.72% due to the price appreciation in BUACEMENT (+4.77%) and DANGCEM (+3.42%)
- AIRTELAFRI up 5.00% to close at N500
- BUACEMENT up 4.77% to close at N53.45
- DANGCEM up 3.42% to close at N193.2
- NESTLE up 1.82% to close at N1400
- NEM up 0.78% to close at N2.6
- ARDOVA down 10.00% to close at N13.5
- WAPCO down 10.00% to close at N22.05
- GUINNESS down 9.55% to close at N18
- FLOURMILL down 8.47% to close at N25.4
- STANBIC down 8.02% to close at N39.55
Nigerian Stocks began the first trading session on a slightly bearish note, amid soaring oil prices prevailing at the U.S trading session. At the time of writing this report, Brent crude was trading above $45/barrel.
- That said, significant gains seen from NSE30 Stocks that include Nestle, Airtel, Dangote, BUACement couldn’t stop Nigerian stocks from closing slightly red, as sell-offs intensified among top brewery stocks and medium capitalized stocks.
- Nairametrics envisage cautious buying, on the sentiments that recent price action shows further market correction in the near term, however, stock traders anticipate the bullish run is still in play for the long term.
ABCON warns: Forex speculators risk losing money as they push for forceful depreciation
ABCON has strongly warned foreign exchange speculators pushing for the forceful depreciation of the naira through their illegal activities.
The Association of Bureau De Change Operators of Nigeria (ABCON) has strongly warned foreign exchange speculators, who have been pushing for the forceful depreciation of the naira through their illegal activities, that they run the risk of losing their money.
According to a report from ThisDay, this is contained in a statement issued by ABCON on Sunday, November 22, 2020, and titled, “ABCON warns speculators will lose money as CBN has enough reserves to fund market, defend naira“.
The President of ABCON, Alhaji Aminu Gwadabe, said foreign exchange speculators run the risk of losing their funds, as the Central Bank of Nigeria (CBN) has enough in its reserve to defend the naira and close the widening gap between official and parallel market rates.
The demand pressure on the naira from importers and currency speculators has seen the local currency depreciate to N484 to a dollar in the parallel market, otherwise known as the black market as at last week Friday, whereas the official CBN rate still remained stable at N379 to a dollar.
Gwadabe, pointed out that with almost $36 billion in foreign reserves, the CBN has what it takes to punish the enemies of the economy, who are forcing the naira to depreciate through speculative activities.
He said the CBN Governor, Godwin Emefiele, has continued to take the right steps and measures to stabilize the exchange rate and ensure that foreign exchange is made available to manufacturers and end users, who need the funds for their medical trips, school fees payment, travel allowances, amongst others.
He also acknowledged that the allocation of dollars to Bureau De Change operators (BDCs) has also helped to deepen the forex market and reduce the level of forex scarcity that usually encouraged speculative activities.
He pointed out that the gap between the official rate and the black market will soon be narrowed down to the barest minimum, with the CBN having the needed financial strength to fund the forex market.
Gwadebe said, “I think that the CBN by pushing the official foreign exchange rate from N306 to N379 to the dollar is in line with market demand. It has also helped to narrow the official-parallel market rates gap that formed the basis of ridiculous speculations among unpatriotic forex dealers and spectators.’’
Gwadabe advised the FG to enhance security surveillance at the nation’s borders to checkmate illegal foreign currency cash transactions.
He further called for BDC operators’ liquidity ratios to be raised to discourage dollar holdings. He said ABCON Executives will from this week begin enforcement of regulatory compliance of its members in BDC design market, saying it was helping to overheat that market.
Gwadabe disclosed that ABCON Executive Council under his leadership will continue to promote transparency and efficient market dealings, while commending the CBN Management for its progressive policies towards a stable exchange rate that aligns with its mandate of exchange rate stability.
What you should know
It can be recalled that despite the intervention of the CBN with the allocation of forex to BDCs and formulation of policies to help conserve forex and increase the dollar inflow into the country, the exchange rate disparity appears to widen further.
N200 billion Unclaimed Dividend: Securities dealers reject FG’s plan to manage fund
ASHON has rejected plans by the Federal Government of Nigeria to manage the N200 million unclaimed dividends.
Some capital market experts, represented by the Chairman of the Association of Securities Dealing Houses of Nigeria, have rejected plans by the Federal Government of Nigeria to manage unclaimed dividends – which is projected to hit N200bn by the end of this year, according to a report by Punch.
The Chairman, Association of Securities Dealing Houses of Nigeria, Onyenwechukwu Ezeagu, explained that capital market regulators and operators had leveraged technology to put in place many initiatives to address the issue of unclaimed dividends. Some of these initiatives include de-materialization of shares, which entails upload of quoted companies share in the Central Securities Clearing System for ease of reconciliation, adoption of e-dividend and e-mandate, consolidation of multiple accounts, identity management engagements, and introduction of electronic Initial Public Offering.
(READ MORE: Nigeria needs $5billion for National Broadband Plan – Chairman, BISC)
What they are saying
Commenting on the recent development, Mr. Ezeagu said, “Generally, the incentives for savers and capital providers in the capital market is the expectation of dividends and capital appreciation.
“It is, therefore, our considered view that the proposed legislation, if passed, will be a great disincentive to savings, long-term capital mobilization, and serious disruption of the Nigerian economy, since it will take away the only expectation of investors in the market.”
Corroborating him, the President, Chartered Institute of Stockbrokers, Mr. Olatunde Amolegbe, said the Securities and Exchange Commission would always ensure the transfer of unclaimed dividends to the capital reserves of the company for restricted utilization, such as capital expansion and issuance of bonus shares to the company’s shareholders.
What you should know
Nairametrics had earlier reported that some law makers (Reps) raised alarm over N200 billion unclaimed dividends in 2020. In lieu of this perceived need, a proposal for the creation of an unclaimed dividend and utilized bank balance trust fund was emphasized in the 2020 Finance Bill — wherein, dividends declared and unclaimed would be warehoused and owed as a perpetual debt to shareholders.