by Patrick Atuanya
It was Valentine’s Day last Friday which got me thinking about the stock market, often seen as sexy and exciting as opposed to bonds perceived to be somewhat boring, never mind the bit of role reversal that has taken place lately at least in the Nigerian markets.
It’s not an exaggeration to say that investors sometimes fall in love with stocks in their portfolios, something money managers often caution against.
Take the recent buying frenzy in electric vehicle maker, Tesla that has led to the stock price tripling in 6-months.
While a lot of speculators and momentum traders, no doubt contributed to the recent run-up in Tesla’s stock price, there were still the core holders or believers in the mission of its CEO Elon Musk, to save the planet and reduce greenhouse emissions, by not burning fossil fuels in an internal combustion engine.
That love affair has enabled Tesla to raise about $14 billion over the last decade (according to Bloomberg estimates), with the latest offering which priced at $767 per share on Thursday (13th February) boosting Tesla’s market capitalization to $146 billion.
Back home to Nigeria the stock market could be forgiven for feeling like an unwanted step child, hardly loved by institutional investors (Pension Funds) or retail types (Man on the street).
Domestic Pension Funds with Assets under Management (AuM) of N10.2 trillion ($28 billion), had their exposures to equities equivalent to only 5.4 percent of total assets or N552 billion ($1.5 billion), the December data from regulator, PENCOM shows.
Underneath the headline numbers could be some stirrings of attraction pray even love for equities going by recent happenings.
In less than one year, 3 key transactions have helped to shore up the stock market and diversify options available to potential investors in addition to some bullish regulatory actions.
MTN Group kicked things off with the listing of its Nigerian subsidiary that added some N2.4 trillion in market capitalisation to the Nigerian Stock Exchange (NSE), this was followed up with a dual Initial Public Offering (IPO) by Airtel Africa, with primary listing in London and secondary one in Lagos, and finally BUA Group listed its consolidated Cement business on the NSE with a market capitalisation of N1.2 trillion as at Friday.
Moves by the Central Bank of Nigeria (CBN) late last year to ban most classes of domestic investors (except banks) from buying or trading its open market operations (OMO) securities, helped to push liquidity into stocks and a move by the NSE a self-regulatory organisation or SRO to demutualize and list itself on the exchange is generally positive for the market.
The latest NSE, foreign and domestic portfolio investment report for December 2019, also shows a gradual growth in domestic participation in the markets as foreigners pull out.
Foreign transactions which stood at 63.58 percent in October 2019, fell to 49.35 percent in December, while domestic transactions on the bourse rose to 50.65 percent in December 2019, from 36.42 percent in October.
In absolute terms these were equivalent to N103.73 billion in October for foreign transactions compared to N59.43 billion for domestic in the same time period, which flipped to N63.14 billion for foreign transactions in December and N64.80 billion for domestic.
Latest data (Feb. 14) from the bourse shows that while the main benchmark stock index NSE-ASI (which tracks the general market movement of all listed equities on the Exchange, including those listed on the Alternative Securities Market (ASeM), regardless of capitalization) is up +3.4 percent year to date (ytd) , the NSE Premium Index (only 8 stocks) is up +10.72 percent year to date, meaning that some under the raider love affair is taking place between investors and select stocks, outside the broad aggregate NSE-ASI.
Components of the NSE Premium Index include Access Bank with closing price of N9.70 per share on Friday, Dangote Cement (N170), FBN Holdings (N5.95), Seplat (N605), UBA (N7.70), Lafarge Africa (N15.50), Zenith Bank (N19.65) and MTN Nigeria (N116).
So which of these 8 names contributed to the year to date outperformance compared to the NSE-ASI?
Access Bank shares have returned -3 percent in 2020, Dangote Cement +19.72 percent, FBN Holdings -3.25 percent, Seplat -8.03 percent, UBA +7.69 percent, Lafarge Africa +1.3 percent, Zenith Bank +5.65 percent and MTN Nigeria +10.48 percent.
The smart money investors are clearly showing love to Dangote Cement, UBA, Zenith Bank and MTN Nigeria, which have all outperformed the NSE-ASI so far this year.
A couple of catalysts remain for the markets to trade in days to come, including Full year 2019 earnings and potential dividend pay-outs, so money may yet move in or flow out of these stocks.
In the meantime if you want to love a stock in this season of love, these are your sure bets for now, keeping in mind that a heartbreaking sell-off may just be around the corner!