The Nigerian stock market has just had one of its best weeks since January, with the Nigerian Stock Exchange All-Share Index and Market Capitalization gaining by 1.87% to close the week at 23,021.01 and N11.997 trillion, respectively.
Month to date, equities closed 8%, the highest month to date return since January 2018. Stocks also closed at 7.5% month to date in January 2020 before sliding into negative territory in the subsequent months of February (-9.11%), and March (-18.75%). Year to date, the market is still down -14.24%.
Local investors lead
Foreign investors have been staying off the Nigerian equities market lately, despite attractive valuations on some of Nigeria’s blue-chip firms, based on worries that the dollar scarcity might limit their ability to make any profit.
Local investors are presently positioning for dividend payments from Nigerian biggest brands, not worried by the dollar scarcity caused by the plunge in the prices of crude oil and the COVID-19 pandemic.
It is likely that market would see some more profit-taking in Q2 and even beyond despite recent upbeat demand, although we think that long term investors can take advantage of bargain hunting opportunities in favorable equity names in anticipation of a post-COVID-19return to normalcy.
For instance, on Banking, despite the anticipation of broad weakness in performance in FY’20, we see the potential for resilience in specific names that are better positioned to withstand the crises (we like GUARANTY and ZENITHBANK: better ratios, strong capital buffers).
He spoke about how consumer goods companies like Nestle, and fiscal policies had helped the agricultural sector.
“On Consumer Goods, we expect the inelastic nature of the demand for some food products to support companies such as NESTLE. While raw material and distribution costs may be a concern, food companies’ ability to pass these on to the final consumers (especially now that there are some panic buying and direct government purchases for distribution) could help them to be defensive during the crisis period.
“We also note that NESTLE’s diversified product portfolio could be a key support to earnings over the long term. Elsewhere, agriculture companies such as PRESCO and OKOMU are likely to be supported by devaluation impact on CPO prices and a larger market share due to border closures.
“All in, we think current market sell-offs present opportunities to enter into some equity names at low prices. Some of the more compelling equity”
Foreign investors are wary
Foreign investors’ purchases of Nigerian securities dropped to $266 million in the month of March and the first half of April, the lowest level since the Investors’ and Exporters’ Foreign Fx Window opened in 2017, according to data from the FMDQ OTC Securities Exchange.
In a note to Bloomberg last month, Johannesburg-based Rand Merchant Bank said that American dollar trading has remained low at Nigeria’s interbank foreign exchange market, while Nigeria’s foreign exchange reserves have dropped by over 12% this year to $33.6 billion.
The prospect for foreign investments in the Nigerian stock market depends on how the Federal Government authorities set about to boost Africa’s biggest economy, and save it from the destructive effect of COVID-19.