Equity investors in panic as fixed-income yields rise

Nigerian Stock Exchange (NSE)

By Helen Oji

 As investors worry over the continuous uptick in yields in the fixed income market, negative sentiments persisted on the Nigerian Stock Exchange (NSE) for the second consecutive week, causing

the All-Share Index (ASI) and market capitalisation to fall by 3.04 per cent to close last week at 40,439.85 and N21.156 trillion respectively.

Performance in the stock market ended southwards following losses recorded four trading sessions.

All other indices finished lower except NSE Growth Index which rose by 0.42 per cent while the NSE ASeM and NSE Sovereign Bond Indices closed flat.

Analysts linked investors’ downbeat mood during the week to the result of the treasury bills auction wherein average stop rates rose by 105bps to 2.33 per cent (from 1.28 per cent at the last auction).

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With the latest outcome of the NTB auction pointing towards yield elevation in the near term, they urged investors to trade cautiously while taking positions in stocks with attractive dividend yields.

Analysts at Codros capital said: “We expect the local bourse to exhibit a zig-zag pattern in the near term as the opposing forces of an uptick in yields and full-year 2020 corporate earnings releases dictate market performance.

“Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

Vertiva Dealing and Brokerage said: “Yields on benchmark bonds rose six bps on average, due to sell-side sentiment at the short-end of the market; notably, the yield on the 12.75 per cent FGN-APR-2023 paper rose 45bps to settle at 7.50 per cent.

“As investors continue to react to this week’s NTB auction, yields across the NTB curve rose 13bps on average, due to sell-offs at the tail-end of the short-end of the NTB curve; of note, the yield on the 90-DTM rose 36bps to settle at 0.76 per cent.

“We expect the market to kick-off next week on a mixed note, as we do not see drivers shift sentiment to the buy-side across the NTB and Bonds segments; however we cannot rule out the possibility of cherry-picking activity in the bonds space, given where yields stand at the mid-long end of the market.”

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Investdata Consulting Limited said: “The current situation or sustained pullbacks have further created huge opportunities for discerning investors and traders to reposition in high yield and dividend-paying stocks, especially given that the unaudited fourth quarter 2020 results being released have offered insights to which sector and companies to position before the audited accounts start flooding the market along with their corporate actions.

“Looking at the seemingly improved fixed income yield with midweek’s TBs auction rates at one per cent, two per cent and four per cent for 91, 182 and 364-Day bills respectively, the ongoing corrections in the equity market makes it much more attractive for smart fund managers. This is considering the shorter time frame, given that many stocks have dividend yield at above eight per cent, as well as the upside potential for capital gains as we speak,” It added.

A review of market performance last showed that the NSE commenced trading for the week on a downward note, following losses recorded by bellwethers, causing market capitalisation dipped further by N75 billion.

At the close of trading on Monday, the ASI decreased by 144.78 absolute points or 0.35 per cent to close at 41,564.31 points. Similarly, the overall market capitalisation shed N75 billion to close at N21.744 trillion.

The downturn was impacted by losses recorded in large and medium value stocks, including Guaranty Trust Bank, PZ Cussons Nigeria, Flour Mills of Nigeria, Unilever Nigeria, and Champion Breweries

The nation’s bourse extended losses to seven consecutive trading sessions, causing the ASI to depreciate further by 0.13 per cent.

The ASI dropped by 54.15 absolute points on Tuesday, representing a drop of 0.13 per cent to close at 41,510.16 points, while the overall market capitalisation value lost N28 billion to close at N21.716 trillion.

The downturn was driven by price depreciation in large and medium capitalised stocks amongst which were; Northern Nigeria Flour Mills (NNFM), NEM Insurance, Niger Insurance, Japaul Gold and Ventures, and Multiverse Mining and Exploration.

The bears strengthened hold on the NSE, as more blue-chip stocks joined the league of losers, causing investors’ wealth to depreciate further by N426 billion.

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At the close of on Wednesday, the ASI dropped by 814.15 absolute points, a 1.96 per cent fall to close at 40.696.01 points. The overall market capitalisation lost N426 billion to close at N21.290 trillion.

The market losses were driven by price depreciation in large and medium capital stocks including Fidson Healthcare, Chemical & Allied Products (CAP), Regency Alliance Insurance, Sovereign Trust Insurance, and Sunu Assurance.

Following renewed buying interest in the shares of Dangote Cement and six others, the stock market reversed eight days losing streak to close upbeat on Thursday, as the All-Share Index (ASI) increased by 0.78 per cent.

The ASI expanded by 318.29 absolute points, representing an increase of 0.78 per cent to close at 41,014.30 points while the overall market capitalisation gained N166 billion to close at N21.456 trillion.

The upturn was driven by price appreciation in large and medium value stocks amongst which were; Dangote Cement, Mutual Benefits Assurance, Sovereign Trust Insurance, Vitafoam Nigeria, and Unilever Nigeria.

Further analysis of last week’s transactions indicated that a turnover of 2.683 billion shares worth N23.662 billion was recorded in 27,844 deals by investors on the floor of the exchange, in contrast to a total of 2.767 billion shares valued at N29.685 billion that exchanged hands last week in 31,380 deals.