N146bn loss makes investors cautious on equities

Stock buyers further maintained careful positions on equities deals following a loss of N146billion at the close of deals last Friday.

Analysts foresee the trend persisting this week, as uncertainties rocking the domestic macro landscape continue to reflect on naira equity assets.

Nigeria’s economy has come under immense pressure in recent times, with deteriorating effects on major macro-economic indicators and a negative spill-over effect observed on household incomes and businesses earnings.

“As Barclays reviews Nigeria Bond Index, we may see a continuous negative flow that could further weigh on market sentiments” said research analysts at Lagos-based United Capital plc.

“We expect a spasm of short bull bursts in equities will remain in play over the near term, as investors maintain a cautious stance on equities”, the analysts added.

Last week at the Nigerian Stock Exchange (NSE), equities opened for trade with capitalisation of N10.513trillion, but declined to N10.367trillion at the close of deals last Friday.

The benchmark indicators of Nigerian equities also declined to 30,165.22 points from 30.588.41points, a decline of about 1.38 percent.

As at yesterday (Tuesday) the NSE ASI stood at 30,058.40 points, while the market cap stood at N10.330trillion. The NSE ASI depreciated by 0.57% from 30,231.16 points last Monday. Year-to-Date (YTD), equities returns is in negative of 13.27%. 

Research analysts at Lagos-based investment house, Afrinvest said “we do not expect the market to close significantly positive this week, though pockets of opportunistic position taking will be likely witnessed”.

“We believe activities on the Nigerian bourse in the near term would be driven by third-quarter earnings releases; hence we maintain our medium to long term investment case for equities”, Afrinvest added.

“The weakening economic fundamentals is further buttressed by the sharp deceleration in GDP growth to 2.35percent year-on-year, in the second quarter of 2015, down by 184basis points (bps) from 4.19percent recorded in 2Q14 and 161bps lower than the 5.94percent posted in first-quarter (Q1) 2015,” according to research analysts at another Lagos-based investment banking group, Dunn Loren Merrifield.

“Overall, it was a tough week for the domestic equity market, as shares came lower than they were at the commencement of the week, as sentiment was affected by weak domestic cues–​and the market suffered risk-off moment and volatility spike.

“A further decline was seen in the mid-week, after the International Monetary Fund (IMF) further revised domestic economic growth outlook ​​to likely be weaker than earlier anticipated,” Dunn Loren Merrifield analysts added.

The analysts said, “Without a sustainable catalyst, we believe investors’ will remain wary of the market until the macro-indicators improve significantly.  While we expect the 3Q’15 earnings season to generate positive investors’ sentiment, we recommend buying into equities with strong fundamentals in the interim, with medium- long term investment horizon for meaningful return and capital preservation.”

Amid a lull market, stock investors have shifted to the third-quarter (Q3) financials, which most listed companies are expected to release at the equities market this month.

“We expect the larger banks to post decent Q3 results, with PBT growth averaging 18percent y/y. We believe their Q3 results will confirm our view that scale advantages are helping them gain market share and that these results will support their outlook for full year return on average earnings (ROAEs) of  approximately 20percent and more”, FBN Capital analysts added.

On non-financial stocks, FBN Capital analysts envisage that the subdued trends witnessed in first-half (H1) would persist into the second half of the year, “as the challenges faced by the consumer names are not expected to cease in the near term, given headwinds such as weak demand on the back of a squeeze on household wallets, FX pressures and insecurity in north-east of the country.”

Iheanyi Nwachukwu