Waiting for Stock Market Trigger

As the market remains bearish since the beginning of the second half of the year, it is expected that improved half-year companies’ results will trigger a recovery and positively change the direction of the market, writes Goddy Egene

Stock market investors have been adopting cautious trading since the beginning of the

second half (H2) of the year leading to a decline of about 0.12 per cent so far. Year-to-date, the market has declined by 9.8 per cent.

Having depreciated by 20.6 per cent in the first quarter (Q1), the market recovered in the second quarter (Q2) to gain N1.667 billion. Although the gain was expected to be sustained as the third quarter began, the market has remained bearish as investors have trade cautiously. Market operators said many investors are waiting for the release of financial results of companies for the half year to June 30, 2020.

According to operators, the outcome of the results would determine the direction of the market in the third quarter and whole of the H2 of the year. They therefore advised discerning investors to take advantage of the current low prices and increase their investments in the market.

For instance, a stockbroker, Mr. Ayo Oguntayo, explained that some stocks have suffered significant price depreciation in the last month of the Q2 due to profit taking after a rally in April and May.

“Just like the scenario that occurred after the decline in Q1 when investors swooped on shares due to their low prices, the decline in June has provided an opportunity for discerning investors to come in ahead of the release of H1 financial performance of companies. Although there are some apprehension that the COVID-19 pandemic may have impact on the results, there are possibilities of some companies still coming up with positive results because many of them activated their business continuity plan that helped to mitigate the negative impact of the lockdown,” Oguntayo said.

The President, Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe, said there are still significant headwinds as we expect financial results. The CIS boss explained that the market started the year with the post-election hangover but gradually picked up as companies started posting their annual results.

“Unfortunately the rally was curtailed by the Covid-19 pandemic that eventually led to a lockdown of activities across board. Interestingly the two month’s lockdown period witnessed unexpected market recovery as the Nigerian Stock Exchange (NSE) All-Share Index (ASI), which was down about 21 per cent pre-lockdown gained about 12 per cent within that two months . This really is a testimony to the foresight of the NSE and stockbrokers to have digitized their business in preparation for unforeseen events such as this,” he said.

Omolegbe said the market continued to serve the nation even during the lockdown, explaining that on the fixed income size yields continued to trend downwards due to excess system liquidity and many coporates such as Dangote Cement Plc and MTN Nigeria Plc took advantage of this to raise cheap capital via bonds and commercial paper issuance despite the pandemic.
“The federal government also raised a massively successful third FGN Sukuk Ijarah during the period. All in all the financial market did as best as could be expected during this unusual period but significant headwind remains as we await the corporate earnings reports for the Q2(and half year),” he said.

Also speaking, the Chief Executive Officer of Wyoming Capital and Partners, Mr. Tajudeen Olayinka, said the 8.8 per cent declined at the end of H1 2020 is still a reasonable figure to celebrate if we must consider what the economy went through in the course of global pandemic, especially the shocks that were transmitted through the market when crude oil prices eventually collapsed in April, 2020.

“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 we had at the start of the pandemic. However, market needs to analyse H1 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 H2 2020,” Olayinka said.
In the same vein, the MD/CEO, Dynamic Portfolio Limited, Mr. Remi Lasaki, apart from the fact that the market is waiting for H1 results, there are some other issues that must be addressed for a better performance.

He said: “Foreign investors are still contending with scarcity of Dollar in their bid to repatriate their money. This is an issue. Government should look at velocity of spending. It has slowed down. There is a need to address the issue of tax again. You don’t tax people who are in dire need of cash flow. People’s ability to spend has been constrained. They are waiting for half -year results to see the effects of Covid-19.”

Investors were last week assured of the safety of their investments in the market. The Director General of the Securities and Exchange Commission (SEC), Mr. Lamido Yuguda, who resumed with three executive commissioners last Monday, gave the assurance.
Although the capital market has so much potential, one of the reasons those potential have not been fully tapped is low patronage. And of the reasons for the low patronage is the fear of loss of investment as a result of weak regulation and lack of adequate protection.

However, Yuguda has investors their investments would be protected. Speaking last week on resumption of office, the DG said: “We want to assure investors that this market is for them and we are ready to do everything to ensure that we increase investor enlightenment through education, robust regulation and fair dealing. For those that want to defraud investors, there would be no respite because we are ready to fight market manipulation to the last, anyone that flouts our rules will be made to face the consequences of their actions.”

He stressed that investor protection would be at the centre of the initiatives of the new management, warning that any operator that short-changes investors would not go scott free.
He also assured that the new management would work to the best of their abilities to uphold things on ground and consciously seek ways to improve them to the benefit of all stakeholders.

“Together we must set our sights on achieving those milestones that are capable of making the capital market a powerful engine of growth for the Nigerian economy, with God’s help and our collective resolve and dedication, we shall succeed,” he added.

Yuguda said the capital market master plan launched in 2014, has the objective of positioning the capital market for an accelerated development of the national economy.

“Many of the plan’s initiatives have been successfully implemented while many others are Work in Progress in line with its objectives. Therefore, the continued implementation of the plan will be one of the major focus of the incoming management, while we also seek possible ways of strengthening it for enhanced impact. We would equally work towards improved market regulation, surveillance and general development,” he said.
Yuguda emphasised that in order to do this effectively, they would need to develop relevant capacities and foster collaboration in achieving their mandates.