Investors Make N1.2trn Gains In Q3, 2021

Investors in Nigerian equities rallied net capital gains of about N1.2 trillion in the third quarter amid strong corporate earnings in the first half and expectations of steady performance in the third quarter.

Benchmark indices for Nigerian equities at the weekend showed average return of 6.10 per cent for the third quarter ended September 30, 2021, equivalent to net capital gains of N1.196 trillion. Both the weighted average index and the ordinary aggregate market value trended at the same pace, a confirmation that the N1.196 trillion increase was entirely due to appreciation in share prices.

The third quarter performance represents a major recovery for investors who had lost N1.24 trillion by the end of the first half.

The quarterly performance was boosted by sustained gains in September, especially in the last trading week of the month as investors stepped up bargain-hunting for value stocks ahead of the release of third quarter corporate earnings. The Nation had reported that several companies have scheduled their board meetings to consider their third quarter earnings, raising prospects of the release of early-filer results by the middle of this month.

Under the stock market rules, quoted companies are required to submit their quarterly report not later than 30 days after the end of the relevant period. Most quoted companies use the Gregorian calendar as their business year, thus the deadline for submission of financial statements for the third quarter ended September 30, 2021 is October 30, 2021.

The All Share Index (ASI) – a common value-based index that tracks all share prices at the Nigerian Exchange (NGX) Limited – closed weekend at 40,221.17 points, the highest index point since February 21, 2021. It had opened the year at 40,270.72 points but trended downward to 37, 907.28 points by the end of first half. The ASI is accepted as Nigeria’s sovereign equity index, a barometer for measuring pricing trend and investors’ mood at the stock market.

A breakdown showed that the rally was spurred by earnings expectations and portfolio rebalancing, with the ASI rising by 3.23 per cent in the last week of September. Altogether, the ASI posted average return of 2.55 per cent in September. The third quarter rally moderated the negative average year-to-date return from -5.869 per cent in first half 2021 to -0.12 per cent by the end of third quarter.

Aggregate market value of all quoted equities at the NGX rose from its opening value of N19.760 trillion for the third quarter to close the period at N20.956 trillion, representing net gain of N1.196 trillion or 6.1 per cent within the three-month period. Equities had opened 2021 with total market capitalisation of N21.057 trillion.

Sectoral analysis indicated widespread rallies across the sectors but investors showed greater appetite for oil and gas and cement stocks. The NGX Oil and Gas Index- which tracks the oil and gas sector, recorded the highest gain of 17.31 per cent within the three-month period, pumping up its nine-month year-to-date return to 62.37 per cent. The influential NGX Industrial Goods Index- where cement stocks are listed, recorded above-average return of 10.68 per cent in the third quarter, reversing its negative half-0year return to a modest nine-month return of 1.81 per cent.

The NGX 30 Index – which tracks the 30 largest quoted stocks – recorded average return of 4.99 per cent in the third quarter, with the year-to-date return closing at 2.10 per cent. The NGX Banking Index recorded modest gain of 1.2 per cent in the third quarter but remained in the red with year-to-date return of -5.64 per cent. The NGX Lotus Islamic Index, which tracks the emerging alternative Islamic finance segment, rose by 5.23 per cent in the third quarter, with nine-month return at 2.07 per cent.

However, the NGX Insurance Index recorded the highest loss of -15.11 per cent in the third quarter, with average year-to-date return at -8.69 per cent. The NGX Consumer Goods Index trailed with a negative third quarter return of -5.61 per cent, with average year-to date return of -1.08 per cent.

Many market analysts remained positive on the outlook in the fourth quarter. Analysts at Cowry Asset Management said they expected the “equities market to be bullish in the last quarter of the year” citing improved corporate earnings.

“In the new week, we expect the equities market index to close in positive territory as investors take position ahead of companies’ nine months financial results releases,” Cowry Asset stated.

Analysts at Afrinvest Securities said they expected “the positive momentum to gain further traction on improved investor sentiment” in the coming week.

However, Cordros Capital stated that the bears might dominate market performance in the coming week as investors cash out on the gains across bellwether stocks.

Analysts however expected the bearishness to be tempered by bargain hunting activities from early birds ahead of the third quarter 2021 earnings season.

“However, we advise investors to take positions in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings,” Cordros Capital stated.

The recovery in the third quarter moderated anxieties over the performance of the market in the first half and strengthened the possibility of a second consecutive positive year for the market. Amid the COVID-19 pandemic and economic recession, Nigerian equities had played the full contrarian to close 2020 with net capital gain of N6.48 trillion. The NGX ASI showed average full-year return of 50.03 per cent in 2020, representing net capital gain of N6.483 trillion. The recent highest return was 42.3 per cent recorded in 2017. The ASI closed 2020 at 40,270.72 points, 50.03 per cent above 26,842.07 points recorded as opening index for the year.

Aggregate market value of all quoted equities at the NGX had risen to N21.057 trillion by the end of 2020 as against N12.958 trillion recorded as opening value for the year, an increase of N8.1 trillion. The additional increase in value of market capitalisation, above the ASI percentage change, was due to additional or supplementary listing of shares during the year.

The recovery in 2020 had been particularly spectacular when viewed against the background of negative performance in recent years. After posting a world-ranking return of 42.3 per cent in 2017, the market had reversed to negative in 2018 with average full-year return of -17.81 per cent. In 2019, investors suffered net loss of about N1.71 trillion with negative average return of -14.60 per cent. Prior to 2017, the stock market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the general expectation that political transition and new government would quicken a rebound, equities closed 2016 with a net capital loss of N604 billion.