Final lap indeed, what a year it has been! Whew! I am sure the entire world is ready for the year to be over in
hopes that the Coronavirus would be a thing of the past. As we enter the final quarter of this special year, I think
it is safe to say that this year will go down in world’s history as one hell of a year.
Nigeria also celebrated her 60th year of being independent last week and I must say, the road is still very much
far ahead for her but I believe the resilience and optimism of majority of Nigerians will definitely get us to the
promised land one day, ‘we hope’. I can dwell on and list all the negatives in terms of little achievements that
have been made despite all the efforts and time that has been exerted over the last 60 years, but I think I will
rather focus on some good news worth pointing out, and that is the Nigerian equities market. Can someone say, “Amen!!”
The Resurrection…
“After Jesus had said this, He called out in a loud voice, ‘Lazarus, come out!’ The man who had been dead
came out with his hands and feet bound in strips of linen, and his face wrapped in a cloth…” John 11:43-44.
The Nigerian Equities market sustained its bargain hunting momentum last week as it advanced by 2.53% WoW
to close at 26,985.77 points (its highest in seven months). The NSEASI finally returned into positive territory after
shedding 23% YTD in March 2020. The NSEASI YTD returns settled at +0.54% YTD last week (vs.-1.95% YTD
in the previous week). Most people would agree that the recovery in equities is somewhat of a miracle given the
sustained Macroeconomic headwinds that have pressured the equities market since the covid-19 pandemic hit
our shores. But as they say, “The Lord works in mysterious ways”.
The Nigerian Equities market had an interesting start to the year as the ASI was up 9% YTD as at late January
2020. The NSEASI was also ranked the first on the world equities ranking, trust Nigerians to make noise about
it as this became the selling point for most equities traders. The early rally largely driven by liquidity as local
investors who were unable to invest in the OMO market skewed their attention towards the Bonds and Equities
market.
After we gave ourselves false hope that there is nothing we cannot handle (the Nigerian Survival mentality) and
that covid-19 virus could never survive Nigeria’s weather (can’t imagine I believed this, I guess I was just trying
to be optimistic), we recorded our first case and market went into a risk off sentiment as sell-off seen across all
risk asset, the equities market lost 23% YTD in March 2020.
Nevertheless, we began to see a recovery in May 2020 as the absence of sizable offshore offers gave domestic
investors room to flex their might as locals continued to be better buyers in the bourse. Activity improved further
as offshore investors that were stuck and decided to pick up some stocks on the cheap. Nevertheless, the Equities
market has traded sideways since then as concerns around FX liquidity continued to dampen investors’ appetite.
The bargain hunting has strengthened in recent weeks as the outcome of the September MPC finally gave
investors the clarity, they have been waiting for… looks like the low rates are here to stay. It seems the outcome
of the MPC meeting coupled with the low yield environment in the fixed income market has renewed the PFA’s
appetite in the equity market, as the NSE ASI reappears on the world equities ranking (13th).
Fundamentals or Liquidity?
Liquidity has played a major role in the global market performance this year, with U.S. equities rallying on the
back of the $3 trillion U.S. monetary stimulus packages and now we are seeing the same liquidity that has piled
up from the OMO maturity repayment finally flowing into equities, which begets the question, “Fundamentals
or Liquidity, which is more sustainable?” Nevertheless, we expect the anticipated liquidity inflow from the OMO
market between now and December (NGN4.1 trillion) to keep the equities market above water.
Where is the money?
Given the foregoing, we are still positive on top-tier banks (GTB & Zenith), while we believe that industrial names
like WAPCO and Telco giant MTN could provide some neat term upside to investors.
