Nigeria: Volatility Trails Equity Market As Crude Oil Price Declines

2 September 2019

... Investors rebalance month-end portfolios

THE declining crude oil price and fear of a possible global recession may have added pressures on Nigeria's equity market as volatility continued on the Nigerian Stock Exchange, NSE, last week resulting to reversal of previous marginal gains recorded mid-week.

The pullback on the Exchange was largely due to low funds' inflow as foreign investors continue to watch the nation's mixed macroeconomic variables in hope for economic reform policies capable of stimulating yields on investment, productivity and consumption.

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Analysts at FSDH Merchant Bank Limited stated: "The declining crude oil price and fear of a possible global recession had negative impacts on the equity market. Despite the current bearish trend in the market, we spot opportunities in the equity market. The two stocks we highlight here are: Zenith Bank and GT Bank. Each has a history of good performance and good dividend payment; we believe the short-to-medium term outlook of these stocks is good. Therefore, investors should position in them as their share prices have recently dropped significantly.

"Zenith Bank and GT Bank are both strong players in the Nigerian banking sector. They both have footprints among the top quality corporate customers. Both banks have consistent records of good asset quality and earnings. They focus on low cost deposits from retail customers, therefore, their cost of funds are low. This enables them to have good interest margin to drive portability."

In their comments, analysts at Cowry Asset Management Limited, said: "Local shares fall by 0.99 percent, reverses last week's gains. In this new week, we expect the domestic bourse to close in red territory as sentiment continues to weaken. Hence, we expect value investors to pitch their tent with companies that have grown their profit after tax, paid dividends over time, are trading below equity price per share and have strong cash flows, in order to optimize their returns."

Commenting on what will shape the market this week, analysts at Vetiva Capital Management Limited said: "The All Share Index, ASI closed the week in the red as sell pressure dominated most trading sessions for the week on the back of capital appreciation that was recorded last week. In the absence of any positive catalyst we expect the equities market to remain pressured in the week to come."

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Meanwhile, a total turnover of 713.141 million shares worth N13.295 billion in 16,237 deals were traded last week by investors on the floor of the Exchange in contrast to a total of 2.337 billion shares valued at N19.712 billion that exchanged hands the previous week in 18,379 deals.

The NSE ASI and market capitalization both depreciated by 0.99 per cent to close the week at 27,525.81 and N13.391 trillion respectively. Similarly, all other indices finished lower with the exception of NSE Insurance Index, NSE MERI Growth Index and NSE Industrial Goods Index which appreciated by 1.15 per cent, 0.04 percent and 0.34 percent while the NSE ASeM index closed flat.

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