NSR H1 2021 Excerpts - Equities - Volatility set to persist
Nigeria Strategy Report – H1 2021 Excerpts
Domestic Economy and Markets
- In this report, we look at the major themes that dominated the equity market space in 2020 and delineate our outlook for 2021.
- In 2020, the Nigerian equity market was a major recipient of global risk-off sentiments as the pandemic weighed negatively on macroeconomic indicators. This caused heavy selloffs especially in the month of February and March, and a 20.6% contraction in the NSEASI performance at the end of Q1 20. In Q2 20, the market rebounded by 14.9% QoQ, supporting a reduction in the H1 20 contraction in NSEASI to 8.8%. This was supported by lower net foreign outflows relative to Q1 20 levels, which combined with continued moderation in yields in the fixed income space buoyed the QoQ gains witnessed in the equities market over this period. The NSEASI returned to a positive terrain in October 2020 following a bullish run in Q3 20 as yields in the fixed income space continued to trend southwards amidst robust system liquidity. In addition, optimism surrounding the COVID-19 vaccine and improved global crude oil prices also supported the gains recorded in the remaining part of the year. By the end of FY20, the market had gained 50.0% largely due to strong performance in Q4 20 (up 50.1% QoQ).
- Looking ahead to 2021, we anticipate a flattish performance in H1 21 and also recognize the possibility of a slightly positive gain at the end of FY21. Given that Telecoms (+108%) and Cement (+106%) were majorly responsible for the strong gains posted on the NSE in FY 20, we do not rule out the possibility of investors booking profits on some of these names. Also, we expect to see increased flow of funds to other segments of the market that either underperformed or posted slight gains in 2020 as investors may decide to switch from sectors that may have met threshold gains to sectors that are perceived to be undervalued or recovering. As such, given our expectations on some of these blue-chip names, we expect a flattish performance in H121. In H221, we see scope for a better performance in the equity space largely due to higher system liquidity during the period which may further suppress yields.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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