Market sentiment weak over uncertain broader economic policy direction

Sentiment of investors at the Nigerian stock market remains weak due to persisting issues bedeviling the nation’s economic policy direction as the country prepares for a new set of leaders at the federal level.

Ahead of next week’s official handover (May 29, 2015), many investors at Customs Street, particularly foreigners who account for larger chunk of trade at the nation’s bourse, are caught in the web of speculation over the kind of policy path the incoming government will choose.

“General Buhari sweeps to victory in Nigeria, promising to strike rebel forces led by Boko Haram and escape the clutches of corruption. Little noticed but increasingly powerful, reform has awoken in Pakistan, Romania and Egypt, bringing hope to investors,” says Charlie Robertson, global chief economist at Rencap.

Investors fear effect of dwindling oil revenue on government spending powers. On the corporate front, many companies are battling the challenges of cross-border transactions due to a less valued naira against the greenback in the forex market – as Nigeria’s foreign reserve declined.

Despite developments at the macro level, the current state of most Nigerian equities offers an opportunity for bargain hunting for investors who want to position ahead of post-May 29 rally.

Despite mixed performance recorded last week, the equities market closed the week positive, recording marginal week-on-week (WoW) return of 0.1 percent.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) closed last week at 34,429.52 points from 34,388.12 points the preceding week, while market capitalisation rose to settle at N11.70 trillion from N11.67 trillion.

Analysts note that the gains last week, spurred by positive momentum towards the end of the week, were prompted by speculative activities in non-financials and bargain hunting in value stocks.

The Nigerian equities market had also risen on investors’ broadened appetite for some stocks following their impressive scorecards, particularly the blue-chip companies.

Investment analysts at Lagos-based Meristem Securities Limited say the late rally observed last week, following a predominantly bearish trading period, suggests that “discerning investors are slowly returning to the bourse to take advantage of fundamentally justified and attractively priced stocks.”

The analysts insist that going by the oscillatory movement of market returns in recent times, “we do not consider the current mood sustainable.

Hence, we anticipate that there will be pockets of profit-taking activities in the coming week, while noting their expectation that the considerations and outcome of the two-day Monetary Policy Committee (MPC) meeting which held Monday and Tuesday, is expected to influence market activities. MPC had discussed and reviewed key macro indicators.

Market analysts at Cowry Asset Management Limited say “we anticipate sustained positive performance in the equities market amid bargain-hunting opportunities.”

“Despite the bullish run witnessed towards the end of last week, we still believe the overall market sentiment remains weak driven by uncertainties relating to broader economic policy direction. “Furthermore, we think investors are being largely speculative hence profit-taking on the back of the last three-day gains might come to play this week. We therefore expect the market to close the week on the negative, though marginal,” according to market analysts at United Capital plc.

 Iheanyi Nwachukwu