- Positive vibration to be sustained till 2021
- Rally in high cap stocks responsible for index growth
- Investors to target stocks with good dividend yield
The Nigerian equity market has eventually recovered from the shock triggered by the recent new rates rate introduced by the CBN in the money market and fixed income space. Two weeks ago, we saw back to back decline in the market for 5 straight days as funds were been moved from equities to take advantage of the attractive rates in the money market. Fortunately, as at last week Wednesday, the rates has been dropped by CBN to 1.13% from 3.2%. At that smart investors started moving their monies back to the capital market from money market.
For 5 straight days last week, the market was bullish occasioned by gains in high cap stocks which include Dangote Cement, Airtel, MTN and Nestle. We saw recovery in the market last week as All Share Index crossed the 36,000 basis points and the market capitalization hit N19 trillion.
Commenting on the recent capital flight from the money market into the capital market, Mr Aruna Kebira, Chief Dealer of Global View Capital Limited pointed out that investors would always look for where there bread would better buttered. According to him, the concept is better explained with the term “Circular flow of Income”.
“In the economy we have what is called circular flow of income in which money from money market to the capital market. When the rate in the money market crash, the only place that they can make their return especially when inflation is rising is the capital market. You cannot just invest without making any returns. If your return is not higher than inflation, you have not done anything. Your return should be inflation indexed return. Year to date, the market has returned 37.12%, and the inflation is 14.89%. It means you have made over 20% returns, and that’s inflation indexed return. You cannot be making 3.2% in 365 days in the money market and you say you are getting returns. As a matter of fact, the rate has been crashed to 1.13% last Wednesday which is the last option for the year. Because the rate in the money market has crashed again, the people that put their money in the Money Market are bringing it back to the capital market, and that’s why we saw the bulls last week. Discerning investors are looking for where there bread is better buttered, looking for greener pastures. So everybody faced the in the capital market, though it’s risky, but that’s where you can make reasonable returns. As far as the rates are down we are going to experience more uptrend in the market”.
“The Brent Crude Oil price is over $50 now. Forward looking global oil price has a way of impacting the market positively. This implies our foreign reserve will improve. Naira against dollar will improve. These are indicators in the economy that normally determine the performance of the All Share Index.
The rate crash in the money market was the last auction for the year. This means that the new rate will prevail till the end of the year. So nobody will go and put money in investment of 1.13% for the duration of 365 days when the capital market is there with more attractive returns”.
The Managing Director of APT Securities and Funds Limited, Mallam Kasimu Garba Kurfi pointed out that recent growth in the All Share Index is occasioned by recoveries in the share prices of the HIGH CAP stocks in the likes of Dangote Cement, Airtel, MTN and Nestle.
According to Mallam Kurfi: “It is clear that the heavy caps stocks are moving the market. Dangote Cement now has grown more than what it reached in November 18. It is now N209 against N205 of November 18. Airtel is now N774 against N405 of November 18. MTN is now N160.
“Dangote Cement, MTN and Airtel controls at least 50% of the market capitalization. So what that means is that whenever, they are down, the index is down, and whenever they are up, the index is up”.
“Some other stocks made some recoveries but not much. If you remember, Zenith was trading at N28, it is now N24. So it has not recovered fully. WAPCO was trading around N26, it is now N22”.
Nestle has recovered and it has N1 trillion market capitalization. MTN has recovered. Airtel has recovered. Dangote Cement has recovered. The recoveries by the big ‘guys’ is what is responsible for the index going up. Other stocks have not yet fully recovered.
“At the end of the year, we are likely to see most of the stocks improve on their current share price. Therefore the index is likely to reach 2017 mark. Recall that in 2017, the market gained 42%. From all indication, we are likely to gain 40% or 42%, just like in 2017”.
“The rally we are seeing in the share price of Airtel is because of the dual listing. It is listed both in Nigeria and London. People are taking advantage of the market. They cannot move their Naira out of the country. So the best option is to buy Airtel. So when you get to London and trade it there, you get Pounds Sterling. Therefore indirectly, you have move your money out of the country. I think that is what is triggering the rise in the share price of Airtel. If you do an extra analysis as regards the price of Airtel in London, compared to the price here. You will find out that the price in Nigeria much higher than the one in London. This is simply because people are taking advantage of Airtel to get out their money. For instance if you have N2 billion, how can you move such amount from Nigeria. You can’t even get dollars. If you buy 2.5 million units of Airtel should be equivalent to N2 billion. Hence people are taking advantage of the dual listing of Airtel. Seplat also has dual listing, but it is not enjoying that kind of opportunity Airtel has. May be because Airtel has more liquidity than Seplat. If you buy Airtel, you can easily sell. But if you buy Seplat, you may not easily sell. If there is liquidity in Seplat, you will see that the price will start rising”.
In summary, the All Share Index recovered because the big guys recovered.
“I still have confidence in the market. If you look at it, the interest rate is still very low. So what other alternative do you have to invest? The bonds that are coming to the market are all single digit rates. So therefore, the best bet for you is to remain in the equity market. The rise in the prices of equity is likely to continue till even next year. Don’t forget that most of the banks will declare their dividend by April next year. So if you buy Zenith now at N24, you will get N2.50 dividend, and by the time they mark it down in April, you will see that you would have gained 10% compared to investment in any other instrument”.