The Nigerian stock market sustained its positive outlook on Tuesday for the 12th trading session as the All-Share Index rose by 4.92 per cent to its highest in more than five years.
The market capitalisation of equities appreciated by N710bn to hit N15.11tn from N14.40tn as market sentiment remained in the green zone.
The Nigerian Stock Exchange All-Share Index increased to 28,909.37 basis points on Tuesday from 27,554.49 on Monday.
Meanwhile, a turnover of 749.10 million shares exchanged in 8,075 deals was recorded in the day’s trading.
The premium subsector was the most active (measured by turnover volume); with 436.43 million shares exchanged by investors in 3,754 deals.
Volume in the subsector was largely driven by activities in the shares of Zenith Bank Plc and United Bank for Africa Plc.
The banking subsector was boosted by activities in the shares of Ecobank Plc and Guaranty Trust Bank Plc followed with a turnover of 97.10 million shares in 1,271 deals.
According to Bloomberg, local investors have flocked to the stock market in search for returns as yields on government debt dropped after a surprise September rate cut aimed at stimulating the economy in Africa’s largest oil producer.
Traders are homing in on Nigerian companies they expect will best overcome the onslaught of COVID-19 and be able to distribute dividends to shareholders.
“The low yield environment has directed some local institutional investors’ participation in the market, further aided by the relatively good corporate results and attractive valuations from some companies,” the Chief Executive Officer of EFG Hermes Nigeria, Lilian Olubi, said.
Market giant Dangote Cement Plc, which climbed 9.9 per cent, MTN Nigerian Communications Plc, up 5.7 per cent, and Zenith Bank Plc, which gained 9.5 per cent, were the three biggest contributors to Tuesday’s advance.
The gains over the past month have been limited to about a third of the benchmark index’s 153 members.
An analyst at CSL Stockbrokers, Gbolahan Ologunro, said the fragile state of the economy had caused investors to focus on stocks that have demonstrated resilience.
“That is why the rally is not broad-based — few names across sectors have benefited from the rally,” said Ologunro. This “trend is different from what is expected whenever the market is bullish,” he said.
Fund managers have made the most of a bond rally this year driven by dovish central bank policy, said Omotola Abimbola of Chapel Hill Denham, but there is a sense that this trade is reaching its peak and the next asset to target is equities.
“Yields are very low in the fixed income market — the 30-year bond closed below nine per cent at the last auction and some blue-chip companies are trading at a 15 per cent dividend yield, so people are going to rotate into equities once again,” Abimbola said.
The rapid run-up in Lagos stocks has sparked at least one warning signal: the 14-day relative strength index on the benchmark equity gauge has climbed above 96, well above the level of 70 that signals to some technical analysts that the gains may be overdone and ripe for a correction. The market is looking the most overbought since August 2006.
The government last month announced the end of costly subsidies on electricity and gasoline, among the reforms needed to support the economy after the plunge in oil prices eroded the country’s biggest source of revenue.
Recent gains in Brent crude have also boosted sentiment toward a stock market that’s light on foreign involvement because of restrictions on hard-currency supplies, said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer.
“The seven per cent bump in the oil price and the removal of the fuel subsidy without provoking industrial action are both helping Nigerian stocks,” Malik said.
“But this remains a local-to-local market. Foreigners are still loath to look at cheap equity valuations as long as foreign exchange and repatriation of capital remains constrained.”
