Bears show reluctance to relinquish position

The stock market negative returns in excess of 8 percent year-to-date (ytd) further proved the reign of bears in past six months.

Despite this unimpressive outing at the Nigerian bourse which has cost investors in excess of N460 this year (as at last Monday), the market still looks set to remain largely in control of bears following widespread uncertainty over policy direction of the domestic economy.

As a result, investors are jilting bargain opportunities which low priced but value stocks currently offer equity buyers.

Other factors weighing investment flows into equities include the bleeding naira against the dollar at the forex market, even as stock investors continue to expect a firm policy direction as regards the exchange rate.

The most recent factor luring investors into wait-and-see approach is a stylish walk by most companies towards unimpressive second-quarter (Q2) earnings.

“The Nigerian equities market, pressured by spill-over effects from falling global oil prices, fragile domestic economic fundamentals and largely unimpressive company performances, recorded relatively low market activity in first-half (H1) 2015. Although we expect the prevailing challenges to persist into second-half (H2) 2015, we anticipate intermittent upswings in market mood, driven by trickles of positive news inflow from the political space and position-taking in fundamentally justified stocks”, according to the views of analysts at Lagos-based Meristem Securities Limited.

In the review stock trading week to July 10, 2015, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) and market capitalisation depreciated by 2.49% to 31,729.26 points and N10.836trillion respectively.

Similarly, all the indices finished lower, with the exception of NSE Insurance Index that closed higher by 1.26%. Investors in stocks that make up the NSE Consumer Goods Index and NSE Oil/Gas Index are worse off in recent loss in equities value.

“While the NSE-ASI appears to be nearing a bottom, we believe it is more of a wait and see scenario, with meaningful clarity likely to hinge on a firm direction as per FX and the macro landscape. Nonetheless, the market is near ripe for bargain hunting for the long term players in our view, with the Q2 earnings season and the Athens breakthrough likely to provide support”, research analysts at United Capital said.

Investors have found solace in other asset classes like bond and treasury bills. Analysts say near term uncertainties are pushing investors to focus on long term instruments “where risk/reward is understandably greater”.

In line with recent trend, the domestic institutional investors are said to be active in the bond space while actions of the foreign investors remain muted.

On stocks, Cowry Asset Management analysts perceive bargain hunting opportunity in anticipation of positive half-year earnings releases by quoted companies as well as signs of external reserves recovery.

Iheanyi Nwachukwu