A good first quarter for stock market investors, what could be better?

IInvestors in the Nigerian stock market must smile at the bank as shareholders of listed companies approve dividends at annual general meetings.

It’s a rewarding season, especially for those with investments in high-dividend companies like GTCO, Zenith Bank, United Capital, UBA, Dangote Cement and MTN. Interestingly, it was a period of double rewards, as investors also saw noticeable appreciation in the price of their stocks. Overall market sentiment has been positive year-to-date, with the NGX All Share Index climbing 9.95% in the first quarter of the year to rank Nigeria as one of the fastest growing stock markets. performing so far in the year.

Interestingly, oil & gas and industrials stocks were the best performers as investors took advantage of higher oil prices to stock up on oil & gas stocks like Seplat, which jumped 43.1% in the first quarter of the year and gained a total of 47.7% as of Friday, April 8, 2022.

Shares of TOTAL Plc, which is primarily a downstream oil and gas company, also benefited from the euphoria of high oil prices, gaining 19.4% in the first quarter.

Remarkably, OANDO, whose shares have been the headliner of the oil and gas sector, recovered 9.1%, as investors seek to explore the bright side of the Russian-Ukrainian war, which has kept the global price up. crude oil at a high level. . With the exception of MRS, on whose stocks investors remained bearish with a 1.2% loss in share price, the oil and gas sector index ended the first quarter of the year on a bullish note, as evidenced by the positive return of 27.7%.

Dangote Cement and MTN, the two most capitalized companies on the Nigerian Stock Exchange, accounting for more than 35% of the total market capitalization, saw their stock prices increase by 6.4% and 6.6% respectively. Indeed, retail investors who bought MTN shares through the public offering at N169 per share saw a gain of 24.3% in just four months, on top of incentive shares and dividends.

Bank stocks haven’t been the toast of investors this year, despite strong results from lenders like Zenith Bank and Access Bank and more so a relatively high dividend yield on bank stocks like Zenith Bank and GTCO shares. The banking sector index ended the first quarter of the year with just 0.79% gain, with large caps Zenith, GTCO, STANBIC IBTC and UBA losing 9.5%, 11.5%, 5, 6% and 3.1%. respectively during the first quarter of the year.

While excitement over generally positive investor sentiment towards equities suggests this is a harvest year for equities, the gradual rise in interest rates is raising concerns about the sustainability of the equity market rally, especially as institutional investors begin to take cover in the equity market – income instrument, on fear of a likely fall in equity prices in the future, as worries about the upcoming elections increasingly cloud the investment climate.

Incidentally, the signals are obvious, with the weak performance of equities in March, when the overall stock index lost around 100 basis points, reducing the strong gains recorded during the first two months of the year; January and February. More so, April has been bearish with the market losing some 80 basis points so far in the month as investors take profits on a number of stocks, adding to the decline in investor risk sentiment, which has fueled the stock market rally in January and February. .

Mr. Yadinma Onwu, Executive Vice President of Matrix Funds & Assets Management Limited, believes the market is still undervalued.

To substantiate his view, he noted, “The Nigerian stock market is currently valued at just 8.1 times the earnings multiple with a decent dividend yield of 7.5%, although attractive and fundamentally undervalued by compared to its frontier market peers, which are currently valued at an average price. -to the earnings ratio of 13.1x and a lower dividend yield of 3.5%.

“While I am not oblivious to the negative impact of low liquidity on the Nigerian stock market, especially as foreign investors remain bearish on naira-denominated assets, primarily due to concerns over the likely devaluation of the naira.”

He further believes that there is a need to increasingly strengthen domestic demand and broader liquidity in the Nigerian capital market and this is one of the key objectives that all stakeholders should partner with the regulator. to ensure market sustainability.

“The performance of the secondary market and the ability to ensure a fair valuation of currently listed companies is essential to ensure the recovery of the primary market, as new companies would not be attracted to listing if they are not sure of obtaining the right valuation for their actions.”

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