Analysts foresee slow in ‘June’ stock market rally

Recent outlook for the month of June 2014, by analysts at Financial Derivatives Company Limited tilts towards a slowdown in stock market rally.

The analysts foresee market rally to continue in third-quarter (Q3) of 2014, and note that the stock market will increase by more than 3 percent.

On the positive, they believe that with pension assets now about N4.3 trillion, any increased allocation to equities may inflate the Nigerian bourse.

The NSE ASI recorded 7.76 percent increase in May 2014, against 35 percent increase recorded in May 2013. Average turnover rose to N5.03 billion in May – as high as N12.26 billion on a trading day.

Sectoral indices show consumer goods still leading under-performance, followed respectively by insurance and banking. Oil and gas and industrial sub-sectors, respectively, drive the market’s positive trend.

Though, the positives are not without risk, as Financial Derivatives Company analysts further note that any chances by Monetary Policy Committee (MPC) would pose risk to banking sector stocks.

These analysts in their monthly economic news and views presented at the Lagos Business School executive breakfast meeting say they expect the stock market to witness correction in subsequent quarters, adding that in Q3, no new listings is expected. “Seplat and Caverton listings may influence listings by year’s end,” the analysts note.

“GDP rebasing highlights market disconnect. Market P.E. up to 13.44x. Market cap to cash flow down to 25.47x,” the Financial Derivatives analysts add. They also note that NSE is under-performing most markets.

In the review period, MSCI World was up 3.26 percent; S&P 500 was up 4.07 percent; Europe was up 3.76 percent; FTSE 100 was up 1.72 percent, and Frontier markets rose by 17.12 percent.