Investors Mull Over a Choppy H1 2021 NASD Performance


Saturday, July 24, 2021/07:30 AM/Bukunmi Adejobi, Proshare research/Header Image Credit: EcoGraphics


Investors in the last few months have shown sobriety over the performance of Nigeria's over the counter (OTC) market. The NASD's performance in both the first quarter (Q1) and second quarter (Q2) of the year has been like the walk of a drunken sailor.


Starting from the Santa rally filtering into January 2021the bullish run was halted in the last week of the month with a -1.04% decline that extended to February with saw the market drop by a further -1.58%. However, through March and April 2021, the OTC market's flagship Index, the NSI, spouted positive yields with a +4.64% rise in March and a +5.74% jump in April.


Climbing over the back of an OTC resurgence, the official traded market, the NGX, went into full demutualization, with the erstwhile Nigerian Stock Exchange (NSE) breaking into a Holding Company structure. The NSE, was renamed the NGX Limited in March and was admitted for trading on the NASD OTC market in April.



The newly tradeable NGX distributed 1,964,115,918 ordinary shares of 50 kobos each to over 200 dealing members of the Exchange and additional Ordinary members and became available to be traded by licensed participating institutions or authorized traders. This event reflected on the performance on the exchange, boosted activity in terms of deals carried out, volume, and value of shares traded.



May saw a renewed market pullback as the NSI fell by -5.17%. June, however, reversed this trend as the Index rose marginal by +0.77%. The OTC closed the half year (H1) 2021 with a moderate swagger as the Index climbed by +2.98% (see chart 1 below).

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Chart 1: NASD Security Index Movement (Jan. 2020 - Jun. 2020)

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Source: NASD OTC, Proshare Research


With the admission of NGX on the OTC, there was a surge in the number of deals done in Q2 2020 as the NGX raised traded equity activities consistently over the quarter, the listing of the NGX on the OTC floor has pushed a larger number of investors to the NASD as seen in the bounce in traded volume between Q1 and Q2 (see chart 2 below).



Chart 2: Number of Deals Carried Out on The NASD OTC (Jan. 2020 - Jun. 2020)

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Source: NASD OTC, Proshare Research



What to Do?

Should investors bite at the OTC cherry? Two factors may be important to the decision, first the age of the investor and secondly the investors risk appetite. Older investors may decide to give the market some berth as its narrow range of stocks and volatility could prove to be detrimental to the portfolio stability of older investors.


Younger investors, however, may decide to plug some Naira into the NASD Exchange as the riskier nature of the market compared to the NGX could mean a potential market premium spread between both Exchanges, to compensate for higher NSI volatility relative to the NGX Index. Nevertheless, a few old timers may still be interested in the NSI to give their portfolios a zip with higher-than-average market returns.


H1 2021 witnessed other headline events which include:

  •  The delisting of ARM Life Plc following its merger with Tangerine Life Insurance Limited, ARM Life's Shareholders receive shares in Tangerine Life in the ratio of 8 (eight) shares for every 100 (hundred)shares held in ARM Life. Upon the implementation of the Scheme of arrangement, ARM Life shares were no longer tradable on the NASD OTC.
  • The listing of the shares of 11 Plc (formerly Mobil), and Capital Bancorp Plc on the OTC floor.

Investors would need to keep a keen eye on the OTC market in H2 2021 as the market offers as much upside promise as it advertises downside risks.



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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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