United Capital Daily insight: What is driving the rally in the equities market?
The equities market closed (Wednesday) on a bullish note for the third time in the week, up +1.3percent to close at 24,452.23 points. Notably, this brings year-to-date (YTD) return to - 8.9percent. We recall that the market had earlier tumbled by over 20percent in March, following the outbreak of the coronavirus pandemic and the ensuing economic lockdown. However, the market has recovered by more than half the initial downturn in not more than 9 weeks.
As of last trade, all sectors under our coverage closed higher with the banking sector (+ 2.8percent) leading the pack. 11 of 14 banking stocks advanced with ZENITH (+ 4.1percent), UBN (+4.7percent) and GUARANTY (+2.36percent) appreciating. Also, the industrial goods sector (+1.3percent) continued to recover on BUACEMENT (+ 1.9percent) and DANGCEM (+1.7percent).
Even the oil & gas (+0.1percent) sector saw buying interest amid gains in OANDO (+1.1percent). The consumer goods sector (+0.1percent) also gained due to interest in DANGSUGAR (+0.4percent), HONYFLOUR (+2percent) and PZ (+1.1percent).
The question on the mind of investors includes whether the uptrend is sustainable and what exactly is driving this recovery. In our opinion, the recovery in share prices is driven by: Rebalancing in the oil market which has resulted in a 94percent rebound in oil prices from $18/barrel to about $ 35/ barrel within a month; increasing indications that governments around the world will reopen their economies regardless of the anxiety around Covid-19; cheap market valuation of high quality stocks; sustained dividend declaration by corporates – translating into attractive dividend yield amid poor rates on T-bills; and sizable market liquidity.