- Market projected to recover in Q3
- Investors to take position in stocks that pay interim dividend
The equity market last week recorded 5 consecutive session of losses, losing in all the days of the week. No thanks profit taking in the heavy weight stocks which include Dangote Cement, MTN, Airtel and BUA Cement. The downtrend trend in the market brought the Market Capitalisation below the N20 trillion mark to N19.940 trillion. Year to date, the market has returned -5.00% as the All Share Index closed at 38,256.76 points on Tuesday.
Commenting on the market performance and the current economic realities in Nigeria, the Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi, stated thus:
“The market seems not to be stable. It loses for some days, it gains for some days. That’s what we experienced in the entire month of May. This has to do with the fact that the institutional investors and foreign investors play less in the market. That is why you see the market in term of the volume of transactions keeps going lower by the day. We need the participation of the institutional investors, the Pension Funds Administrators (PFAs) in particular.
Most of the investment of PFAs are moving towards bonds and fixed income because of the fast recovery in the returns by most of the bonds. At the beginning of the year, the bonds are all trading at single digits. Today we are seeing even Federal Government bonds trading at over 13% per annum. This caused a shift by most of the institutional investors, particularly the PFA.
The foreign investors, because of the difficulty to get enough Foreign Exchange; they find it a bit difficult to play our market. Most of the time, they are rather taking out more funds than bringing it into the market. Combination of all these will really affect our market performance, particularly, the institutional investors”.
“The big four players (Dangote Cement, MTN, AIRTEL and BUA Cement) in the market are not moving. They control over the 50% of the market capitalisation. They are rather coming down; and this is what affected the All Share Index”.
“The decision of the Monetary Policy Committee of CBN to retain the key lending rates at least give us hope in the capital market. As all the rates were retained, we are anticipating that more players will now play the capital market. Retaining the rates is giving us the confidence that to some extent they want to pay more attention to the growth of the economy of which the capital market will be part of. Therefore, we are likely expecting that some of the institutional investors may decide to come because most of our stocks are trading below their fair value. Even in terms of dividend yield, we are having double digits which is not available in the frontier market. The Nigerian capital market is the only market in the frontier market that gives you dividend yield in the double digits. When you compare that with the emerging market, the developed market; they don’t talk of even 5% dividend yield. But here in Nigeria, we are having double digits in most of the returns; and this gives confidence to investors that they can retain even by the dividend yield aside the price appreciation”.
“The inflation report and GDP report really surprised us because in view of the fact that the covid-19 pandemic affected our market the previous year. Seeing the growth in the GDP, especially when you compare it with the first quarter, we all anticipated this. This will be more consolidated by time we conclude the Second Quarter. Remember, the impact of covid-19 affected the Second Quarter of the economy last year because the entire economy was shut down. Now this did not happen. So by the time the GDP growth of the second quarter comes, we believe it will come in a more serious position. Therefore we are likely going to have a better recovery”.
“When you look at those sectors that give us more prominence in the GDP are the Non-Oil Sector, and this is not a surprise to us; because we know that there is redemption in the quantity of crude oil that we export which invariably affect the gross income generated in the Oil Sector. That gives the Non-Oil Sector a better performance”.
“The other sector of the economy, particularly the Federal Inland Revenue is the one giving the Federal government contribution; the crude oil where we are expecting money from, the NNPC because of oil subsidy could not contribute much. So therefore, it is clear that we have to ginger more in the generation of more tax revenue. In a developed economy, they ensure that everybody pay tax, and that why they have enough to develop their economy and enough to also provide social services. But here, we all rely on the crude oil which is not the best. The states that are performing well in the country are the states that use tax as means of generating revenue. Those states stand better in their economy”.
“Overall, we are expecting that the manufacturing sector will continue improving and contributing to the economy. That is why most of the manufacturing company in the capital market were able to pay good dividend.
The contribution of the Telecoms in the GDP is wonderful. Everybody in Nigeria today is a living testimony of the impact of the telecoms in the economy. The two telecoms (MTN and Airtel) listed on the Nigerian Exchange control about 35% of the Market Capitalisation.
Looking at the Agriculture sector in the capital market, we have Okomu Oil and Presco. They are on the high price and they are paying good dividend. As a matter of fact, what Okomu Oil declared as dividend has not been declared before in their history.
Therefore we can see that the market is benefiting from stocks in the Agricultural sector and the Telecom sector. It is therefore good for investors to look at those sectors that contribute more to the GDP because it is reflecting in the capital market”.
“Although we have experience some losses in the market probably in this quarter, but I have confidence that by the end of the year, the All Share Index will close positive. And by time we get the Second Quarter results, things will change, the trend will go up. Especially the company that will pay interim dividend. Most of the company that pay interim dividend except one, will declared their interim dividend by the end of Second Quarter, that is half year result. Therefore we are likely to see some stocks rising due to their interim dividend. So in essence, we could say that, give and take, the market is likely going to end positively, not necessarily for this month. But we are expecting things to change in the month of June. And we are expecting that more changes will come in the Third Quarter. Remember last year, the market closed negative in Q1, Q2 and Q3, but it closed the year with 50% gain and it happened in Q4”.
“We are expecting the Third Quarter to give us a better response. I will advise investors to take position because the market will rebound”.