Stock market looks set for bears until May 29 handover

With another negative take off this week, investment analysts’ perception of the Nigerian stock market’s readiness to tread on waters till the May 29 handover may likely come to pass.

Though, in an ideal market situation, the low priced stocks with good fundamentals should usher in bargain hunters, but the reverse is still the case for the Lagos bourse.

Investors have continued to look away from improved first-quarter (Q1) numbers of listed companies, which ordinarily should have attracted their buying sentiments.

Analysts view on the market shows the activities of the bears will still continue this week, and if not beyond. Investors lost a huge N108 billion as bears held the market last week.

“The negative mood in the market confirms our belief that investors are hesitant about full re-entry into the market. The paucity of enticing news, capable of driving ‘buy’ sentiments from investors, has also contributed greatly to the current negative returns in the market,” investment analysts at Lagos-based Meristem Securities Limited said.

They however anticipate a rally this week on lowly priced stocks, “just as same is widely expected to accompany the handover to the new government at the end of the month.”

In a similar view, market analysts at United Capital plc said: “Recent traction in global oil price, expansionary monetary policies in advanced economies, stability in the political scene and attractive pricing of Nigerian market should bode well for equities.

“We think the sentiment is presently weak and shadowed by a wait-and-see stance regarding the incoming administration. We advise investors to trade cautiously and focus on value stocks with long- term prospects. We think there will be a reversal in current trend, closing the week marginally positive.”

In their recent report titled “Lagos bourse treading water,” Gregory Kronsten-led team of market analysts at FBN Capital Limited said: “Both Lagos and Nairobi stock markets have declined modestly by -0.8 percent year-to-date (ytd), whereas the more liquid and far larger Johannesburg bourse has gained 7.0 percent.

“Lagos has been the more erratic, shedding -14.7 percent in January alone on the negative macro headwinds yet gaining 17.2 percent since March 20, when investors started to anticipate the election outcome. A surge in just ten trading days has since been followed by a gentle retreat. Our point is that the surge was, unusually, driven by politics. The recovery in the oil price of about $12/barrel, with its positive implications for the public finances and balance of payments, came afterwards. The market may feel, as we suspect, that the recovery will be reversed before a lasting rally follows.”

They further asserted: “The gentle retreat following the election surge in Lagos coincides with a string of poor results from Q1 2015, particularly from non-bank stocks such as Nestle. Barring another external shock, the all share index (ASI) is likely to tread water until it forms a view on the new administration after the handover on 29 May. In January, we forecast a -1.0 percent loss for the index over the full year. The NSE’s monthly notes on investor participation show foreign inflows at N151 billion ($760m) in January-March and outflows at N185 billion ($930m). The April series is expected to show a strong net inflow from the offshore community, particularly for bank stocks.”

“Profit-taking activities dominated on the floor of the Exchange despite encouraging first-quarter (Q1) 2015 financial scorecards. This week, we are cautiously optimistic that current tread may be reversed. Investors are likely to take position for stocks of high-performing companies,” said Rotimi Peters-led team of economic intelligence at Access Bank plc.

The equities market traded on a bearish note last week, returning 0.9 percent week-on-week (wow) with the index level at 34,388.12 points compared with a gain of 0.15 percent recorded in the preceding trading week.

Market analysis shows that the market was dominated by sell-offs in bellwether consumer counters despite influx of corporate releases with modest earnings performances.

 

Iheanyi Nwachukwu