H2’20 Outlook: Investors should watch out and take position appropriately- Kurfi

The General performance of the capital market particularly equities for the half year ended 30th June, 2020 was mixed. The total market turnover was N1.007 trillion compared to N1.079 trillion in the previous year with a decline of N72 billion or 7.81%. At the end of year 2019, market turnover declined by 20%; same is likely to be repeated this year with almost 8% declining by half year.

The All Share index (ASI) closed with negative performance of (8.8%) compared to about (6.0%) in the previous years. The equities market begins the year with a good performance, ASI gained 7.46% in January, 7.94% in April and 9.76% in May while recorded loss of (9.11%) in February, (18.65%) in March and (3.12%) in June. The heavy loss recorded in February and March 2020 has to do with the identification of the initial index of Covid-19 in February 2020. The fear for the pandemic became more pronounced in the month of March coupled with the push by foreign portfolio investors trying to exit our market.

Many stocks heavily lost their share price by more than 50%, especially Blue-Chip stocks such as Guaranty Trust Bank, Zenith Bank, MTNN, Dangote cement, Nestle, Nigerian Breweries among many others.

The consecutive losses recorded by the All Share Index attracted the Short term traders and Bargain hunters to rush into our market especially in the month of April as All Share Index gained 9.76% and same extended to the month of May 2020. Many stocks recovered their losses such as Nigerian Breweries from N22.00 in April to N45.00 by first week of June (100%); Guaranty Trust Bank from N16.85 to N27.00 (60%); Zenith Bank from N11.80 to N17.00(43%); Nestle moved from N760.00 to #1200.00 (58%) among many other stocks.

In quarter to quarter movement, 30th June, 2020 ASI gained a total of 14.92% compared with negative returns of (3.46) in the corresponding period previous year. Thirty-four (34) companies closed half year with price appreciation; Neimeth gained 166.13%, Law and Union Rock Assurance gained 106%. Among the top capitalized companies that closed half year with price appreciation are MTNN, BUA cement and Airtel Africa that gained 11.90%, 10.57% and 9.97% respectively

However, seventy-nine companies recorded price decline; among the top losers are International Breweries (-56.84%) NCR (-56.58%) Guinness (-57.75%) among others. The top ten in market compilation that recorded losses are Nestle (-14.53%) Dangote Cement (10.56%) GT Bank (25.76%) Seplat (41.32%). These push all share index to close with a loss of (8.8%)

 

SECOND HALF YEAR OUTLOOK

The World Bank and International Monetary Funds (IMF) all forecast that the Nigeria economy will be in recession of at least 5.5% and above in December 2020. The monetary policy committee (MPC) has reduced monetary policy rate (MPR) by 100% basis point to 12.50% and likely to do more. Treasury Bills are trading between 3% to 5%; while Bank recollect deposit of fund in less than 6% per annum; and most of the commercial papers are trading with the same rate. Therefore, money market did not provide a better option. The devaluation of naira is inevitable. The official rate has been adjusted from N305/$ to N380/$, an increase of N75.00 or 25% while the parallel market is trading at N460 from N385; an increase of N75.00 or 20%.

In addition to the above, the fall of price of crude oil from $70 to about $40 per barrel a loss of $30 or 43% make it difficult to source for foreign exchange. The same with remittance of diaspora which are expected to be less by 20%. All these lead to low inflow of the foreign exchange which may lead to further devaluation of naira.

The second quarter results of the listed companies are yet to be released, and they are likely to have poor results due to Covid-19 lock down of the economic activities. Poor results could depress the market, hence more losses in prices of stocks are expected.

However, further devaluation of naira will make investors have few options to invest. Keeping cash will not be the best option in view of the inflation of 12.35% and devaluation of naira by about 25%. The best option will be to hold foreign currency or convert money into assets to hedge for devaluation.
Therefore, the capital market will benefit from the inflow of the money market and likely to repeat what happen in quarter two, and hope to close positively especially as the Federal Government and World Bank forecast recovery from recession in 2021. We therefore, advice investors to watch out and take position at appropriate time.

 

 

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