Speculators may support equities despite MPC tightening measures

As full year earnings season enters full gear, the appetite of stock investors, particularly the speculative buyers, will be driven by their desire to make more money in form of capital appreciation.

Despite analysts’ views in favour of pockets of profit-taking from recent gains, most stock buyers are increasingly raising their bets in favour of value stocks.

Seen to be favoured are companies that recently declared dividend in the current wave of corporate actions at the Nigerian Stock Exchange (NSE).

Before recent tightening measures announced by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria, equity analysts had expected that with the last session of dividend play this week, investors will look keenly to beat closure dates of companies register in a bid to qualify for full year 2015 dividends.

This expectation reflected in the first two trading days of the week when improved buying lifted NSE All Share Index (ASI).

Last Tuesday, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rose from a two-day meeting (March 21 to 22) where it reviewed domestic and international economic conditions in order to determine the policy direction for the next two months.

The Committee increased Monetary Policy Rate (MPR) to 12 percent from 11 percent; changed the asymmetric corridor to +200/-500 basis points (bps) around the MPR from +200/-700bps; increased Cash Reserve Ratio (CRR) to 22.50 percent from 20 percent; and retained liquidity ratio at 30 percent.

Before this development, investors overall focus remained on Nigeria’s macro environment, profit warnings from the banking sector, and impending action on the Naira exchange rate which has kept foreign portfolio investors (FPIs) away from Nigerian equities market.

Pabina Yinkere, financial analyst at Lagos-based Vetiva Capital Management Limited said the market expected that the MPR will be retained. “What I don’t know is if this tightening will attract the investments we are expecting. In the immediate, you will see a spike in rates at fixed income securities. For the equities market, I don’t think that the decision will have much impact because the fundamentals driving the market are different,” he said.

“We expect to see the last bout of dividend play this week, as investors look to beat register closure dates in a bid to qualify for full year 2015 dividends. This will likely see this latest trigger run out its course, leaving equities in search for new set of events to trigger demand.  It is on this basis that we expect the ASI to close marginally higher on a week-on-week (wow) basis this week,” according to Kayode Tinuoye-led team of analysts at United Capital plc.

Charles Robertson, Global Chief Economist at Moscow-based Renaissance Capital described the MPC decision as, “interestingly orthodox move from the CBN”. He noted that “Inflation jumped well above expectations to 11.4percent in February, and the CBN hike may be partly a response to that.  It was a hike I flagged internally was possible (internal only as I wasn’t very confident in my view and I have to admit I couldn’t rule out a cut either – given how surprising the late 2015 cut was).”

Robertson added: “The 200bp rate cut in November 2015 probably contributed to naira weakness in the unofficial market – so partly reversing that cut now –is helpful for the currency.  The full cut has not been reversed – I am not saying this will strengthen the unofficial naira appreciably but it should slow further deprecation.  And there is still talk of more liquidity being injected into that parallel rate…which could see the unofficial rate strengthen”.

“The rate cut last year was about cutting government borrowing rates – and this is evidently less of a priority today. Good move by the CBN,” Robertson said.

“We anticipate that the selling pressure will continue, thus further driving indicators downwards”, said Rotimi Peter-led team of economic intelligence at Access Bank plc.

“This week, we expect to see bargain hunting activities particularly on stocks with attractive dividend yields,” Cowry Asset Management analysts said in their recent market review and outlook.

Stock market review

Last week trading saw Nigerian equities shed some earlier gains as investors booked profits. At the close of deals, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) depreciated by 1.13 percent week-on-week (wow) to close at 25,694.79 points, from 25,988.40 points at the beginning of trading.

Also, the equities market capitalisation dipped to N8.839 trillion from N8.940 trillion, representing value loss of about N1billion. All other Indices finished lower last week, with the exception of the NSE Premium Index and the NSE Consumer Goods Index that increased by 0.89%, and 0.78% respectively.

Twenty (20) equities appreciated in price last week, lower than thirty-nine (39) equities in the preceding week. Forty-one (41) equities depreciated in price, higher than twenty-two (22) equities in the preceding week, while one hundred and twenty-eight (128) equities remained unchanged, same as in preceding week.

The market recorded a turnover of 11.907 billion shares worth N18.338 billion in 19,508 deals in contrast to a total of 1.111 billion shares valued at N7.448 billion that exchanged hands in the preceding week in 15,562 deals.

The Financial Services Industry (measured by volume) led last week activity chart with 11.692 billion shares valued at N14.734 billion traded in 13,094 deals; thus contributing 98.20percent and 80.35percent to the total equity turnover volume and value respectively.

The Conglomerates Industry followed with 71.891 million shares worth N175.603 million in 777 deals; and the Consumer Goods Industry with a turnover of 69.718 million shares worth N1.179 billion in 3,019 deals.

Trading in the top three equities – Wema Bank Plc, Unity Kapital Assurance Plc and Zenith Bank International Plc (measured by volume) accounted for 11.006 billion shares worth N11.274 billion in 2,856 deals, contributing 92.43percent and 61.48percent to the total equity turnover volume and value respectively.

Also traded during the week in review were a total of 294,047 units of Exchange Traded Products (ETPs) valued at N3.209 million executed in 42 deals, compared with a total of 72,054 units valued at N637,635.25 transacted the preceding week in 26  deals. A total of 12,470 units of Federal Government Bonds valued at N14.348 million were traded in 8 deals last week.

Iheanyi Nwachukwu