Investors see further dip on weak market sentiment

Mixed sentiment around equities pricing in first-half (H1) 2016 is prompting analysts’ fair-value case for a possible bear-race in this second-half (H2).

The Nigerian bourse opened the week to declines across all key sectors, pulling the Nigerian Stock Exchange (NSE) All Share Index (ASI) down by 60 basis points (bps).

Cumulatively, bulls had dominated overall activities in the first-half and led the NSE benchmark index to a record H1 3.34% gain; but a combination of investors concerns about corporate earnings and recent hike in MPR (seen to make fixed income instruments attractive) is driving equities returns back to negative territory.

“Our view going into the second half (H2) is that the positive market environment witnessed in the first half does not point to a more sustainable recovery for equities”, said research analysts at Lagos-based Cordros Capital.

Analysts’ bearish outlook for equities in this second-half relates to concerns about Nigeria’s underlying macros which are reasonably affecting investment in stocks.

Total transactions at the Nigerian bourse increased by 49.97% from N103.92 billion recorded in May 2016 to N155.85 billion (about $0.55 billion) in June 2016.

However, total transactions for the first half of the year decreased by 43.95percent, from N1.113 trillion recorded in 2015 to N624.41 in 2016; a decline of about N488 billion.

In the half-year to June 30, domestic investors conceded about 2.33% to their foreign counterparts. Domestic transactions increased by 20.11% from N63.34billion in May 2016 to N76.08billion in June 2016.

“With market indicators still pointing to weak sentiment across most sectors amidst series of mixed earnings releases, we expect the ASI could be shedding more points in the session ahead,” Vetiva Capital analysts said in their equity report yesterday.

While domestic investors drove demand for naira equity assets in the first half of the year, analysts expect any quantum leap in demand that will throw the All Share Index (ASI) firmly in the positive territory this H2 to be dependent on the re-entrance of foreign portfolio managers.

“Sustained downtrend in crude prices and the attendant                     currency impact, monetary policy divergence across markets globally and uncertainties on domestic macro policies rooted equities firmly in the bearish territory.

“Our bear case scenario (50% probability) assumes Foreign Portfolio Investments (FPIs) do not come back over H2 and the market sheds a maximum 8%,” said the Kayode Tinuoye-led team of research analysts at United Capital plc.

According to the equity trading figures on domestic and foreign portfolio participation at the Nigerian Stock Exchange, FPI transactions increased by 96.57percent, from N40.58billion in May 2016 to N79.77billion in 2016.

Monthly foreign inflows slightly outpaced outflows, as foreign inflows increased by 102.58% from N20.96 billion in May to N42.46 billion, while foreign outflows also increased by 90.11% from N19.62 billion to N37.30bilion within the same period.

In comparison to the same period in 2015, total FPI transactions decreased by 54.29% from N588.99billion to N269.22 billion, whilst total domestic transactions decreased by 32.34% from N525.00billion to N355.19billion.

“The strength of overall demand from these two classes of players should give significant momentum to the ASI, dictating a strong positive close to the year, which we estimate at circa  five percent,” United Capital analysts said in their recent H2 outlook.

Iheanyi Nwachukwu