Hunting for Value in Stock Market

Hunting for Value in Stock Market

Goddy Egene writes that the decline recorded by the stock market in the first half of 2021 provides an entry opportunity for investors to gain in the second half of the year
The loss of N1.303 trillion in value recorded by the Nigerian stock market in the first half (H1) of 2021 is likely to discourage many risk averse investors from patronizing the market and make others to reduce their exposure.

While the market had recorded a positive performance in 2020, profit-taking, shift to fixed income (FI) market by local investors due to uptick in yields and low participation by foreign portfolio investors (FPIs) led to a negative performance in H1 of 2021. The market capitalisation of equities fell by N1.303 trillion from N21.063 trillion at the beginning of the year to close at N19.760 trillion at the end of June. Also, the Nigerian Exchange (NGX) Limited All-Share Index (ASI) declined from 40,270.72 to 37,907.28, showing a depreciation of 5.8 per cent.

No doubt this decline will play a big role in determining the behavour of investors in the market in the second half(H2) of 2021. But while some will be discouraged from staking their funds in the market, it is believed that the depreciation in the prices is a very good entry opportunity for discerning investors.

Executive Director, NOVA Merchant Bank Limited, Mrs. Funke Okoya, said the market is attractive at current level, both from a time-series perspective and compared to frontier and emerging market peers.

According to her, a number of value counters, especially within the banking sector, have compelling dividend yields and may be bellwethers in the quarters ahead, especially as the yield on fixed income instruments may have peaked.

“More so, recent modest increase in foreign exchange (FX) liquidity on the I&E window and expected enhancements in liquidity and policy measures on the back of Central Bank of Nigeria (CBN) commitment to deepen and enhance the market should be positive in stabilizing the Naira, a development which should support the recovery of the market in the quarters ahead. Thus, our research team at Nova Merchant Bank is cautiously optimistic on a positive return on equities in the H2 of the year, as we expect macro improvements and sustained fundamentals of large and mid-cap companies on the NGX to reinforce our expectation of modest recovery in equity prices, going forward,” she said.

Okoya had explained that the steep rise in yield on […]

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