Successful investors across the globe are known to always monitor stock performance. This is done by tracking stock Indexes. Indexes reflect stock direction and behavior across different investment time frames. To a greater extent, the frequency at which this occurs depends on several factors attributed to risk level, portfolio diversification and other factors that influence investors’ plans In 2020, one of the African stock exchanges that show promising financial rewards and that attracts international investors is NIGERIA STOCK EXCHANGE (NSE).
According to a Bloomberg report, Nigerian stocks recorded the highest annual gain for the past seven years as it rides on low yields in a country with a fixed-income market. In addition to that, it reached its all-time high performance in 2020 among 93 equity indexes tracked by Bloomberg. However in this article we will be exploring the performance of NSE using one of its market indexes, NSE All share index (NSEASI).
NSEASI
NSEASI is a major stock market index that tracks performance of all stocks listed on the Nigerian Stock Exchange. In short, NSEASI reflects the direction of Nigerian stocks across every sector. The NSE All-share Index reflects a total picture of the behaviors of the common shares quoted on the Nigerian Stock Exchange which is calculated on a daily basis, showing how the prices have moved.
NSEASI witnessed its highest annual gain for the pa st seven years after riding on low yields in the country’s fixed-income market. Among the 93 equity indexes tracked by Bloomberg, NSEASI recorded its highest return of 45.7% this year making it the world’s best performing stock market year-to-date. Early 2021, data sourced from ngxgroup.com shows that All share Index opened at N41,147.39. Within Twenty five days of trading NSE, the NSEASI witnessed a price increase of 1.44% which is equivalent to N42,412.41 exactly on 29th January 2021. After this date, the index witnessed a successive price decrease between February 2021 and September, 2021. Within this timeframe, a massive drop of 5.8% price was encountered between 19 th March 2021 to 28th June, 2021. The market picked up gradually from N38,858.99 with a progressive increase of 5.8% taking it back to the all-time high of N43,730.55 in 2021.
Figure 1 All share Index January to December 2021 (Source: here).
This market rebounded in September as a result of MTN, telecommunication company initial public offering advertisement. This marked the beginning of another bullish trend. In an attempt to establish the fundamental analysis behind this trend, companies from the financial and Beverage (Alcoholic) sector witnessed a weekly massive gain within this period.
For instance, Nigerian Breweries Plc and Guaranty Trust Holding Company Plc gained +1.54% and +0.54%. In addition to that, NSE Industrial Goods and Oil and Gas indices gained 4.08% and 0.12% respectively, while some other sectors like NSE Banking and Consumer Goods lost 0.30% and 0.13% respectively on a daily basis. This also shows that the direction of overall market index is not always the same as direction of sectors pegged under the index. But in the case of NSEASI, stocks with bullish trend were strong enough to ensure positive market trends were maintained.
In conclusion there are three average entry prices for investors depending on their risk level. Investors with low, medium and high risk level, could consider N15,600, N27,500 and N41,797 as their entry price respectively. However, the low risk investor using NSEASI might not be able to trade NSE except the market crash so badly that it fell below all-time low, since the market dwindles for at least two years between N19,800 and N 34,500, it is safe for medium risk investors to trade NSE at an average price with an expectation that that stock will increase in price or maintain it all time high while the support for high risk investor is for the stock to maintain its current price or reach another all-time high.
Author: Lawrence Oladeji
References
https://ngxgroup.com/exchange/data/indices/
https://www.forbes.com/advisor/investing/stock-market-year-in-review-2020/
https://www.bloomberg.com/news/articles/2020-12-29/nigerian-stocks-head-for-best-annual-run-since-2013
https://ng.investing.com/news/stock-market-news/update-1nigerian-stocks-drop-137-to-threemonth-low-364984
