By Taofik Salako (Deputy Group Business Editor)
As investors await the first half reports of quoted companies, market pundits have said the outlook for the capital market will be determined by corporate earnings performance in the past six-month period.
Previewing the stock market against the background of performance in the first-half, nearly all analysts agreed that the market sentiment in the remaining six months would be driven by corporate earnings for the first-half period.
Nigerian equities had posted positive return of 14.12 per cent in the second quarter and net average negative return of -8.80 per cent for the six-month period ended June 30, 2020.
Most analysts described the first-half performance of the market as resilient, considering the adverse impact of the COVID-19 pandemic.
President, Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe, noted that the market had started the year with the post-election hangover of 2020, but gradually picked up as companies started posting their yearly results.
According to him, the rally at the market was, unfortunately, curtailed by the Covid-19 pandemic that led to a lockdown of activities across board.
But the two-month lockdown period witnessed unexpected market recovery as the All Share Index (ASI), the benchmark for the market, which was down by about 21 per cent pre-lockdown, gained about 12 per cent within the two-month lockdown period.
“This really is a testimony to the foresight of the Nigerian Stock Exchange (NSE) and stockbrokers as they have digitised their businesses in preparation for unforeseen events such as this. So the market continued to serve the nation even during the lockdown,” Amolegbe said.
He noted that as yields continued to trend downwards due to excess system liquidity, major companies such as Dangote Cement and MTN Communications Nigeria took advantage of the market situation to raise cheap capital through bonds and commercial paper issuance despite the pandemic. The Federal Government also raised a massively successful third Sukuk Ijarah during the period.
“Generally, the financial market weathered the storm during this unusual period. But significant headwind remains on the horizon as we await the corporate earnings reports for the second quarter,” Amolegbe said.
Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, also described the average return of -8.8 per cent for first half as a reasonable return to celebrate considering what the economy went through in the course of the global pandemic, especially the shocks that were transmitted through the market when crude oil prices eventually collapsed in April, 2020.
According to him, now that market has had a better understanding of the pandemic, and the fact that everyone has got to live with it, going forward, it is unlikely that market will go through a repeat of the experience it had at the start of the pandemic.
“However, market needs to analyse first half results that are being awaited, to determine the impact of the pandemic on listed companies, before taking further investment decisions or charting a way forward.
More importantly, how the various measures put in place by government would impact the economy as a whole. On a balance of probability, we may see a better market in second half of 2020,” Olayinka said.
Managing Director, Dynamic Portfolio Limited, Mr Remi Lasaki, pointed out that the market outlook would also be shaped by the fact that foreign investors are still contending with scarcity of Dollar in their bid to repatriate their money.
He urged government to look at the slowdown in velocity of spending while also addressing the issue of tax again; noting that people who are in dire need of cash flow should not be further subjected to additional tax constraints.
“People’s ability to spend has been constrained. They are waiting for half year results to see the effects of COVD-19,” Lasaki said.
Nigerian equities had witnessed a major recovery in the second quarter with positive average return of 14.12 per cent within the three-month period, representing net capital gains of N1.656 trillion.
The second quarter performance was however overshadowed by net loss of N2.68 trillion in the first quarter, leaving investors with net loss of N1.14 trillion for the six-month period.
Benchmark indices at the NSE, which are generally regarded as sovereign equity indices for Nigeria, showed that Nigerian stocks swiveled through steep decline in first quarter and a major recovery in early months of the second quarter.
The ASI- a common value-based index that tracks all share prices at the Exchange, closed first half at 24,479.22 points as against 26,842.07 points recorded as opening index for the year, indicating negative six-month average return of -8.80 per cent.
The index had posted a double-digit negative return of 20.7 per cent in the first quarter, driven by a steep decline of 18.75 per cent in March.
The six-month performance, though still negative, was moderated by the two-month successive rally in April and May, which saw equities recording a two-month average return of 19 per cent.
The market relapsed in June with average decline of 3.12 per cent, a loss of about N410.8 billion.
With net loss of about N2.68 trillion in first quarter 2020, the half-year return, though negative, indicated considerable recovery within the second quarter.
Nigerian equities recorded positive average return of 14.12 per cent in the second quarter, equivalent to net capital gains of N1.656 trillion for the three-month period. The ASI had closed March 2020 at 21,300.47 points.
Data provided by SCM Capital, an investment banking firm, indicated that average loss for foreign portfolio investors, who denominate in Dollars, could more than doubled average decline in Naira terms.
Aggregate market value of quoted equities, which showed unadjusted decline of 1.46 per cent in Naira terms, declined by 16.20 per cent in Dollar terms.
Nigerian market has continued to struggle with domestic macroeconomic uncertainties, global decline in crude oil price and trade wars and the ravaging COVID-19 pandemic.
