Update1: Stocks jump by most since early January as Dangote Cement gains 10%
Nigerians stocks extended gaining streak Wednesday after bellwether stock Dangote Cement gained a maximum 10 percent to push the market by the most since the start of the year.
The main equity gauge NSE All-Share Index rose 3.02 percent, its fifth straight gain and longest since the start of 2020.
Wednesday’s gain is the second biggest since 3.54 percent on January 8 and comes despite the continued decline in Brent price, lockdown in major states and rise in COVID-19 cases in Nigeria.
Gbolahan Ologunro, analyst at CSL Stockbrokers, said fundamentals driving stock gains are unclear but investors could be taking advantage of cheap valuations in the market.
Tracking COVID-19 in Nigeria
Total Coronavirus Cases, Apr 16
407
Total Coronavirus Deaths, Apr 16
12
Year-to-Date change in NSE ASI
-16
Balance in Excess Crude Account, Dec 2019 (million)
$70
Brent Crude ($ per barrel)
29
He said banking stocks like Zenith and GTB are trading at a deep discount to their intrinsic value, while renewed interest in Dangote Cement might be due to market expectation that a part of the proceeds from its bond raise would be used for share buyback.
“The outlook for the market remains bleak,” he said.
Gains in Dangcem (10 percent to N133.1), Zenith Bank (9.66 percent to N15.9) and Nigerian Breweries (9.84 percent to N26.8) helped pare broad market’s year’s loss to 16.03 percent.
Afrinvest noted that investor sentiment as measured by market breadth (advance/decline ratio) rose to 2.5x from the 2.4x recorded in the previous session as 27 stocks gained relative to 11 losers.
Analysts say IMF’s prediction of a brutal recession in 2020 would weigh on the stock market outlook for the year.
The International Monetary Fund (IMF) on Tuesday projected Nigeria’s economy would contract by -3.4 percent in 2020 from 2.2 percent in 2019, although with a rebound of 2.4 percent in 2021.
Also, the inflation rate is projected to rise by 13.4 percent in 2020 from 11.4 percent in 2019 and to moderate to 12.4 percent in 2021, higher than the Central Bank of Nigeria (CBN) single-digit target of 6-9 percent.
While the outlook is grim, a recent BusinessDay report suggests that long-term investors can still position in the cheap market ahead of stabilisation in the global and domestic economy.
Historical data tracked by BusinessDay show that market recovery could be very swift after an economic downturn, and long-term investors who are bullish at the time of the market downswings get a good run-up for their money.
“We have been in a similar scenario before and history has shown that the markets bounce back time and time again,” Moses Hammed, an analyst at financial services firm Investment One, said.
Despite declines in the Nigerian Stock Exchange between 2014 and 2016, the market was able to post a 42 percent return in 2017 to emerge one of the best performing bourses globally.
Analysts say the market would in the meantime continue to alternate between gains and losses on bargain hunting while improvements in the pandemic situation and oil market would help improve investor sentiment.
SOURCE BUSINESSDAY
