December 6, 2021/FSDH Report

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—–FSDH Top Picks: Global equities see a volatile November as telco stocks pull domestic equities higher

Global equities market review & outlook: Topsy-turvy month across the globe

n Nov-2021, equity markets across the globe witnessed a volatile month as wild swings in sentiments kept investors on their toes through the month. In the US market, the month started off on a strong note due to sustained positivity from a decent earnings season as well as stable but “below consensus expectation” economic growth, propelled investors’ buying interest and consequently pushed major US equity indices to record highs. In addition, a “surprise-free” Federal Open Market Committee (FOMC) meeting kept investors’ interest upbeat. However, by mid-November, the US Bureau of Labour Statistics announced that US inflation surged to a 31-year high, printing at 6.2% and farther away from the Fed’s long term inflation rate of 2.0%. This unsettled investors that are concerned about the future direction of monetary policy. The more recent global panic over a new covid-19 variant, “Omicron” put investors on the edge and resulted in significant selloffs across the market as investors sought to book profits in an arguably overvalued market. Overall, the US market closed the month bearish as the month-end selloffs wiped off earlier recorded gains with the S&P 500 (-0.8% m/m), DJIA (-3.7% m/m) and small-cap Russell 2000 (-4.3% m/m) closing the month lower. However, the tech-heavy NASDAQ Composite (+0.3% m/m) managed to eke out marginal gains for the month.
 
In Europe, the equity market narrative was very similar to the US as European markets started the month on a high with strong earnings announcements and positive monetary policy soundbites (with ECB President, Christine Lagarde cautiously giving assurances that the possibility of a rate hike in 2022 as very unlikely) provided support for investors’ buy interest. This was aided further by positive macroeconomic developments in which EuroStat disclosed preliminary GDP growth rate for the Euro Area in Q3-2021 printed at 2.2% while the European Commission (EC) revised its GDP growth expectation for the Eurozone to 5.0% from 4.8% previously. These positives propelled European markets higher through the month. However, by the end of the month, news of the outbreak of a new covid-19 variant soured investors’ sentiments and led to selloffs all across the European equities market. As a result, the Pan-European ST0XX 600 index closed the month lower by 2.6%. Similarly, country specific indices such as England’s FTSE 100 (-2.5% m/m), Germany’s XETRA DAX (-3.8% m/m) and France’s CAC 40 (-1.6% m/m) closed the month lower.
 
In Asia, the Chinese equity market closed the month higher by 0.5% m/m as some calm returned to China’s real estate sector while Chinese government announced that the border between Hong Kong and China will soon be reopened following an agreement to pursue a zero-covid strategy. On the other hand, in Japan, the equity market opened the month on a strong note due to positive monetary policy direction and signs of political stability after the ruling party, Liberal Democratic Party retained majority control of parliament. However, the news of the Omicron variant plummeted the market with the benchmark Nikkei 225 closing lower by 3.7% m/m.
 
Looking ahead,the global equities market remains in a precarious state as countries continue to react by placing travel restrictions in bid to curb the spread. In addition, it remains unclear how monetary policy decision makers and other key economic managers will shape their policy outlook given a recurring tightening stance in the past weeks. That said, we anticipate investors will try to buy the dip in the coming trading days, particularly on value stocks that have witnessed significant sell pressures in the last weeks.
 
From a technical perspective, the S&P 500 on a monthly timeframe shows the market remains overstretched, significantly pulling away from its moving averages. In addition, the MACD indicator points to a stuttering bullish momentum, indicating the tide may be changing in the US equity market with the RSI of the S&P corroborating this fact as it remains overbought at 71.2. Lastly, the sentiments landscape remains broadly volatile due to uncertainty about the spread of the omicron variant. Thus, while there may be some initial bounce in the US equity market, we anticipate a medium term bearish run, making it potentially dangerous to retain significant exposure in such uncertainty.

Nigeria equities market review & outlook: Gains in telco stocks underpin bullish November 

Contrary to expectations for the month of November, the domestic equities market gained 2.9% m/m in November as listed telcos (MTN Nigeria and Airtel Africa) announced it has gotten approval-in-principle to operate a payment service bank subsidiary in Nigeria. This was further bolstered by Airtel Africa releasing details on the approval gotten to operate as a super agent in Nigeria. Consequently, buying interest in MTNN (+8.7% m/m) and AIRTELAF (+21.8% m/m) was enough to lift the market higher for the month. Other than the gains in telco stocks, the broad market was mainly bearish as three of the broad five indices closed lower with the Oil & Gas sector (-7.6% m/m) leading the losing sectors due to selloffs in TOTAL (-10.0% m/m) and SEPLAT (-5.0% m/m). Similarly, the Banking (-4.8% m/m) and Consumer goods (-3.9% m/m) sectors lost as price depreciation in GTCO (-14.4% m/m), ZENITH (-5.2% m/m), NB (-12.3% m/m) and DANGSUGAR (-4.4% m/m) weighed on the indices. The Insurance (+4.3% m/m) and Industrial goods (+0.7% m/m) sectors gained during the month as gains in ROYALEX (+8.0% m/m) and REGALINS (+8.1% m/m) propelled the indices higher.
 
In the Nigerian market, investors continue to be averse to risk-taking with a safe approach driving investors into cash and money market securities. The foreign investor community remain uninterested due to unfavourable exchange rate policies while domestic investors continue to retain their stand-offish approach. Interestingly, barring the news that triggered interest in MTNN and AIRTELAF, the local bourse would have closed the month bearish. That said, the NGX-All Share Index (NGX-ASI) is close to touching a key short-term moving average (the 50-day MA) while the RSI for the index gradually heads toward the oversold region. As a result, we believe December could present opportunities to investors to take positions in the Nigerian equities market, particularly as we approach the dividend announcement season in Q1-2022.

Fig 1: Monthly NGX-ASI Performance                 Fig 2: Monthly S&P 500 Performance

Source: Bloomberg, FSDH Research

Fig 3: S&P 500 remains overstretched         Fig 4: NGX-ASI approaching key 50-day MA

Source: Bloomberg, FSDH Research

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