Equity investors at the Nigerian Stock Exchange (NSE) who have for the past five months been staved of positive returns now have cause to raise their bets as this trend gradually changes.
The widely believed notion that it is best to feed a starving man slowly appears to be true at Customs Street, as the market achieved 0.35 percent year-to-date (ytd) returns in the week ended May 30, 2014 –the first time this year when it cancelled-out the negative yields.
The NSE All Share Index (ASI), which tracks the performance of the entire equities market, recorded a weekly rise from 39,831.83 points to 41,474.40 points, adding 1642.57 points or 4.12 percent last week.
In the month of May, the stock market rose by 7.75 percent, while in the quarter-to-date (QtD) it rose by 7.04 percent. The record gains were driven by activities of speculators at the bourse.
Considering the composition of the players in the market, large chunk of this recent bounty went to the foreign institutional investors portfolio as they remained major buyers of Nigerian equities, with a slightly fare share going to the domestic institutional investors.
Due to retail investors’ conservative approach in their bet on Nigerian equities, many analysts doubted their getting fair share in the positive reward, which resulted from recent bull-run.
Though, the opportunity for these investors to make money from the stock market kept coming, retail investors’ appetite had remained weak.
Activities of the bulls are more visible on Oil/Gas stocks driven majorly by companies like Forte Oil plc, Seplat Petroleum Development Company plc, and Total Nigeria plc. While other indexes are in the negative ytd, the NSE Oil/Gas index recorded13.85 percent YtD return last week, followed by NSE Industrial Goods Index, which stood at 2.27 percent.
Amid the all-time high record by the Nigerian stock market, analysts expect the activities of profit-takers to weigh on the performance of equities this week.
“The Nigerian equities market continues its strong rebound with gains in the banking and oil and gas sectors sustaining market momentum. The market rebound is a welcome relieve following the poor start of the market to 2014, which has seen the All Share Index shed up to 7 percent from December 2013 to April 2014,” say Morgan Capital analysts.
These analysts note that as Godwin Emefiele, new CBN governor, who ascended the reins of power in the apex bank on Tuesday, June 3, 2014, it implies “a new era in the monetary policy history of Nigeria. Burning questions on the minds of investors (both foreign and domestic) will be: Will the new CBN governor continue in the tough monetary policy stance of his predecessor? Will the new CBN governor be as aggressive as his predecessor in the defence of the naira against the green back? Is inflation likely to spike under his watch, beyond the single-digit threshold of his predecessor?”
The new CBN governor’s immediate concern is naira and foreign reserves stability, particularly in view of relatively weak oil earnings and heightened security risks.
In what they termed a bullish welcome to the new CBN governor, market analysts at UBA Capital say: “Nigerian equities should consolidate on the strong momentum (+4.12% last week) with expectation of further rally in the week ahead.”
According to these analysts at UBA Capital, “the composite index defied our expectation of modest pullback in May, recording the strongest one month rally since 2012 (c. +7.8%), despite nagging security challenges. The re-weighting of the MSCI frontier market index increased Nigeria’s representation in the index to 17.1 percent (from 11.4% previously); this should improve portfolio flows from global funds that track the index. That said, we will ride the ‘rally’ with caution, focusing only on value stocks with above-average performance potential. Also, we reckon that security/political concerns and pressured FX reserves remain downside risk to sustained portfolio inflow, particularly as we approach the election period.”
In their market analysis, Access Bank team of economic intelligence notes that the major contributing factor to the robust performance came from the strong interest in banking stocks. “Excitement of stocks of companies in building and construction, oil and gas, and fast moving consumer goods led to the uptick in market indicators. We may likely witness slight decline in market performance indicators due to investors taking profits from recent gains,” they add.
Iheanyi Nwachukwu
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