COVID-19 : Why Investors Jostle For Banks’ Stocks on NSE

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Investors are literally on the queue for the shares of banks on The Nigerian Stock Exchange in recent time as the Financial Services Sector has put the market on the bullish run despite the slowdown in the global economy on the back of COVID-19 pandemic which has taken financial markets by storm.

By The Exchange’s performance indicator for four-day transaction, released at the weekend, Financial Services Industry dwarfed other sectors in both the volume and value of stocks traded with 809.957 million shares valued at N5.666 billion, amounting to 80.06 percent and 57.28 percent of total equity turnover volume and value respectively. Industrial Goods, the second most traded sector, trailed Financial Services in a far distance with 47.884 million shares worth N1.681 billion, representing 10 percent of the market turnover.

Some of the banks, particularly, Tier- 1, have been driving the market on the strength of what analysts who spoke to The Kernel ascribed to factors such as the liquid nature of banking as a business, effective deployment of modern technology, undervaluation of banks’ stocks, recent payment of attractive dividend yields by some banks and heartwarming performance of some of them in the first quarter this year. (Q1).

“The first quarter financial results of the major banks have been released to the market and they were consistent with their historical performance in terms of value creation. The dividend yields of the major banks created liquidity for the shareholders and by extension, the market. Impacts of COVID-19 on the banks’ performance is likely to be moderate as their digital channels are deployed to bridge the gap.’, said the Managing Director and Chief Executive Officer, Network Capital, Mr Oluropo Dada, last night.

Corroborating him, a financial Engineer and Chief Executive Officer, Wyoming Capital, Mr Tajudeen Olayinka explained that banking stock represents a portfolio of all profitable businesses across the globe. “Banking stock is an attraction on its own. The stocks are relatively liquid in the Nigerian market. They have adjustable earnings’ profiles and are driven by historical evidence.”, Olayinka said.

According to the Chief Executive Officer Highcap Securities Limited, Mr David Adonri, while other sectors of the economy are recording losses due to current devastation caused by COVID-19, banks and telecom companies are still in operation due to their virtual platforms that are yielding income. “That is why they are driving the capital market. Moving forward, banks’ profits will also decline and some of them are already closing down branches to save cost.” Adonri posited.

The Managing Director and Chief Executive Officer, Centrepoint Investment Limited, Mr Emmanuel Awure explained that prior to the crisis of COVID-19 and oil sector, the banking sector had been grossly undervalued. “Given the fear and the exit of the international portfolio investors, the market was driven to a new low that was witnessed last in 2008 subprime financial crisis. Under this atmosphere, defensive investors overreacted and drove the market to extreme undervaluation. In my own opinion, the banking sector is likely to maintain a sustained upward movement since the major sell-off seems to have abated with the sellers now short of supply.”

In his own opinion, the Managing Director and Chief executive Officer, Stanadard Union Securities, Mr Sehinde Adenagbe, “Most of the banks have good corporate ratings from internationally recognized rating agencies such as Moody’s Investors Service, Standard and Poor’s (S and P ), Fitch Rating. It is expected that many of the banks will soon come to the market to raise funds to shore up their capital base. Many investors are taking position to buy low rather than waiting for the offering price which might be higher later.”, said Adenagbe.

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