•As equities rise 1.5%
By Nkiruka Nnorom
Though a pullback is not expected to happen anytime soon in the stock market given the low yield environment in fixed income market, investors will be shifting their attention to the earning reports of the tier-1 banks as they make their investment decisions this week, investment analysts have said.
They, however, warned against taking positions in tier-2 banks and brewers among others, saying that they are highly speculative at the moment.
Meanwhile, the market rose by 1.56 percent week-on-week (w/w) supported by gains on the second and last trading days of the week when the All Share Index (ASI) advanced by 0.8 percent and 0.9 percent respectively.
Consequently, the ASI grew above 31,000 point marks to close at 31,016.17 points, driven by investors interest in Dangote Cement Plc (+9.1%), Dangote Sugar Refinery Plc (+19.6%), and Guaranty Trust Bank Plc (+3.1%)
Similarly, the market capitalisation of all listed equities advanced by 1.59 percent or N249 billion to close at N16.207 trillion.
However, the level of activity was mixed as, volume traded grew by 8.2 percent w/w while value traded declined by 4.1 percent w/w to 2.07 billion units and N22.64 billion.
Making projections into the week, analysts at Cordros Capital, said: “As the Q3 earnings season winds down, we expect investors to shift their attention to yet to be published results from the big banks. In the short term, we still see scope for expansion in valuation multiples as hunt for alpha-yielding opportunities in the face of increasingly negative real returns in the fixed income market remain positive for stocks.”
Also, analysts at United Capital, projected further uptick in the share prices of the tier-1 banks, food processors, agro-allied companies, cement makers and the telcos, but advised investors to take cautious positions in the brewers, diversified consumer goods companies and tier-2 banks as they remain highly speculative.
According to them, “The few Q3-2020 earnings so far submitted points to stronger than expected full-year earnings, as observed in Lafarge Africa Plc, Stanbic IBTC Holdings Plc and Flourmills of Nigeria Plc. Thus, we do not see a sharp pullback in stock prices for now.
“With sustained low yield environment and a rather expansionary monetary policy stance, the stock market will remain attractive for investors seeking high return. However, we do not rule out intermittent profit-taking by participants during the month.”
Making a case for further rally in the market, they said: “We do not see a return to double-digit yield in fixed income in the interim, no thanks to trillions of naira worth of maturities in the horizon, projected to remain till Q1-2021. Meanwhile, Foreign Portfolio investors (FPIs) funds in several billion dollars remained trapped in Nigeria due to currency market illiquidity, some of this would find their way into stocks, in search of alpha.”
Ambrose Omorodion, a research analyst at Investdata Consulting, however, said that outlook for November, 2020, would remain mixed, arguing that price correction or pullbacks are imminent to strengthen the recovery recorded so far.
He advised investors to avoid greediness and allow their investment goals and exit strategy to guide their decision.
Meanwhile, further analysis of trading activities in the previous week showed that performance across sectors was broadly positive with the exception of the oil and gas sector that fell by 0.8 percent.
On the other hand, the industrial goods sector led in the sectoral chart, rising by 2.9 percent, followed by the banking sector (+2.2%), insurance sector (+1.3%) and the consumer goods sector (+0.6%).