Stock Market in Reverse Mode, Loses N1.36trn in February

The stock market ended last month in a full reverse mode, losing N1.38 trillion as investors’ preference shifted to the fixed income market in response to an 186 per cent increase in yields on treasury bills. Financial Vanguard analysis showed that average yields on primary market treasury bills (TBs) rose to 3.67 percent at the end of February from 1.28 per cent in January.

This translated to 186 per cent increase. Consequently, the stock market was dominated by sell pressures for most part of February, prompting the market capitalisation of all listed equities to fall by N1.364 trillion or 6.15 percent to N20.823 trillion at end of the month from N22.187 trillion at end of January.

Similarly, the benchmark All Share Index (ASI) fell by 6.16 per cent to 39,799.86 points from 42,412.66 points in January, indicating a 6.16 percent decline. This is in sharp contrast to the upward performance of the stock market in January when the benchmark All Share Index (ASI) rose to 42,412.66 points from 40,270.39 points at the beginning of the year as a result of low yields on TBs.

Though, investment analysts opined that the release of the 2020 full year financial report could temper the downward trend recorded in February, they, however, warned that further rise in yields would continue to hurt the market going into March and for the rest of first quarter (Q1) 2021.

Meanwhile, the breakdown of activities in the month of February showed that performance across sectors was also negative with the insurance sector leading with 17.82 percent decline, followed by the banking sector (-9.73%), industrial goods (8.80%), consumer goods (8.12%) and the oil and gas sector, which fell by 4.36 percent.

Analysts’ opinion Investment analysts explained that apart from the rising yields in fixed income, profit taking by investors also played a part in dragging the local bourse down. David Adonri, Managing Director/CEO, Highcap Securities, explained that the equities market responds to macroeconomic realities, saying: “Declining yield in debt and high macroeconomic liquidity drove the equities market up in January, but in February, the situation is different.” Though he said that the main driver is now corporate disclosures, he asserted that many investors are apprehensive that corporate fundamentals may not justify the rally in equities. “As a result, investors are adopting defensive strategies until proved otherwise by stocks which will meet or surpass expectations.”

He observed that the market may also be experiencing some correction, arguing that the last appreciation was too excessive.”

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