Rising yields in fixed Income market, inflation down capital market in Q1 — Analysts

The Nigerian Stocks Exchange (NSE) market capitalisation which represents the market value of all listed companies lost N628 billion in the first quarter of the year.

It will be recalled that the local bourse spent most of 2020 on a bullish run closing the year with a record-breaking 50.0 per cent return.

The bourse kicked off 2021 with similar sentiment, gaining 5.3 per cent in January, 2021. However, Nigerian equities have since maintained a southward direction, lost 5.6 pr cent in February and 1.9 per cent loss in March.

Capital market analysts attributed the decline or volatility seen in the market during the period under review to rising yields in the Fixed Income market.

Yields on fixed income instruments which were depressed last year have been on an upward trajectory in 2021 amidst strong local demand for higher yields and the need to attract foreign interest in Nigerian securities amid a dollar shortage. Notably, the recent Bond, NTB and OMO auctions have seen yields track higher and this has affected the market.

Meanwhile, the market capitalisation declined by N628 billion to close the period under review at N20.429 trillion from N21.057 trillion at which it opened for trading activities on January 4, 2021.

Also, the overall market performance measure All-Share Index (ASI), which tracks the general market movement of all listed equities on the Exchange, declined by 1,225.59 points or 3.04 per cent to close at 39,045.13 points on March 31, 2021 as against 40,270.72 points on January 4, 2021.

Also, sector performance was bearish as most indices closed the period on decline as at March 26, 2021. NSE Banking index depreciated the most by 7.92 per cent. NSE Lotus II index followed with a decline of 6.28 per cent, while NSE Industrial Goods index shed 6.05 per cent.

NSE Consumer Goods, NSE Premium, NSE 30 and NSE Pension indices recorded a decline of 5.91 per cent, 5.09 per cent, 4.85 per cent and 2.22 per cent, respectively in Q1. On the other side, NSE Oil and Gas index gained the most by 18.10 per cent, while NSE Insurance followed with a growth of 5.17 per cent in the first three months of the year.

United Capital Plc stated that the sustained reversal in the yield environment has weakened investors’ interest in equities and has led to the active selloffs observed over the past month.

Speaking on market performance, The President, Association of Capital Market Academics of Nigeria (A MAN), Prof. Uche Uwaleke stated that “sell offs witnessed in Q1 2021 especially in the months of February and March can be attributed to profit taking.

“Recall that many stocks had risen in Q4 of 2020 and the bullish trend lingered into January 2021 creating profit-taking opportunities especially  for domestic investors that have dominated transactions in the market since the beginning of last year.

“Another reason for the plummeting market performance has to do with the increasing yields in the fixed income market necessitating portfolio rebalancing in favour of competitive asset classes.

“I also blame increasing inflation rate which has eroded real returns in the stock market dampening investors sentiments.”

United Capital Plc stated that the sustained reversal in the yield environment has weakened investors’ interest in equities and has led to the active selloffs observed over the past month.  Speaking on market performance, founder of Tradelines DotBiz Investment Limited, Mr. Tunde Jeariogbe stated that “The Nigerian equities opened the year 2021 on a bullish ground moving sharply towards the North, this is despite the news of the second stage of COVID-19, and consistent increase in the nations headline inflation rate.”

He noted that “The Central Bank of Nigeria (CBN) move to rescue the nation’s economy from recession encouraged investment towards the market as returns in other instrument, fixed income market remained low and unattractive in the first month of the year. These factors amongst few others helped the market in its very sharp gains.

“Nevertheless, as the news of the economy recovery from recession emerged and rates turned up in the fixed income market, the stock market swiftly resumed an uncontrollable correction, which led to the decline seen in the Q1, this also marked the full year earnings season period.”

Jeariogbe noted further that “Good enough, the correction was saved by the earnings from quoted companies with December year end. Nevertheless, the market closed the month of March slightly below the opening point.”

On market outlook, the chief operating officer of InvestData Consulting Limited, Mr Ambrose Omordion said “We expect the mixed trend to continue as portfolio reshuffling and adjustment ahead of Q1 numbers and economic data in the face of rising dividend and fixed income market yields.

“Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks, while quarterly numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity space.”

He urged investors to target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities, adding that “this is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.”

Omordion, however, said that the strong and faster recovery may continue, depending on market forces, going forward, as propelled by 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.