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Nigerian stocks recover COVID-19 losses

Nigerian stocks are profiting from a low interest rate environment.

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Nigerian stocks recover COVID-19 losses

The Nigerian stock market has clawed back COVID-19 losses, making back all the money lost during the pandemic.

The Nigerian All Share Index, which measures performance of the stock market in general terms, fell to as low as 21,300 points in March, the lowest since June 2012. It was 28,843 and 26,216 in January and February 2020 respectively. The drop was due to the COVID-19 pandemic, which triggered a significant outflow of capital from Nigeria.

Investors dumped the stock market during March and April as uncertainty and fear of the pandemic triggered a lock down of the global economy. Market turmoil was also compounded by the crash in oil prices, triggering a significant outflow of capital in equities.

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

Data from the Bureau of Statistics, reveals only $52.3 million on capital flowed into equities in the second quarter of the year, compared to $639.7 million in the first quarter and $496.8 million in the corresponding quarter in the prior year.

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The ensuing devaluation at the end of March 2020 spooked foreign investors; who also feared more devaluation was on its way, thus sealing any immediate hope of a return to the stock market in the second quarter of 2020.

However, since July, the stock market has inched higher in positive territory, ending the third quarter with consecutive gains in July, August, and September respectively. This was the first time since 2017 (second quarter) that Nigerian stocks will post gains in three consecutive months.

READ: Nigerian Stocks fire up on all cylinders, investors gain N173.62 billion

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What are the drivers: Nigerian Stock Market has often been the bellwether for the economy, reacting way earlier than other markets, in gauging the direction of the economy.

  • One of the major drivers for the stock market recovery, is the lack of investable assets available for most fund managers.
  • Information from fund managers suggests most of the demand in stocks have been from local portfolio investors.
  • Some fund managers who spoke to Nairametrics, revealed the low-interest rate environment means there is limited options where they can throw money into creating an opening for stocks.
  • The Stock Exchange’s foreign portfolio investment report, also confirms this viewpoint. Out of the N1.2 trillion transactions in stocks this year, N731 billion was from domestic investors, the highest percentage contribution since 2010.

READ: MTN Nigeria records gain, investors profit up by N42 billion

Other factors

  • Stocks have also been considered undervalued following the March sell-offs, as indicative in the high dividend yield. Dividend yield is the percentage return derived from dividend paid by companies, divided by the share price of the company.
  • This year, we have seen dividend yield higher than risk-free investments like treasury bills.
  • Another plausible reason for the positive stock performance is the better than expected performances of Banks, FCMGs, Telecommunications sector, and the Agriculture sector of the economy.

Headwinds: Despite the positive performance of stocks, trouble still lies ahead for most investors.

  • The Nigerian economy is still in the doldrums with most companies counting losses.
  • Banks have performed better than expected, but some naysayers expect year-end profits to be dampened by rising non-performing loans.
  • Nigeria’s exchange rate crisis remains a major challenge for investors and the economy at larger, especially as it affects supply chains.
  • Rising inflation triggered by devaluation, increased fuel, and electricity prices could lead to higher operating expenses and significantly higher input cost.

Finally, despite these headwinds, stocks remain one of the cheapest and most reliable forms of investing available in a low-interest rate environment. Those who choose the right stocks at the right time, stand to gain the most.

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Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.

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Investment Tips

Where to invest $10,000 right now

Entrepreneurs, financial experts and investment analysts suggest what sectors or assets to invest in if you have $10,000.

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Where to invest $10,000 right now

The upsurge in COVID-19 cases around the world has kept global investors flocking the world’s safe-haven currency at an exponential rate, the high demand for the greenback is coming on the high geopolitical uncertainty prevailing in today’s financial market.

Also, it’s important to note at the currency market, the U.S dollar remains king. According to the International Standards Organization, 90% of currency trading done globally involves the U.S. dollar, most crypto assets, virtually the most liquid commodities are priced in the U.S dollar not forgetting about 40% of the world’s debt is dominated in the greenback.

READ: If you have N1m today, how would you invest it?

READ: Hackers, expose crypto wallets worth $150 million at Kucoin

So Nairametrics felt it paramount to ask a hedge fund manager,  entrepreneurs, and financial experts, about what sectors or assets they would invest in if they had, say, $10,000.

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Their responses were revealing and diverse as they were varied—ranging from; buying global equities, local stocks, real estate holdings to investing in digital assets.

READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with

READ: What BBNaija winner, Laycon can do with N30 million  

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Gavin Smith, veteran trader, and managing partner at Panxora Crypto Hedge Funds.

I would scale into BTC $2,000 now, $2,000 when it comes off to $10,000, then add $2,000 at $9,000 and another $2,000 at the $8,000 level. If BTC then breaks above $13,000 I would buy any of the above orders that had not been filled of the remaining $2,000. I would put $500 into each of these four DeFi protocols: LINK, COMP, KNC, and OMG.”

READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund

DeFi is an exceptionally volatile market and these would need active management, but they represent an opportunity with exceptional upside potential. This is a market our analysts are building a profile in, to advance our DeFi hedge fund later in the year.

READ: Real Estate: A universal convertible survival tool

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Debo Adejana – Founder, MD/CEO – Realty Point Limited.

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I follow the investment wisdom that says, ‘invest in what you know and understand’. I know and understand real estate probably more than any other investment asset class.

So, the decision as per what I will invest in with $10,000 which should be upwards of N4m is simply; Real Estate. I will either do rental income property as part of a properly organized shared-ownership structure or speculate on land depending on how much time I have with the money. The reasons are very basic, real estate investments have been known to survive and surpass any and every challenge.”

READ: If you had $100,000 in cash, where would you invest it in US markets?

Darlington-Morsi Onyemaka, Co-founder Quba Exchange Forbes Accelerator Cohort ’20.

One of the main pointers to a good investment portfolio is diversified across multiple asset classes which should be according to the investor’s risk appetite. Looking at my long-term investment strategy, real estate fits in perfectly for Ten-thousand dollar investment. My portfolio is already jam-packed with high-risk assets and Real Estate will do a great job at hedging the risk factors without minimizing profitability in any significant way.”

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

Francis Obasi Cofounder and CEO of Lead Wallet.

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If I have a spare $10,000 right now for investment, first, I’ll invest 55% of the funds into new crypto startups being run by professionals and backed by companies like Coinlist; LID Protocol, and Binance. Second, I’ll invest 20% of the funds into Lead Token as there is still potential for massive growth in the coming months/years. Third, looking at the situation of Nigeria, and not knowing where the current protest (uprising) on #EndSARS is headed, I’ll reserve the rest 25% in USDC/USDT to hold against a potential Naira crash. I’m confident that there is every possibility that the Dollar will become scarce again in the coming weeks/months due to the ongoing protest, thereby returning instant gains for immediate spending on basic needs.”

READ: Ethereum robber transfers $1.5 million worth of Crypto

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Dapo-Thomas Opeoluwa Global Markets analyst and an Energy Trader.

“There are so many ways to invest $10,000. The real question depends on the investor. His risk appetite, his investment horizon, when does he or she want to liquidate? The answers to these now limit the options of investments. So for safe and long-term investments, I always advise investing in index funds, Eurobonds or the Nigeria International Debt fund. This is with the caveat that says ‘low risk equals low returns’. Also, I usually would say, invest in investments that beat inflation so you won’t suffer negative real turns.”

READ: Total, GTBank, Zenith Bank up, Bulls return to Nigerian Stock Market

Victoria Njimanze Investment Analyst at a Nigerian Investment Bank

Well, off my head I’ll go with Bonds, cryptocurrency, Stocks, and then alternatives.  I would definitely make my findings first, but I’ll make a larger portion go into Bonds say 40%, 30% in cryptocurrency, 20% in stocks, and 10% in alternatives like commodity market so as to have a diversified portfolio.”

READ: Cryptos: Nigerian financial experts talk risks associated with trading digital assets

READ: A mysterious Bitcoin Whale causes brief panic sell-offs at Bitcoin’s Market

Akinsola Esan, a credit risk analyst at Nigeria’s Tier 1 Bank.

Basically, the goal is to earn substantial returns on investments – dividends, capital appreciation, and secondly, beat inflation in naira which is currently about 12.85%. With $10,000, I’ll spread my investments across foreign equities such as purchasing and holding stocks of companies like Apple, Facebook, Google, Fastly, Nio, Amazon, to list but a few, and also buy some top-performing dollar-denominated Mutual funds such as Vantage dollar funds and some other ones recommended by Nairametrics. Lastly, I will look in the area of cryptocurrencies by investing as much in bitcoin, Ethereum, and other recognized Cryptos. There are some dividend-paying stocks listed on the Nigerian stock exchange as well, I will consider holding a number of them.

Explore Data on the Nairametrics Research Website

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Bottom line

Due to the present fickle nature of global financial markets, most financial experts interviewed above are unsurprisingly keen on mostly U.S dollar-dominated financial assets, thus reflecting the greenback’s dominance in demand amid the COVID-19  infection exploding at an alarming rate.

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Market Views

UBA most traded Nigerian stock, investors profit N128 billion W/W

Nigerian bourse in spite of prevailing protest by many Nigerian Millenials ended the past week bullish.

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investors, Bulls gain momentum, as stimulus package lifts global financial markets, Bulls boost global financial market, gold hits 7 years high, Dangote, Tier-1 banks lead the bulls to close Nigerian stock market green

Nigerian bourse in spite of prevailing protest by many Nigerian Millenials ended the past week bullish.

The Nigerian All-Share Index and Market Capitalization both appreciated by 0.86% to close the week at 28,659.45 and N14.980 trillion respectively. Investors gained N127.61 Billion.

  • A total turnover of 1.955 billion shares worth N22.978 billion in 22,844 deals was traded this week by investors on the floor of the Exchange. This is in contrast to a total of 3.140 billion shares valued at N35.372 billion that exchanged hands last week in 35,099 deals.
  • The Financial Services industry (measured by volume) led the activity chart with 1.648 billion shares valued at N18.824 billion traded in 13,050 deals; thus, contributing 84.29% and 81.92% to the total equity turnover volume and value respectively.
  • The Conglomerates Industry followed with 99.313 million shares worth N87.823 million in 553 deals.
  • The third place was the Consumer Goods, with a turnover of 60.570 million shares worth N991.189 million in 3,269 deals.
  • Trading in the top three equities namely United Bank for Africa Plc, Guaranty Trust Bank Plc, and Zenith Bank Plc. (measured by volume) accounted for 885.515 million shares worth N15.881 billion in 6,308 deals, contributing 45.30% and 69.11% to the total equity turnover volume and value respectively.
  • The NSE All-Share Index and Market Capitalization both appreciated by 0.86% to close the week at 28,659.45 and N14.980 trillion respectively.

Explore Data on the Nairametrics Research Website

Use Advanced Financial Calculators on Nairametrics

Top gainers

  1. ETERNA PLC. up 34.99% to close at N4.90
  2. INTERNATIONAL BREWERIES PLC. up 12.92% to close at N5.33
  3. CADBURY NIGERIA PLC. up 12.59% to close at N8.05
  4. GUINNESS NIG PLC up 12.33% to close at N16.85
  5. LAFARGE AFRICA PLC. up 10.88% to close at N18.85
  6. TOTAL NIGERIA PLC. up 10.00% to close at N 112.20
  7. PRESCO PLC up 8.93% to close at N65.90
  8. UNION DIAGNOSTIC & CLINICAL SERVICES PLC up 8.33% to close at N0.26
  9. MAY & BAKER NIGERIA PLC. up 8.33% to close at N3.25
  10. NASCON ALLIED INDUSTRIES PLC up 7.88% to close at N13.00

READ: Nestlé S.A buys additional shares of Nestlé Nigeria worth N287 million

Top losers

  1. E-TRANZACT INTERNATIONAL PLC down 26.38% to close at N1.73
  2. PORTLAND PAINTS & PRODUCTS NIGERIA PLC down 10.31% to close at N2.00
  3. CONSOLIDATED HALLMARK INSURANCE PLC down 8.11% to close at N0.34
  4. ROYAL EXCHANGE PLC. down 7.41% to close at N0.25
  5. CUTIX PLC. down 5.81% to close at N1.62
  6. AXAMANSARD INSURANCE PLC down 5.67% to close at N1.83
  7. CUSTODIAN INVESTMENT PLC down 4.76% to close at N5.00
  8. FIDSON HEALTHCARE PLC down 4.63% to close at N3.50
  9. ARDOVA PLC down 3.61% to close at N12.00
  10. GLAXO SMITHKLINE CONSUMER NIG. PLC down 3.45% to close at N5.60

Outlook

Nigerian bourse ended positive W/W amid mixed oil prices as COVID-19 raging onslaughts infected over 38 million people globally.

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  • Trading activities turned relatively impressive W/W amid the prevailing macro, showing the high intensity of protests by Nigerian youths clamoring for police reforms.
  • The Nigerian inflation rate surged to 13.71% (year-on-year) in September 2020, indicating a 0.49% point difference when compared to 13.22% recorded in August 2020, thereby temporarily weakening the buying pressure of top financial-based stocks.
  • Nairametrics envisage cautious buying amid rising COVID-19 caseloads globally.

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Market Views

Pfizer’s COVID-19 vaccine boosts U.S Stocks

Pfizer Inc could have a COVID-19 vaccine available in the world’s largest economy by the end of 2020.

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Pfizer's COVID-19 vaccine boosts U.S Stocks

Global shares relatively recorded impressive outing, as stock traders and global investors got excited over the news that revealed leading drugmaker Pfizer Inc could have a COVID-19 vaccine available for the world’s largest economy by the end of 2020.

  • Two of the three major American stock indexes pared earlier gains at the last trading session for the week, with the S&P 500 little changed at 3,483.81, while the Dow Jones Industrial Average gained 0.4% to close at 28,606.31.
  • However, the tech-dominated index, Nasdaq Composite, reversed into losses to end down at 0.4%
  • Shares of Pfizer gained 3.8%, and the stock was the biggest contributor to the S&P 500’s gains on Friday.
  • The U.S. drugmaker said it could file for U.S. authorization of the COVID-19 vaccine it is developing with German partner BioNTech as early as late November.

Explore Data on the Nairametrics Research Website 

Explore Some Advanced Financial Calculators On Nairametrics

Backstory

Recall Nairametrics broke the news on Pfizer’s CEO, Albert Bourla’s open letter on when the COVID-19 vaccine would readily be available.

READ: Moderna to seek emergency use of its COVID-19 vaccine

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What they are saying

While noting that safety reviews will dictate the timeline, with the Food and Drug Administration (FDA) requiring that at least half the people in the study be watched for side effects for two months, Bourla said that the milestone should be achieved in the third week of November.

Bourla wrote, “Let me be clear, assuming positive data, Pfizer will apply for emergency authorization used in the U.S. soon after the safety milestone is achieved. An initial readout on whether the vaccine is effective could come later this month, depending on how quickly subjects in the trial, some of whom got a placebo shot, become infected with the virus.”

READ: London Stock Exchange seals $5billion Borsa Italiana sale

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Stephen Innes, Chief Global Market Strategist at Axi, further gave insights on prevailing fundamentals making headlines among global investors,

“Investor uncertainty is bristling ahead of an expected choppy period in terms of headline risk, where perhaps the most horrifying trouble of all is that the second wave of the coronavirus could trigger more intense lockdown fears.

READ: FG liberalizes the Mining sector, grants 5 years tax concession to miners

“The allure of the US stimulus deal is keeping the + 3500 (S&P 500 e-mini futures) dream alive.”

The focus of global investors is shifting to the highly anticipated US Presidential election, scheduled to hold in less than a month.

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