Nigerian stocks are eagerly looking to next positive drivers after consistent sell pressure wiped off gains seen earlier this year.
The market has been bearish as investors stay on the sideline in anticipation of first-quarter 2023 earnings. Nigeria’s cash crunch in the first quarter is expected to trigger uninspiring top-line figures of many listed corporates. The stock market on Wednesday hit its seven consecutive sessions of losses as the bears continued to dominate trading at the Lagos bourse.
Stocks that have witnessed major sell-off lately as indicated in April 11 trading data are Airtel Africa (-26.7 percent), Multiverse (-39.7 percent), International Breweries (-13.8 percent), Nigerian Breweries (-11 percent), Vitafoam (-9.5 percent), Lafarge Africa (-4.2 percent), Cadbury (-5 percent), Champion Breweries (-7.6 percent), Honeywell Flour Mills (-6 percent), Ardova (-7.3 percent), and Eterna (-17.8 percent).
Others that have also underperformed the market lately are UACN (-22 percent), Custodian (-5 percent), and NEM Insurance (-11.1 percent), United Capital (-17.1 percent), Neimeth (-7 percent), and University Press (-5.3 percent).
Olaolu Boboye, senior analyst at CardinalStone, said: “The equity market has been performing poorly in recent times. This has slightly been deduced as the selloff in heavily weighted stocks and to put a bit of context to it. We have seen a selloff in Airtel, which has dipped year-to-date by 27 percent approximately; this is largely due to congealing selloff from domestic holders.
“I think Airtel is overvalued. Last year, there were positive stocks that we had, and have generally performed well. Foreign investors have been using it as an exit from the Nigerian market due to FX issues, and exit from the economy in terms of dual listing so they have been able to buy in Nigeria and sell off in London.
“The stock has significantly appreciated over the last few years, so we think the locals are selling off this year for profit-taking. The stock has been performing poorly and the market has been down.”
He added: “Secondly, sometime last month, there was a bit of scepticism in banks and a large selloff due to their exposure to Ghana. Ghana has restructured its local and foreign debt, Eurobond. There was a bit of clarity on all market shares, except on how large the impact of the restructuring will be on banks.
“Banks are yet to fully recover despite the likes of UBA and Zenith Bank that turned out positive numbers in their fourth quarter (Q4) results and a strong dividend yield of double-digit, but I am yet to see an influx in that sector, the impact of all these has been driving negative sentiment in the market.”
In the build-up to Nigeria’s general election, the equity market maintained an upward trend. The market yielded an impressive positive return of 7.04 percent in the first quarter, despite record profit-taking activities in March.
In approximately six weeks to April 11, stocks have shed over N2.1 trillion. The market’s benchmark index and value of equities have plunged to 51,952.99 points and N28.30 trillion as against 55,806.26 points and N30.40 trillion as at the end of February. The market’s positive return year-to-date also printed lower at +1.37 percent as at April 11. After a record dip in March (-1.70 percent), the market has decreased further by 4.20 percent month-to-date.
Nigeria’s equities market had gained about N1.403 trillion in February, the nation’s presidential election month despite that general elections typically bring about uncertainty and markets do not like uncertainty. The remarkable leap in February stock value came as investors continued to position themselves for dividend income amid full year 2022 results releases by companies.
Investors began to favour the fixed-income market over the equities market last month as interest rate hike drove investors to attractive asset classes.
The Central Bank of Nigeria (CBN), in March, raised its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 50 basis points to 18 percent, the sixth straight time.
Analysts at Lagos-based Meristem Research said: “For three consecutive weeks, the performance in Nigeria’s equities market has been relatively bearish. Also, activity levels have been somewhat lower despite earnings releases and dividend announcements.
“Thus, we opine that there are limited positive triggers that could spur buying activities from investors. Notwithstanding, we do not rule out bargain hunting activities on tickers that present attractive dividend yield and capital appreciation opportunities. Overall, we expect the market to close in the negative region this week.”
In their April 11 note to investors, Coronation Research analysts noted that turnover on the Nigerian Exchange Limited (NGX) has been trending downwards, saying it “shows that investors are less interested in equities than they were during the run-up to February’s general elections.”
They said: “We still think that the equity market has the potential to deliver a positive return this year (because consensus earnings estimates point to an 18 percent advance in earnings among the top stocks) but we wish to reduce our notional equity exposure in the short term.
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“Although we prefer to manage alpha (that is we like to pick stocks rather than call the market overall) we are finding this difficult this year, with not many themes to follow (and, when we do follow them, we find that the market does not follow fundamentals). So, we are now set to work on cutting our notional equity exposure.”
Reasonable percentage of equities transactions at the NGX is done by local investors who have consistently outshined their foreign counterparts.
In their recent look at the declining foreign participation in local bourse, United Capital analysts said: “We observed that the overall allocation of Foreign Portfolio Investors (FPIs) to the Nigerian equities market has maintained a sustained decline since 2017. To put things in perspective, from 2017 to 2022, the percentage of FPI allocated to buying/trading shares on the Nigerian Exchange was 43.6percent, 20percent, 11.6percent, 14.7percent, 6.1percent, and 2.3percent, decreasing by a compound annual growth rate of 56.5 percent since 2017.
“During this period, investors’ interest was mostly skewed in favour of money market instruments, evident in the percentage FPI allocation to money market instruments, which printed at 43.8percent, 71.8percent, 82.2percent, 80.8percent, 77.2percent, and 57.5percent from 2017 to 2022, respectively. This essentially demonstrates foreign investors’ risk-off sentiment toward investing in the Nigerian financial markets within the last five years, amid the increasingly volatile macroeconomic environment.”
They added: “Despite the declining participation of foreign investors in the local bourse and the increasingly challenging business environment, Nigerian listed corporates remained resilient in delivering solid corporate earnings performance. Given the relatively insignificant percentage of foreign participation in the Nigerian exchange (16.3percent in FY-2022), the bourse was able to record a positive performance of 20percent (with overall earnings performance improving by 9.3percent) in FY-2022, despite the string of hawkish postures by the MPC (+500bps MPR hike).
“Looking ahead, we expect foreign participation to remain lacklustre (in the short term), as the prevailing inhibitions (as outlined above) remain unabated. However, we remain confident that listed corporates will continue to outperform, irrespective of the magnitude of foreign participation in the Nigerian markets.”
