Fixed income yields, profits dampen market outlook

Following massive profittaking and negative sentiments about rising yields in the fixed Income market, equities market finished the first quarter of 2021 negative. CHRIS UGWU writes


Despite investors’ anticipated hope for 2021, as jittery over COVID-19 seems to be slowing down, their cumulative Year-to-Date (YTD) returns on equities during the first quarter of the year closed negative at –3.04 per cent.


Available statistics showed that activities on the Nigerian Stock Exchange, which opened the trading year at N21.058 trillion in market capitalisation and 40.270.72 in index at the beginning of trading on January 4, 2021, closed the first quarter of the year on March 31, 2021 at N20.428 trillion and 39,045.13 index points, hence earning a year to date loss of about N630 billion or -3.04 per cent year to date.


The Nigerian equities market had ended the first month of 2021 on an impressive note, as investors increased their buying pressure, especially on blue-chip stocks.


The equities benchmark recorded its highest return rising 5.3 per cent to become the Africa’s best performing stock. Positive sentiments had returned to the local bourse, as the gradual release of corporate earnings bolstered buying interests in dividend-paying stocks.


This was further strengthened by the outcome of the MPC meeting which reinforced the theme of “lower for longer” yields in the FI market. Accordingly, the All-Share Index jumped by 3.4 per cent w/w to close at 42,412.66 points the highest level since March 2018.


However, investors in equities recorded a loss of N1.758 trillion during the last two months (February and March) 2021 following massive profit taking and low sentiment to growing concerns about the rising yields in the fixed income market.


Analysts attributed the drop in the indices to profit-taking by investors, saying the trend may be sustained as investors continue to leverage the appreciation recorded in the month of January despite 2020 earnings results.


With uncertainties about the direction of yields in the FI market still bugging investors’ minds, the bears are likely to retain dominance in the market. The yields in the fixed income market has continued to dampen investors’ interest inequities as the bearish performance in the Nigerian Stock Exchange (NSE) remained unabated.


Accordingly, the All-Share Index fell below the 40,000 psychological mark, declining by 7.93 per cent during the period to close at 39,045.13 points. Consequently, the YTD return dipped further in the negative territory, settling at –3.04 per cent.


However, despite the short fall on equities, the stock market community finally secured approvals from the regulatory authorities for demutualisation of the Nigeria Stock Exchange during the period under review.


NSE gets final approval for demutualisation


The Nigerian Stock Exchange (NSE) during the quarter received final approval for its demutualisation plan from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC) respectively. With these approvals, the exchange has now completed its demutualisation process.



Under the demutualisation plan, a new non-operating holding company, the Nigerian Exchange Group Plc (‘NGX Group’) has been created.


The Group will have three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company.



All the entities have been duly registered at the CAC. Otunba Abimbola Ogunbanjo, NSE Council President, said: “Successful demutualisation was one of my fundamental objectives when I assumed the Presidency of The Exchange.


The SEC’s decision today to approve the NSE’s demutualisation plans brings this aspiration to a successful conclusion in a process that included the passage of the Demutualisation Act through the National Assembly.


“We are elated that this milestone has been achieved as we celebrate the 60th anniversary of the commencement of trading at the Exchange and now look forward to the future public listing of its shares on NGX Limited.


On behalf of the NSE, I would like to warmly thank all those that have worked assiduously to achieve this watershed event on our journey to make the NSE a multifaceted exchange that extends across various markets and geographical regions.” The approvals by SEC and CAC signify that the NSE can now activate its transition plan to a new operational structure and holding company.


The extensive transition plan, taking the group and its subsidiaries through to     full operational launch, covers legal and practical changes to enable the functioning of the new corporate structure, with no loss of service and a seamless transition for market participants.


The transition plan will also see the inauguration of boards for each of the new entities, staff reallocation to their respective functions within the operating subsidiaries, operationalisation of business plans and budgets, technology systems transfer, and the requisite arm’s length agreements between the entities.


SEC approves CEOs for demutualised NSE


In order to facilitate the operational structure, the National Council of the Nigerian Stock Exchange announced the approval of chief executives to head its non-operating Holding Company and operating subsidiaries.


They are Mr. Oscar N. Onyema, Group Chief Executive Officer, Nigerian Exchange Group Plc; Mr. Temi Popoola, Chief Executive Officer, Nigerian Exchange Limited; and Ms.Tinuade Awe, Chief Executive Officer, NGX Regulation Limited.


Commenting on the appointments, Ogunbanjo stated: “The confirmation of these appointments are an important step in the process of building a leading and resilient African Exchange Group following the completion of our demutualisation programme.


I am delighted to continue working with Oscar N. Onyema, OON who has played a significant role in the reshaping of the Exchange.


As a proven business leader and strategic thinker, I am confident that he will elevate the Nigerian Exchange Group (NGX Group) and its subsidiaries successfully into a new era of development.”


Operators’ reactions


The Chief Research Officer at Investdata Consulting Limited, Ambrose Omordion, said: “While chart watchers and market participants await a trigger to drive the anticipated reversal of trend, these pullbacks are creating buy opportunities ahead of earnings expectation.


“However, let your investment plans and objectives: entry and exit strategies, guide you to survive and profit from the expected new trend. “In that way, should the full-year earnings reports and dividend  news fail to impact and reverse the current trend, a big rotation in sector trends should also guide you, going into the future.” According to analysts at Cowry Asset Management Limited,


“In the new week, we expect the local equities market to further trade southwards as investors trade cautiously amid rising fixed income yields. However, we expect investors to position in companies expected to announce good dividend payments.”


For those at Cordros Capital, “with uncertainties about the direction of yields in the FI market still bugging investors’ minds, the bears are likely to retain dominance in the market.


Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.


“With the MPC meeting now out of the way, we expect investors’ attention to be focused on the bond auction results as they keep an eye on the movement of yields in the FI market. As the FY 2020 earnings season gradually fades away, we expect investors’ sentiment to be influenced by developments in the macroeconomic landscape and corporate actions.”


Reacting to the development, David Adonri, Managing Director/ CEO, Highcap Securities Limited, described the approval as a welcome development. “It is a wonderful development,


NSE has been in this matter for the past 12 years. It is a great joy for us. It brings development to the market and Nigerians who will become shareholders.


Sooner or later, the share will become available to investors. It is a welcome development for the shareholders and market operators. For the Nigerian Stock Exchange it offers a variety of opportunities. The exchange can issue equities and raise bonds for development of its infrastructures,” he said.


On his part, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said: “My concern is about fairness and justice, broker dealers and other investors should be given a fair deal in terms of share allotment.


They should not allow the few super rich in the country to hijack the shares, there should be an appropriate valuations and the workers who have labored so hard for the development of the exchange should also be given a fair deal.”


The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, had urged stockbroking companies in Nigeria to align their business models with the newly demutualised Nigerian Stock Exchange to take maximise the anticipated opportunities and minimise the risks.


Addressing securities dealers at a Webinar themed “The future of Securities Dealing Business in Nigeria Post Demutualisation of NSE,” Ezeagu urged ASHON members to align their business models with the new market structure.


“The changes that this new orientation will bring in the business model of the exchange may impact our own operating models as securities dealers


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