As trading activities resumed on the floor of Nigerian Exchange Limited (NGX) after the swearing in of President Bola Tinubu, the market has reacted positively to the president’s proposed policy reforms highlighted in his inaugural speech.
As investors cheered the policies which include plans to remove fuel subsidy, establish unified exchange rate, reduce interest rates level and improve job creation, the local equities market gained N1.51 trillion on Tuesday, being the first trading session under the President.
Notably, bargain-hunting activities in the shares of MTN Nigeria which gained +7.5% in its share price and that of Dangote Cement that closed higher by +7.4%, drove the benchmark index northwards by 5.2%.
BUSINESS METRICS understands that the daily gain seen by investors on Tuesday is the most significant single-day gain since 12 November 2020 when the Nigerian Exchange Limited advanced by +6.2%.
Thus, the NGX All-Share Index (ASI) that tracks share price movements at the bourse closed at 55,745.74 basis points, why market capitalisation jacked by N1.51 trillion to close the session at N30.35 trillion. Accordingly, the Month-to-Date and Year-to-Date gains advanced to +6.4% and +8.8%, respectively.
The total volume traded increased by 133.5% to 1.08 billion units, valued atN15.80 billion, and exchanged in 9,916 deals.
The turnover was ballooned significantly by trading in ACCESSCORP as it emerged the stock with the most traded stock by volume and value at 199.62 million units and N2.45 billion, respectively.
From a sectoral perspective, gains in the Banking (+8.2%), Consumer Goods (+6.5%), Industrial Goods (+6.1%), Oil & Gas (+4.0%), and Insurance (+2.3%) indices reflected the overall market performance.
As measured by market breadth, market sentiment was positive (5.3x), as 64 tickers gained relative to 12 losers. JAIZBANK (+10.0%) and NB (+10.0%) recorded the highest gains of the day, while IKEJAHOTEL (-10.0%) and NCR (-9.8%) topped the losers’ list.
Comment
Considering that experts have previously argued that the new administration’s stance and intent to resolve key policy issues, particularly around the current FX framework and oil subsidy payments will be key catalysts for a better-performing equities market, many investors view the new President’s speech as positive for the equities market.
Particularly, market observers believe the President’s statements on resolving current issues around multiple exchange rates and rectification of the current FX repatriation sit well with investors, evidence of which is the positive showing in Tuesday’s session.
Analysts however note that policy reforms from the new administration have to be overarching to have a lasting impact on the local bourse over the long term.
Analysts at Cordros Capital noted that indeed, the NGX ASI is currently undervalued, trading at a P/E of 9.3x, a 13.9% discount to its 5-year average of 10.8x, and a 30.1% discount to the frontier market peers – MSCI FM (13.3x).
“We think this is unjustified, given its higher RoE (19.2% | MSCI FM: 16.2%; 5-year average: 16.7%) and dividend yield (5.3% | MSCI FM: 4.9%; 5-year average: 5.3%),” they said.
The market watchers however said there is no visible in fixed income yields on local bonds as “we remain convinced that the FGN’s high borrowing needs for the current fiscal cycle amid the tight liquidity picture would keep yields tethered northwards.
“However, given the positive signals to foreign investors on key policy issues such as FX framework revamp and subsidy removal, we expect a positive reaction from the Eurobonds market,” they said.
