Investors may start hunting for low priced stocks

Nigerian stock market may see some level of bargain positioning to close the week as investors start to fish for downbeat counters.   

Before now, government economic policy and speculation around FX policy affected foreign fund flows into the stock market.

Most stock analysts had linked the selling that defined last week activity at the local bourse to domestic economic growth concerns. 

The National Bureau of Statistics (NBS) Tuesday released the May inflation rate which accelerated for the tenth consecutive month to 15.6percent year-on-year (y/y) against April rate of 13.7percent, well above analysts estimate. NBS noted the headline, core, and food inflation rates stood at 15.6%, 15.1% and 14.9% up from 13.7%, 13.4% and 13.2% respectively.

The increase in rates in May according to NBS relative to April reflects an overall increase in general price level across the economy as all divisions which contribute to the Headline index increased at a faster pace in May.

“A 2.8% month-on-month increase in the headline Index was driven by fuel price hike, reflecting in higher transportation cost, while pass-through from FX scarcity continues to fuel imported food prices with the imported food sub-index increasing by 18.6% in May according to the NBS figures,” said research analysts at United Capital plc.

Amid a bearish start to this week, mixed trading persisted on the Nigerian bourse with key sectors swinging between green and red closes.

As the near-term economic outlook remains cloudy, going forward, not a few market watchers foresee a mixed attitude for the equity market.

The over N200billion lost at the Nigerian Stock Exchange (NSE) since last week has created another re-entry point for bargain hunters to buy low-priced-but-value stocks.

Some equities are trading below their intrinsic values, signaling another opportunity for investors to reap from capital appreciation in the event that stock market peaks.

“We do not anticipate a significant recovery at the equities market considering the dearth of positive news. However, we expect some bargain hunting activities within sectors that have recorded substantial price declines during the week ended”, said research analysts at Lagos-based Meristem Securities.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) wrapped up last week in the red, down 145basis points (bps) week-on-week (w/w). The NSE ASI closed the week in review at 27,241.80 points, while market capitalisation dipped to N9.356trillion against 27,634.42 points and N9.491 trillion recorded respectively at the beginning of last week trading.

“In the past week, Nigerian equities continued on a bearish path as activities slowed on the back of unclear FX policy direction. As buying pressure subsided, the market continued to reverse the strong gains seen in prior weeks with speculative positioning clearly dominating trades”, said analysts at another Lagos-based investment company, United Capital plc.

“The market will likely see some bargain positioning midweek as investors fish for badly beaten counters. However, gains (if any) will likely be short-lived, until we see a definite CBN pronouncement on the domestic currency”, the analysts added.

In a related view, research analysts at investment house, Dun Loren Merrifield who noted that low investors’ sentiment buoyed on domestic economic growth concerns was responsible for the bearish direction of the equity market, added that: “If the prevailing investors’ pessimism continues, the equity market may remain in the bearish territory this week.”

Iheanyi Nwachukwu