Profits, losses from N100,000 investment in top, bottom stocks on Q2 performances

Local investors continue to dominate market activities outside of dividend reinvestment Stanbic IBTC analysts looking forward to a relatively quiet Q3 in the equities market

ALREADY INTO THE THIRD QUAR TER of 2021, many investors are still counting their gains and losses from the second quarter, following the largely sellside sentiments which pervaded the Nigerian equities market. Thus, a lot of portfolio rebalancing strategies were adopted by traders to trade cautiously in their bid to continue positioning for profit taking in every session all through the second three months of the trading year.

As seen in terms of participation during the second quarter of 2021, local investors continued to dominate market activities and outside of dividend reinvestment, foreign participation was largely on the sell-side. Total volume traded was down 53 percent to 14.51 billion shares traded while value traded was also down 47 percent to N179.68 billion during the period under review.

In Q2 the all-share index dipped 2.91 percent with a corresponding value at 37,907.28 points at the close of June 2021. On the sectorial fronts, the banking index was down 0.87 percent, the consumer index was up 10.67 percent, the oil & gas index was up 17.76 percent and the industrial goods index was down 0.11 percent.

Monthly market performance indicators analysis

The second quarter could be described as quiet at its best and lacklustre at its worst as it was relatively slow for the equities market. The general theme was a continuation of the exit from the equities space into fixed income instruments by mostly local investors, which actually started in the previous quarter. On the foreign side, the indifference to the equities market continued, coming from a direct consequence of the inability to transfer funds out of the country as they still had funds trapped on the repatriation queue due to FX illiquidity. After the results season, where dividends and bonuses were declared, few foreign clients reinvested their dividends into the market. This gave the market a slight boost in April but it subsequently went back into its quiet mode, and this was primarily driven by block transactions.

An examination of the monthly market performance between April and June 2021, shows that the NGX ASI gained 2.02 percent in April 2021, while it shed 3.51 percent in May 2021. In both April and May, the trend in the daily sessions were similar. Thus, the market was mostly quiet outside of cross deals. The banking sector was the most active sector with the likes of Zenith Bank and Guaranty Trust Company leading activities on most trading days. The largest trade for the quarter was a cross deal of 181.60 million units of MTN Nigeria shares at N163.30 worth N29.66 billion or $144.66 million. Also, the month of June saw the index record a further decline of 1.38 percent.

Picking out the best performers during the period, produced the likes Eunisell Chemicals, Royal Exchange, Consolidated Hallmark Insurance, Vita Foam and Morrison Industries. On the other hand, the worst performers included Computer Warehouse Group, BOC Gas, Unity Bank Plc, Sunu Assurance and FTN Cocoa Processors.

What outcomes betting N100,000 on these stocks?

A look into the Nigerian equities investment space has proven the point that top-rated investment advisory will be needed for individuals or existing investors in the market to record gains while an unfettered advisory service from a non-experienced or unsound investment adviser may cost an investor fortunes.

With the third quarter of the trading year already underway, an analysis by Business a.m. Research of a Stanbic IBTC Research dataset revealed that investors who invested in some of the large, medium and small-cap stocks with sound fundamentals at the start of the second quarter would be smiling to the bank in the event of profit-taking from their investments as these stocks have recorded positive appreciations in their prices between the first and second quarters if an investor had put in the sum of one hundred thousand naira (N100,000).

On the gains, Seplat Petroleum with stock price at N690 share has continued to appreciate, driving the oil and gas index with a 25.45 percent price change in 3 months from N550 per share. A N100,000 investment into the stock within three months can make you almost N14 million richer from equities investment. Same goes for Okomu Oil, Nigerian Breweries, Vita Foam and Eunisell in the consumer goods and industrial goods indices with their stock prices witnessing significant improvement during the trading quarter at N20, N11.50, N7.10 and N2.41, respectively; as a N100,000 investment into these stock portfolios will result to N2.0 million, N1.15 million, N710,000, and

N241,000 gains.

On the reverse, as market investors continued their profit-taking activities in the largely lackluster equities market in Q2, several stocks recorded depreciations due to sell pressures resulting from the need for investors to prowl for more returns in the fixed income space due to the continuous yields rise in the market. Consequently, a N100,000 investment into Airtel Africa and Stanbic IBTC with stock prices as at the close of June standing at N667.70 and N40.25, one would have lost N26.23 million and N1.10 million in the space of three months. Also, BOC gas, Guinness Nigeria and Enamel West Africa with depreciations at 37.18 percent, 14.45 percent and 18.59 percent when compared to first quarter close on a quarter on quarter analysis, may have led to a loss of N506,000; N490,000 and N370,000 respectively for market traders.

Q3 ’21 analysts’ outlook for local equities

As the shortage of forex bites harder, foreign investors in the equities market have continued to use duallisted stocks as an avenue for capital mobility. Moreover, market analysts have opined that the enduring impact of COVID-19 on the economy and associated uncertainties continue to influence investors’ participation in the market negatively. This impacts the general performance of listed stocks and continues to subdue market performance. However, market analysts at Stanbic IBTC Research have projected that the domestic bourse is expected to be relatively quiet in the third quarter of 2021.

Here is what they wrote: “Looking at the different sectors, we like the Cement and Telcos sectors. We are not overly optimistic about the banks, primarily due to the high CRR [cash reserve ratio] environment. Results from banks, which typically release audited half-year numbers, would be delayed as they would need to be audited. Half-year corporate actions are expected to be a potential trigger for the market. Thus, we expect the 3rd quarter of the year to also be relatively quiet for the equities market.

“We expect the returns in the fixed income space to continue to challenge the performance of equities for the quarter. We, however, note the drop in yields due to aggressive maturities in July of about N1 trillion. If yields stay lower for an extended period, there is half a chance that locals may start looking at equity markets again. External reserves are currently at $33.3 billion and the CBN has been selling $25 million twice weekly in a combination of spots and forwards in an effort to clear the FX backlog. On a daily basis, we expect market activities to be driven by block transactions and for local participants to remain dominant players in the market,” Stanbic IBTC analysts stated.