Year-end portfolio rebalancing may spur equities rally

The Nigerian stock market may witness marginal increase this week as bargain-hunters move to buy down-beat stocks preparatory to their year-end portfolio rebalancing goals.

Though, December has been a tough month for stocks as traders become more concerned with their holiday plans, most analysts believe that there is still hope for some sort of proverbial “Santa Claus” rally as that generally kicks in the last trading weeks of the year.

Currently at the local bourse, most long-term value investors are convinced that some listed equities are worthless today than they should be and are therefore undervaindicating the potential for future rally.

Despite that the NSE All-Share Index and Market Capitalisation had depreciated by 2.69% last week at 26,537.36 points and N9.124 trillion respectively, the Nigerian equities market opened this week on a positive note as evidenced in the All Share Index (ASI) and capitalisation.

“As short-term investment strategy continues to carry with it significant risk in view of the volatility in the market, we however hold the opinion that long-term investment strategies, which is largely linked to the performance of the real economy, remain potent”, said research analysts at Lagos-based investment banking group, Dunn Loren Merrifield.

Twenty-seven (27) equities appreciated in price last week, higher than twenty-five (25) equities in the preceding week. Forty-one (41) equities depreciated in price, higher than thirty-seven (37) equities in the preceding week, while one hundred and twenty-two (122) equities remained unchanged, higher than one hundred and twenty-eight (128) equities recorded in the preceding week.

“We believe hazy outlook for the economy as well as limited Foreign Portfolio Investment (FPI) participation will continue to weigh on sentiment in the near term. However, year-end portfolio rebalancing is expected to spur a relief rally as we approach the end of the year,” according to research analysts at United Capital plc.

The analysts said in their investment view that “Despite attractive rock-bottom prices, with technical justification for position taking, equities continue to hemorrhage as sentiments remain weak across board. Thus, we think the bearish outlook will persist this week. We advise investors to key into the market with a long-term horizon, focusing on value stocks, dividend paying stocks as well as defensive companies”.

The US Federal Open Market Committee (FOMC) last week voted to raise the federal fund rate from 0% – 0.25% to 0.25% – 0.5%, having considered current labour conditions and expectations for inflation.

Analysts at Meristem Securities anticipate that this may result in increased funds inflow into the US, and an increased capital flight from Nigeria.

“We do not anticipate a change in the current market mood, however, we expect pockets of price corrections as the year gradually rounds up given historic market trends,” the analysts added.

At the Nigerian stock market last week, a turnover of 1.457 billion shares worth N13.803 billion in 13,648 deals were traded last week by investors on the floor of the Exchange, in contrast to a total of 1.174 billion shares valued at N13.846 billion that exchanged hands the preceding week in 13,870 deals.

The Financial Services Industry (measured by volume) led the activity chart with 993.154 million shares valued at N4.417 billion traded in 7,283 deals; thus contributing 68.18% and 32% to the total equity turnover volume and value respectively.

The Consumer Goods Industry followed with 352.118 million shares worth N6.935 million in 2,979 deals, and the Conglomerates Industry with a turnover of 49.140 million shares worth N193.919 million in 659 deals.

Trading in the Top Three Equities namely – Continental Reinsurance Plc, Champion Breweries Plc and Tiger Branded Consumer Goods Plc (measured by volume) accounted for 569.712 million shares worth N1.141 billion in 543 deals, contributing 39.11% and 8.27% to the total equity turnover volume and value respectively.

Also traded last week were a total of 6,372 units of Exchange Traded Products (ETPs) valued at N445, 625.60 executed in 32 deals, compared with a total of 318,734 units valued at N1.469 million traded the preceding week in 50 deals.

There was no transaction recorded on bonds last week. However, a total of 10,501 units of Federal Government Bonds and one State Government Bond valued at N12.024 million were traded the preceding week in 5 deals.