Sentiment favours cautious trading on equities

Unless President Muhammadu Buhari makes clear this week his economic direction, investors at the Nigerian stock market will continue to showcase their cautious approach in buying Nigerian equities.

Investors –majorly the foreign and institutional buyers –are concerned about the kind of economic managers that will pilot in the next four year, the affairs of Africa’s biggest economy by GDP size.

Despite that the market currently hosts many low priced value stocks, investors have remained on the sideline at the Nigerian bourse.

This situation is even worse off in spite of analysts’ expectation of improved buy side due to looming half-year (H1) earnings season.

The equities’ market had on Monday reversed last week’s bearish trend seen over past four trading days as investors began to take position in value stocks on the back of cheap pricing which drove the market in green zone.

Currently, analysts’ sentiments still favour guarded approach in stock buying.

According to investment analysts at Afrinvest, “In absence of a market moving pronouncement in the system, we expect market performance to maintain trends observed in recent sessions largely due to poor policy signals and weaker economic indicators.”

Though, they noted the increasing possibility for announcement of key cabinet members of the new administration soon given recent news flows in the media.

The analysts said their weekly “sentiment for the week is 1.7 (same as last week’s sentiment) as market breadth stayed flat at 0.6x week-on-week (w-o-w).”

“That said, we advise investors to trade cautiously in the interim while maintaining a medium to long term position in fundamentally sound tickers trading at attractive prices,” analysts at Afrinvest further said.

As demand for Nigerian equities declined against supply last week, prices of stocks crashed, leading to about N124billion in eroded values.

Nigerian stock investors remained bearish last week despite analysts’ expectation of improved demand in the market on the back of low stock prices and imminent earnings season.

The value of listed equities which opened last week at N11.477trillion closed Friday at N11.353trillion.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) which opened last week at 33,621.75 points, lost 363.85 points or 1.08percent to close at 33,257.90 points.

Another disincentive to equities is last week’s outcome of the US Fed meeting which hints at plausible rate hike later this year.

This development has further turned investors into cautious mood as it is also expected to drive mostly choppy trades at the local bourse.

“This week, we expect to see a mixture of bargain hunting and sell off activities,” according to analysts at Lagos-based Cowry Asset Management.

“Current mood in the market is expected to continue this week unless a clear economic direction is provided by the present administration,” said Rotimi Peters led team of economic intelligence at Access Bank plc.

In their view this week, market analysts at United Capital plc said, “The equities market is expected to ramble at the start of the week on the back of lack of policy direction by the new administration.”

Though, the analysts are optimistic that there will be some key appointment in the course of the week, “we do not think this will significantly drive market performance.”

“However, on the back of low prices and mixed expectation for half year (H1) numbers, we expect to see some level of position taking in the market with investors maintaining a medium to long term position in equities. This said, we are of the opinion that the equities market will close the week positive, though marginal,” United Capital analysts further stated.

Investment analysts at Lagos-based Meristem Securities said, “As we move towards the end of H1:2015, we believe that expectations from Q2:2015 corporate performances will determine market direction. Whilst these results are expected to be affected by the overall drag in economic activities during the period, we opine that earnings releases would be mixed.”

Iheanyi Nwachukwu