Unimpressive H1 results may further dampen investor confidence

The bears have continued to reign at the Nigerian stock market as there is dearth of positive news that could trigger improved demand for equities.

As first-half (H1) earnings season looms at the Nigerian bourse, many investors are currently positive over the impact of impressive second-quarter (Q2) results on equities pricing.

This is coupled with possible market rally buoyed by bargain hunting opportunities as attractive stock prices continue to stare at investors.

Amid these opportunities that could trigger buy decision, some other market players believe that current bear reign will continue given the uncertainties surrounding the nation’s economic direction.

This is in addition to their expectation that unimpressive H1 earnings will trigger further sell-off at Customs Street. This is despite that any form of ‘long overdue’ political stability in the country will help attract foreign investment, which will add to stock market liquidity.

“We expect bargain hunting activities in anticipation of positive half-year (H1) earnings releases by quoted companies,” said research analysts at Cowry Asset Management Limited.

Investors at the Nigerian Stock Exchange (NSE) had lost over N108billion last week as low demand by foreign equity buyers, caused by forex (FX) uncertainty among others bedeviled equities. Negative sentiments within the market had persisted in most trading days of last week.

The value of listed equities (market capitalisation) decreased from last week open level of N11.215trillion to N11.107trillion at the close of deals.

Also, week-on-week (WoW), the Nigerian Stock Exchange All Share Index (ASI) lost 315.15 points or 0.95% to close at 32,538.34 points from 32,853.49 points at the opening of deals at the Nigerian bourse.

“The present activities in the equities market are due to lack of investor confidence, as economic happenings continue to send undesirable signals. However, we expect discerning investors to take advantage of fairly low priced stocks”, said investment analysts at Meristem Securities.

“We expect mixed trading sentiments as investors continue to keep their gaze on macro events in the country as the government has not given a clear economic policy direction that would guide investment decision of investing public,” said analysts at Invest Data Consulting.

The analysts had expected “some re-entry at the beginning of this week as investors take advantage of current under-priced stocks in the financial service, building material, agriculture and healthcare.”

In their recent outlook for July equities performance, analysts at Lagos-based Financial Derivatives Company Limited expect, “stock market rally if the currency is allowed to slide and interest rates fall.”

The analysts noted also that absence of a firm policy direction makes stock investors jittery. “The stock market remains bearish as investors seek shelter in alternative asset classes. Annual results released in June show mixed performance. Unimpressive Q2 and H2 results may further dampen investor confidence,” the analysts added.

Year-to-Date (ytd) return from the Nigerian stock market remained in negative region of 6.11percent as jubilation over new administration led by Muhammadu Buhari continues to evaporate and reality sets in.

“New administration is yet to get its bearing. Investors are increasingly cautious and uncertain.NSE and MSCI frontier markets are underperforming global equity market index. Ytd return on the NSE ASI adjusted for naira depreciation. Stock market may dip further following disappointing H1 earnings. Cabinet delay is increasing uncertainty and negative sentiment. Stocks are set to find new bottoms when floor price removal becomes effective – the one kobo rule. Market turnover will increase after the policy becomes effective in August,” the analysts at Financial Derivatives Company further noted in their month economic news and view titled “Buhari – Slow Start or Guessing Game”. 

In their view, research analysts at United Capital plc noted that: “At the moment, Central Bank of Nigeria (CBN) recent moves have created uncertainty in the FX market and even affected supply in the market.”

According to the analysts, “Investors have no basis to project a budge by the CBN and this has compounded the misty macroeconomic outlook, pushing investors to stand on the sideline even as active investors are mostly speculative.”

“This is expected to persist this week, though expectation and reaction to half-year (H1) numbers might be a breather to the bearish sentiment coupled with bargain hunting buoyed by attractive pricing. That said, we think the market will close on the negative, though at a softer pace than previous week’s performance,” the analysts at United Capital stated.

Iheanyi Nwachukwu