Equities market appreciates by N324bn in July amid impressive corporate earnings

By Kayode Tokede

The Nigerian Exchange Limited (NGX) equities market recorded a positive performance in July as investors gained N324 billion.

The market capitalisation, which measures the value of all equities, rose from N19.760 trillion on June 30, 2021 to N20.084 trillion on July 30, 2021.

Similarly, the NGX All-Share Index rose by 1.69 per cent from 37,898.56 basis points on June 30, 2021 to 38,547.08 basis points points on July 30, 2021.

Reviewing the market performance so far in the year showed that the stock market, which kicked off the year with some of the bullish moment from 2020, gaining 5.3 per cent in January, 2021, subsequently reversed as various drags, particularly the yield reversal, weighed on sentiments. Accordingly, the equity market shed 5.9 per cent in H1, 2021. Meanwhile, the bleeding eased as the market ended July, which is the beginning of the second half of the year, with a growth of 1.69 per cent.

Market operators linked the positive performance to bargaining hunting and positioning ahead of corporate results for the half-year ended June 30, 2021. While some investors were trading cautiously waiting for the corporate results, some were taking advantage of the low prices to enter the market, hence the gain recorded in the month under review.

Meanwhile, in line with the uptrend in the market, the sectorial indices closed on the positive side in the period under review. The Oil and Gas Index gained by 20.40 per cent. NGX Premium Board index followed with a gain of 6.58 per cent while NGX Banking index rose by 4.06 per cent during the month.

Others are NGX Industrial Goods, Pension, NGX 30 and Lotus II recorded 4.64 per cent, 3.12 per cent, 2.78 per cent and 2.10 per cent in the month of July. On the other side, the NGX Insurance index declined the most, falling 2.98 per cent, while NGX Consumer Goods went down by 0.54 per cent in July.

Analyst at PAC Holdings, Mr. Wole Adeyeye said investors are engaging in profit-taking over price appreciation of stocks recorded last year.

He maintained that the growth in July 2021 was driven by impressive half year results of listed banks, others.

According to him, the market gained in July was driven interim dividend payout to shareholders and impressive corporate earnings.

“Most of the stocks in July were undervalued and investors take position in those stocks and it impacted on the All-Share Index. Investors positioned themselves for dividend payout by fundamentals and it also drives the stock market in July.”

An independent analysts at Tradelines Limited, Mr Tunde Jeriogbe said that. Stock market closed positive in July as a result of investors positioning for interim dividends.

According to him, given that June and August is associated with the declaration of interim dividends, we envisage that investors will flock into stocks with attractive dividend yields as we inch closer to the half-year earnings season. We believe ‘early bird’ investors will outperform the ‘late comers’ in these periods since they are more likely to reap the benefits of a ‘divided rush’.

Analysts at United Capital Plc stated that “Following evaluation of the several factors expected to shape the financial markets in H2, 2021, we harmonise these factors and provide our expectations for the equities market and the yield environment as well as our preferred strategies.

“We expect to see periods of oscillation in the yield environment, albeit with an overall downward bias. Our expectation is built on three key factors; improved system liquidity via instrument maturities, deployment of financial repressive tactics by sovereign debt managers and status quo stance on monetary policy.

“That said, despite our expectation of moderation in fixed income yields, we do not see a rate crash similar to that of 2020. As a result, we expect demand for fixed income instruments to remain upbeat particularly among domestic investors, limiting prospects for improved flows to risk assets like equities.”

Meanwhile, analysts at Cordros Securities Limited. Stated that the local bourse is poised for a Rebound in H2, 2021.

According to Cordros, we still see scope for the market to deliver positive returns in 2021, given our expectation that yields will trend southwards, investors positioning in interim dividend paying stocks and increased activities from FPIs supported by improved liquidity conditions in the Investor and Exporters (I&E) window. Our baseline expectation is that the market will deliver a return of 5.5 per cent in 2021E (Estimated).