N5trn inflow from fixed income to boost equities rally

Despite the reappearance of the bears in the local bourse last week, equities analysts have said that the market will maintain its positive posture in the near future given the expected inflow of N5 trillion from maturing securities in the fixed income market.

They also said that a ‘HOLD’ decision by the Monetary Policy Committee (MPC) on monetary policy rates in its meeting today would help to sustain the weekly rally.

Meanwhile, sentiment turned bearish in the stock market last week as profit-taking activities dominated performance throughout the week, leading to loss of N81 billion to investors.

Analysis showed that with the exception of the mid-week session, where 0.23 percent return was recorded, the market posted marginal losses on all other trading days of last week.

Accordingly, the All-Share Index (ASI) declined by 0.4 percent to close at 41,001.99 points. Consequently, the Year-to-Date (YTD) return moderated to 1.8 percent.

Further analysis showed that selloffs and price downs in United Bank for Africa (-6.0%), Access Bank (-5.7%), Flourmill of Nigeria Plc (-2.4%), Dangote Cement (-1.3%) and BUA Cement (-1.1%) drove the weekly loss.

The performance across the sectors was also negative with the banking sector leading the pack with 17.5 percent decline. The insurance sector followed, declining by 0.8 percent, the industrial goods depreciated by 0.5 percent, while the consumer goods and the oil and gas sectors declined by 0.1 percent apiece.

Commenting on the market movement in their 2021 economic outlook, analysts at Atlass Portfolio, a member of Cititrust Group, said most of the inflow from the maturing securities would be divested to equities, but cautioned that any uptick in yields in fixed income would cut the rally short.

They said: “We expect the rally to continue in the short term, with over N5 trillion in fixed income expected to mature in 2021; some of which will be divested into the equities market.

“Also, with the re-opening of the economy and many businesses returning to full operation in 2021, the potential of listed companies recording profit will improve. Many of the top tier banks and large cap stocks posted good results in third quarter 2020. This shows that they were able to manage the impact of the pandemic well.

“However, we note that the current rally in the market is not backed by strong fundamentals and any possible increase in yields of fixed income instruments could pose a threat to the rally.” They advised investors to pay attention to highly liquid stocks and stocks with good fundamentals and dividend paying history.

Analysts at Cordros Capital projected that investors’ attention would be centered on the outcome of the first MPC meeting of the year, adding: “We believe consensus expectation for a hold decision if confirmed will engender positive market performance as investors cherry-pick stocks with attractive dividend yields amidst negative real returns in the fixed income market.”