The Nigerian equities market is witnessing another era of lackluster trading as spillovers from global concerns over Brexit, along with speculative profit-booking are driving the local bourse lower.
The newly introduced flexible foreign exchange (FX) policy had stimulated overall stock market sentiment and helped push the bourse year-to-date return to record highs of 8.48%.
After a flurry of position-taking on account of the liberalised FX policy, BusinessDay trend watch reveals a gradual reversal of the record upbeat as the Nigerian stock market heads downwards to near year open levels.
The value of listed Nigerian equities stood at N9.960trillion Monday, while the benchmark performance index closed at 29,002.06 points, compared to year-open levels of N9.850trillion and 28,642.25 points respectively.
The stock market opened the second-half (H2) on a weak note, as a number of largely capitalised stocks across key sectors remained under pressure -further justifying how cautious investors are treading at Customs Street.
While investors look to the release of half-year (H1) results of most companies, analysts foresee muted ability of most of them to maximise revenues to boost their bottom lines as slow economic growth presents dark clouds.
On the back of the weaker-than-expected results, analysts have cut their earnings-per-share (EPS) forecasts for most listed companies over the 2016 period.
“We think markets are having a positive long-term impact on Nigerian and Egyptian policy making”, said Charles Robertson, Renaissance Capital’s global chief economist and head of the firm’s macro-strategy unit.
“The Nigerian bourse traded largely bearish this past week (recording four days of losses) as investors continued to weigh the fall-out of Britain’s decision to leave the European Union (EU).
“The NSE ASI declined 439basis points (bps) week-on-week (w/w) to put year to date return at 2.32%. With second-quarter (Q2) earnings season drawing nearer, we do not rule out the possibility of investor positioning ahead of these releases,” research analysts at Lagos-based Vetiva Capital said in their emailed ‘breakfast report’.
“We expect the current bearish sentiment in the equities market to be sustained, as the euphoria around the liberalised FX market wanes. For a short trading week, we expect marginal movement in the benchmark index, likely tilted to the downside”, said analysts at another Lagos-based investment house, United Capital plc.
In their recent financial highlight, market analysts Dunn Loren Merrifield, identified two major factors that influenced overall market sentiments: Britain’s decision to leave the European Union and “uncertainty about the new CBN FX policy which is keeping foreign investors on the side-line.
“Just a month ago – both Nigeria and to some extent Egypt – the two largest equity markets in Africa, were tough or impossible for equity investors to put money into. Now Nigeria has followed on from electricity price hikes (Feb-16) and the fuel subsidy removal (May-16), to a float of the currency (Jun-16).
“In Nigeria, it is a de jure rather than a de facto float right now. Yes, the currency is not officially restricted to a certain level, but in practice, banks are not yet free to quote the naira exactly where supply and demand would put it.
“But still at around NGN280/$, the currency is far more sensibly priced than it was when it was pegged at NGN197-199/$. We hope greater freedom will come in coming weeks/months”, Robertson said.
Iheanyi NWACHUKWU
