Stocks down-beat creates opportunities for speculators

The sell-off witnessed across most large cap stocks, which pushed the returns from the equities market down by 6.71 percent last week, now offers an entry opportunity for speculators in the stock market, investment analysts have said.

Specifically, value stocks in the consumer goods and banking sub-sectors of the Nigerian Stock Exchange (NSE), which were recently beaten by activities of the bears, are now targets of most speculative buyers who are constantly seeking opportunities to buy low only to offload when the market peaks.

The NSE Consumer Goods Index evidenced in last week’s performance was down by -13.18 percent; NSE Banking Index dropped by -11.12 percent, while the NSE-30 Index, which measures the performance of large cap stock, dropped by -8.90 percent.

Though, many schools of thought within the market say they are largely conservative on ‘May equities’ (especially for a market timing strategy), particularly as tighter global liquidity and domestic political/security risk factors continue to deflect offshore inflow into Treasury bills and bond markets, thus eclipsing the impact of currency stability on equity market performance.

Not withstanding, the Nigerian bourse remains a ‘gold mine’ waiting to be tapped from a value perspective, just as depressed valuation, increased global attraction and projected corporate earnings surprise should compensate any long-term strategies.

Ahead of half year financials of companies and most investors willingness to position in stocks that have valued before year end, investment analysts believe that some stocks within this basket still trade below value, indicating an opportunity for value investors to raise their bets, particularly from indications that the Nigerian equity market may have bottomed out after recent sell off; with only limited outlook for further sell off.

“The Nigerian Equities Market returned to winning ways in the just concluded trading week. The market gained 0.27 percent. The market still continues to trade cautiously despite recorded gains in the just concluded trading week,” according to Morgan Capital analysts.

Accordingly, they noted that: “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.”

They noted that as political risk of the country heightens, investors especially the foreign investors price this risk into their business exposure to Nigeria, and the Nigerian equities market bears the brunt.

“This week, market rally may resume as investors lock into stocks with good fundamentals and stable track record of positive returns,” said market analysts at Access Bank plc.

While looking at the market last week, equity analysts at Cowry Asset Management Limited noted that “in line with our expectations, the Nigerian bourse saw a mixture of bargain hunting and profit-taking as speculative activities dominated transactions.”

They however expect to see bargain hunting activities this week as a fallout to recent decline in value of stocks, which creates opportunities for speculators.

Iheanyi Nwachukwu