Cautious trading trails equities as investors weigh Nigerian risks

Equity investors, particularly foreigners who control reasonable percentage of activities in Nigerian equities market, may have started pricing-in current risks that manifest in Nigerian business environment.

These investors, who analysts say have now resorted to trading cautiously in the Nigerian equities, note heightened political risks and activities of terrorists in the Northern part of the country.

Activities of the terrorists group (Boko Haram) have continued to impact the sales/revenue base of most listed companies in the consumer goods sector. As a result of cautious trading activities at the equities market, illiquidity which trails the market has caused most big buyers – like institutional investors, to price down equities.

This development has further widened the market’s year-to-date (YtD) loss, which stood last week at a negative of 6.65 percent.

Amid this development, trading activities at Customs Street took off this week on a negative note, thereby dousing investors’ hope of a positive outcome at the close of deals this week.

Many analysts believe that most unimpressive first-quarter (Q1) results being released by some quoted companies are not helping investors to consider equities in their securities pick.

Though, many schools of thought within the market say they expect better performance from the stock market this week, as equity investors digest Q1’2014 results.

Amid a positive opening in this month of May, investment analysts at UBA Capital say they do not anticipate any major shock from the upcoming MPC meeting, adding “we are largely conservative on “May equities,” particularly as tighter global liquidity and domestic political/security risk factors continue to stave off offshore inflow into the local bourse.”

These analysts note that “the US Federal Open Market Committee (FOMC) tapered the monthly stimulus package, now at $45 billion/month; which in our view is negative for foreign portfolio inflow into emerging and frontier market assets. That said, the Nigerian equity market presents compelling headroom for gains from a value view point – especially within the financial basket.”

Also, analysts at Morgan Capital note that the stock market continues to trade cautiously as profit- taking activities pervade the market.

According to these analysts, “the fourth coming general election is a major concern for investors, especially with the rising prominence of the opposition party and uncertainty of the ruling party’s ability to retain power.

“Some investors, particularly the foreign portfolio managers, have adopted a cautious approach to investing in Nigeria as it is expected that the polity will heat up as the election draws near.”

In their outlook this week, investment analysts at Cowry Asset Management Limited say they expect a mix of bargain hunting and sell pressure “as investors sentiments switch between weak earnings stance and speculative opportunities.”

To market analysts at Meristem Securities Limited, “As H1:2014 gradually winds up, we expect investors to continue re-appraising their holdings in the equities market, taking position and profit ahead of potential opportunities and headwinds.

“Our outlook for the naira remains positive primarily due to the apex bank’s resolve to maintain the current band at N155+/-3 percent; also, Nigeria’s relative attractiveness to peer emerging economies augurs well for continued capital inflows which we believe will impact positively on the volume and value of transactions on the Exchange.”

Iheanyi Nwachukwu