Expectation still dims that stocks will stabilise

Investors entered into this week with a lot still fearful and a lot poorer after the Nigerian stock market dipped by 5.5 percent last week to push the negative returns further down by -7.58 percent.

While it is still impossible to play down the potential headline risk that is there at Customs Street in Lagos, analysts estimate that the stock market will this week witness a repetition of last week’s event with no major positives in the air that could trigger a rebound.

Though the stock market kicked-off this week with an impressive 1.22 percent gain, the previous 10-day loss streak had got boosted by investors’ negative sentiments on banks’ Q3 earnings season.

“This had reflected in the sell-off on banks with contagious effect on large-cap consumer goods stocks,” say market analysts at Associated Discount House, also based in Lagos. “While the market is oversold, earnings season will be mixed and we do not see major fundamental upside in the near term, thus reinforcing our conservative stance on equities,” these analysts say in their recent note to investors.

With the release of Access Bank plc Q3 earnings, other high profile financial institutions and companies’ Q3 earnings reports are still being expected in the market. As of the time of filling this report, some of them include: GTBank plc, Zenith Bank plc, FBN Holdings plc, and United Bank for Africa plc, among others.

Investors at the Nigerian stock market have for a while now been trading on fear and emotion in the face of global stock price gyrations set in motion by a global growth scare and panicky reactions to the Ebola Virus Disease (EVD).

The implication, analysts say, may has a remarkable effect on funds flow into the Nigerian capital market, though globally, like in the US, the stock market had witnessed heavy pound driven by the impact of concerns about ravaging spread of EVD.

In terms of equities performance, stocks traded at the New York Stock Exchange (NYSE) couldn’t peform differently – traders as well cried out, but they later became optimistic over a rebound as the Obama-led government marshals out strategies to curtail the ravaging disease linked to the black race.

Dealers at the NYSE who were asked whether a bear market is looming, simply said, “that might be broadening the development.”

Despite Nigerian government’s effort to curtail the spread of the disease, the bearish sentiment in the Nigerian equities market was sustained last week, as the NSE All Share Index (ASI) lost 5.6 percent last week to dip the month-to-date (MTD) return further down to -8 percent.

Just like in the equities, the fixed income market witnessed sell-offs by foreign investors, especially amid growing concerns of the potential risk of naira devaluation as the local unit continues to weaken against the dollar. Already, equity investors, mostly foreigners who play in the Nigerian market, have expressed concern over the impact of recent protracted weakness in crude oil price to four-year low and its bearish outlook.

This also heightens concerns over probable devaluation of the local currency, as fiscal revenue, current account balance and external reserve may come under pressure in the months ahead, with implication for the ability of the CBN to sustain naira defense beyond 2014.

“We expect some level of bargain hunting in the equities market this week on the back of recent price declines, attractive entry points and dividend yields expectation to pare the losses in the market. However, we still expect the bearish trend to be sustained this week. We therefore see the market closing in the negative for the week,” market analysts at UBA Capital plc, a Lagos-based investment firm, say in their equities note to investors.

Broadly, in line with most analysts’ expectation, the National Bureau of Statistics (NBS) last week announced a 20 basis points (bps) ease in year-on-year (YoY) headline inflation rate to 8.3 percent in September, which further strengthens stability in October inflation outlook at 8.3 percent.

Also in the equities market, low valuation arising from stock price losses throughout last quarter will provide cheap entry points for bargain hunters, as the market gears up for the release of Q3 results.

 Iheanyi Nwachukwu