U.S Stocks closed lower at the last trading session for the week after a volatile session. These recent sell-offs were triggered by leading tech brands such as Facebook, Amazon, and Google, which lost more than 2%. Netflix’s stock price lost 1.8% and Microsoft also dropped 1.4%.
However, Apple’s stock price ended the trading session up by 0.1% after falling as much as 8.3%. Tesla’s share price also reversed a drop of more than 8%, ended the trading session up 2.8%.
The Dow Jones Industrial Average closed 159.42 points lower, or 0.6%, at 28,133.31 points. At one point, the 30-stock average fell as much as 628.05 points or 2.2%. The Dow was also higher for a moment yesterday.
The S&P 500 dropped 0.8% to 3,426.96 but finished well off its session low. The broader-market index plunged by 3.1% at its session low and briefly traded positive on the day. The Nasdaq Composite also dropped 1.3% to 11,313.13 but also closed well above its low of the day.
In an explanatory note to Nairametrics Stephen Innes, Chief Global Market Strategist at AxiCorp spoke on the prevailing market conditions and the macros triggering the sell-offs. He said;
“This sell-off looks an awful lot like a retail meltdown, similar to what we see in China markets as a lot of weak retail longs getting taken to the cleaners by the aggressive short seller on the street in a vast momentum style clean out, but I think there is more than meets the eye.
“While I don’t think it’s a healthy meltdown, getting rid of some of the short-term speculator froth will offer up better levels for the Wall of Money to indulge as we know the Fed is going anywhere soon, although probably holding back the big guns for a possible rainy day in the future if the winter months prove to be explosive for the virus.”
However, there appears to be no particular driver of the recent sell-offs recorded in the world’s largest equity markets other than a reversal of the substantial gains seen over the past two weeks on the surface.
Sell frenzy wipes out N1.1 trillion from market capitalization of Nigerian stocks
Nigerian Stocks end February with N1.1 trillion loss in market value, first loss since September 2020.
The Nigerian Stock Exchange ended February with a 6.16% loss ending 7 months winning streak that started in July 2020.
Year-to-date, the Nigerian stock exchange also swung to a loss of -1.17% after closing the month of January with a 5.32% gain. Out of the 166 stocks tracked by Nairametrics 53 stocks posted losses while 35 stocks gained, the rest were flat.
In total, investors lost a whopping N1.1 trillion during the month wiping off all the gains made in January. The last time stocks lost over a trillion naira was in March 2020 when stocks plummeted by about N2.5 trillion due to the global pandemic that had just broken. Before February, stocks have lost N1 trillion and above only 4 times in the last 5 years.
The selloffs also ensued despite the National Bureau of Statistics report that Nigeria had exited a recession beating consensus analyst expectation of a U -shaped recovery.
Why the sell-off?
The sell pressure on Nigerian stocks in the month of February is attributed to a change in key economic drivers that have underpinned the success of stocks in recent months.
- Overvalued stocks – As stocks hit an all-time high of N22 trillion in market capitalization, investors found it harder to find value in equities. Nigeria boasts of less than 200 stocks on its flagship bourse out of which about 60 have enough liquidity to absorb more capital. For most investors, the key driver for investing in stocks was the dividend yield. However, as market value spiked, the prospects for higher dividend yields fell making investments in equities less attractive.
- Profit-taking – As investors assigned overvalued status to Nigerian stocks, many saw this as an opportunity for profit-taking. For example, the NSE 30 Index swung from a positive return of 4.93% in January to a loss of 7.41% in February. Pension funds also sold off stocks with their index falling to a loss of 7.68% after closing January with a 7.49% pop. The insurance sector which led the gainers’ chart earlier on in the year went from a gain of 29.77% to a loss of 17.82%
- Earnings season – The anticipation of how investors might also react to 2020 FY results also played a role in the selloffs that occurred in February. Investors expected a fall in profits for most listed companies. To avoid being in a value trap they sell off and hope to return once the outlook becomes clearer.
- Rise in interest rates – Lower interest rates have been the major driver of an upsurge in the market value of stocks since last year. The central bank sent clear signals during the months that it was in the mood to increase yields of its OMO and Treasury Bills thus competing directly with dividend yields (which we touched on above). The higher the yield on risk-free investments the less attractive investing in stocks become.
- Gloomy economic outlook – Lastly, insecurity, social unrest and an ailing economy are also weighing down on investors. Investors are also worried about the economic growth of the country and the ability of the government to continue to operate in a bankrupt state. Nigeria has seen its fiscal deficits explode in recent years. Some of the deficits are funded by an estimated N10 trillion in CBN’s Ways and Means lending.
NSE CGI depreciates by 8% in February, recording highest decline since March 2020
The NSE Consumer goods index shed a total of 49.84 index points in February, the highest loss on the index since March 2020.
The Nigerian Stock Exchange Consumer Goods Index (CGI), an index that tracks the performance of consumer goods companies, depreciated by 8.12% in the month of February at the back of sell-offs and building negative sentiments in the market.
A preview of the performance of the index revealed that as of the close of trading activities on Friday 26th February 2021, the index stood at 563.85 index points, from 613.69 index points at the open of trade for the month.
In line with this, the Consumer Goods Index shed a total of 49.84 index points – the highest since March 2020 (-132.53 index points)- as wary investors offload shares of top consumer goods company on NSE, leading to the decline in the share price of Nestle, Dangote Sugar, Flour Mills, NB and eight (8) others.
What you should know
- The NSE Consumer goods Index was designed to provide an investable benchmark to capture the performance of companies in the consumer goods sector. The index comprises the most capitalized and liquid companies in food, beverage, and tobacco.
- The index is based on the market capitalization methodology, as it tracks the performance of fifteen consumer goods companies on the Nigerian Stock Exchange which includes, Nestle, Nigerian Breweries (NB), Dangote Sugar, and Flour Mills.
- The overall performance of the companies was bearish, as the index closed on a negative note in the month of February with 12 losers relative to 3 gainers.
- NNFM (-27.48%) led the losers’ chart, while MCNICHOLS (+56.86%) was the top gainer in the month of February, followed by GUINNESS (+21.32%).
- MCNICHOLS up 56.86% to close at N0.8
- GUINNESS up 21.32% to close N23.05
- UNILEVER up 0.74% to close at N13.95
- NNFM down by 27.48% to close at N7.02
- VITAFOAM down by 22.89% to close at N7.75
- CHAMPION down by 18.97% to close at N2.52
- NB down by 17.46% to close at N52
- FLOURMILLS down by 16.86% to close at N28.85
LASACO Assurance Plc completes share capital reconstruction
LASACO Assurance has completed its share reconstruction exercise of about 7.3 million ordinary shares.
LASACO Assurance Plc has announced the completion of its share reconstruction exercise of about 7.3 million ordinary shares.
This is according to disclosure contained in the NSE weekly market report for 26th of February, 2021, seen by Nairametrics.
LASACO Assurance Plc had earlier announced obtaining regulatory approval to reconstruct 7,334,343,421 ordinary shares of 50 kobo each at N0.42 per share in the ratio one (1) new ordinary shares for every four (4) ordinary shares previously held by its shareholders.
In a bid to facilitate the reconstruction exercise, trading in the shares of LASACO Assurance Plc was initially placed on full suspension for two (2) weeks, and further extended by a week. Sequel to the completion of the share reconstruction exercise, the suspension was subsequently lifted on the 22nd of February, 2021.
Consequently, LASACO’s entire issued share capital of 7,334,343,421 ordinary shares of 50 Kobo each at N0.42 per share prior to the share capital reconstruction was delisted from the Nigerian Stock Exchange’s daily official list, while the 1,833,585,855 ordinary shares of 50 Kobo each at N1.68 per share arising from the share capital reconstruction were listed on the exchange’s daily official list on the same day.
What you should know:
- Share Reconstruction otherwise known as a reverse stock split is a technical process whereby a company reduces the total number of outstanding shares it has by cancelling out shares it does not need.
- Sequel to the completion of the company’s share capital reconstruction, the total issued and fully paid-up shares of LASACO Assurance Plc has now reduced from 7,334,343,421 to 1,833,585,855 ordinary shares.
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