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•Rate cut, Dangote Refinery listing raise hopes of year-end rebound
Investors in the Nigerian equities market lost about N3.52 trillion in market value last week as profit-taking and portfolio rebalancing put pressure on share prices, although expectations of possible interest rate cuts and the commencement of trading in Dangote Refinery shares could provide fresh support for the market and trigger a rebound before the end of the year.
The Nigerian Exchange Limited (NGX) All-Share Index (ASI) fell by 2.13 per cent, shedding 5,422.27 points to close at 248,877.22 points on Friday, November 6, from 254,299.49 points recorded at the end of the preceding week. Market capitalisation also declined by 2.13 per cent to N161.59 trillion. The decline came after the market had recorded a year-to-date gain of about 60 per cent as analysts suggest that the performance has created an incentive for investors who bought shares at lower prices to sell and secure their returns.
Chief Executive Officer of Arthur Stevens Asset Management, Olatunde Amolegbe, described the development as part of the normal cycle of the equities market, where periods of rising prices are often followed by profit-taking. “We are seeing a market that has gone up by about 60 per cent on aggregate, and we are moving towards the end of the year. So naturally, some people want to take profit,” he said.
According to him, the sell-off does not necessarily indicate a fundamental weakness in the market, as investors taking profits could create opportunities for others to buy shares at relatively lower prices. “I see what has happened as the natural market cycle. Prices go up, people take profits, and it creates an opportunity for other people to go in at a relatively cheaper price,” he said.
Beyond profit-taking, Amolegbe identified the expansion of the equities market through new listings and additional securities as another factor influencing investors’ decisions. He said the commencement of trading in Dangote Refinery shares, which he expected before the end of November, could provide fresh impetus to the market, particularly if the stock records price appreciation after trading begins.
“The refinery alone is probably going to add close to 30 per cent to the market capitalisation. So obviously, we are also seeing a bit of portfolio rebalancing due to reduction in concentration,” he said.
He explained that the recent decline does not necessarily mark the end of the market’s upward movement this year. He explained that because of the company’s (Dangote Refinery) expected size and contribution to market capitalisation, movements in its share price could have a significant effect on the overall performance of the All-Share Index.
“The refinery’s listing could therefore become an important determinant of where the market closes at the end of December.”
Amolegbe further explained that investors who previously concentrated their funds in a relatively small number of actively traded stocks could begin spreading their investments across a wider range of equities as new companies enter the market. The process, he said, could involve selling some existing holdings to raise funds for investment in newly listed companies.
“You are going to see a situation where people are going to expand their portfolios. And it might mean that they have to take money out of some stocks in order to reposition it in other stock,” he said suggesting that part of the selling pressure could be linked to investors adjusting their portfolios ahead of new investment opportunities, rather than an outright loss of interest in equities.
The extent of last week’s decline was reflected in the broader market, where 57 equities recorded losses against 29 gainers, while 60 stocks closed unchanged. The industrial goods index led sectoral losses, falling by 4.35 per cent, followed by oil and gas with 3.72 per cent and banking with 2.45 per cent.
The commodity index declined by 2.33 per cent, consumer goods shed 1.41 per cent, while insurance stocks recorded a marginal loss of 0.03 per cent. The pension index also fell by 2.72 per cent. Only the NGX Growth Index closed higher, gaining 1.33 per cent.
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Trading activity weakened sharply during the week, with 2.83 billion shares valued at N208.41 billion exchanged in 192,158 deals, compared with 7.62 billion shares worth N637.83 billion in 192,138 deals in the preceding week. This represented a 62.87 per cent decline in volume and a 67.32 per cent drop in transaction value.
Amolegbe also identified the approaching election cycle as a factor that could influence foreign portfolio investors’ decisions, explaining that foreign investors have historically tended to adopt a cautious position during election periods until the political process is concluded and the direction of government policies becomes clearer.
He said “foreign investors would want to understand whether existing economic policies would continue after the election or whether a change in government could bring a different policy direction before making fresh investment commitments.”
He further identified the possibility of further reductions in interest rates as another factor that could support equities in the coming weeks. Amolegbe said efforts to moderate inflation as we approach the election could create room for the Central Bank of Nigeria (CBN) to ease monetary policy further, to make equities more attractive to investors.
He explained that interest rates and share prices generally move in opposite directions because lower interest rates can reduce the returns available from fixed-income investments and encourage investors to consider other assets, including equities. “The stock market and interest rates have an inverse relationship. So typically, when interest rates come down, stock prices tend to go up,” he said.
A further reduction in interest rates, he added, could therefore encourage fresh investment in the equities market and support share price appreciation before the end of the year.
He also pointed to the usual year-end adjustments by portfolio managers, who review their holdings and reposition their investments to improve portfolio performance before closing their books for the year. “Typically, at the end of the year in December, you also see portfolio managers adjusting their portfolios, doing portfolio management in order to boost their performance for the end of the year,” he said.
These factors, according to him, leave room for further gains despite the recent market correction. “Clearly, there are significant factors that could lead to us seeing the market showing further gains between now and the end of the year,” he said.
While the market’s strong year-to-date performance may encourage more investors to secure profits, the expected addition of new equities, possible monetary policy easing and year-end portfolio adjustments could influence demand in the remaining weeks of the year.
Meanwhile, Honeywell Flour Mill Plc led the gainers’ chart during the week, appreciating by 30.82 per cent to close at N29.50 per share from N22.55. Transcorp Power Plc followed with a 23.37 per cent gain, closing at N219.60, while E-Tranzact International Plc advanced by 14.42 per cent. Other notable gainers were AXA Mansard Insurance Plc, which rose by 9.77 per cent, The Initiates Plc, up 9.57 per cent, and University Press Plc, which gained 9.52 per cent. UPDC Plc appreciated by 7.46 per cent.
On the losing side, Vitafoam Nigeria Plc recorded the biggest decline, shedding 18.96 per cent to close at N141.50 per share from N174.60. Sovereign Trust Insurance Plc followed with a 17.02 per cent loss, while Eterna Plc declined by 15.79 per cent. ABC Transport Plc fell by 13.64 per cent, International Energy Insurance Plc lost 12.82 per cent, while McNichols Plc declined by 10.28 per cent. HBM Nigeria Plc and SUNU Assurances Nigeria Plc each shed 10 per cent,
In terms of trading activity, First Holdco Plc, Access Holdings Plc and Honeywell Flour Mill Plc emerged as the three most actively traded equities, accounting for a combined 992.86 million shares valued at N71.04 billion. Their transactions represented 35.10 per cent of the total volume and 34.09 per cent of the value of shares traded during the week.
