Bearish start elicits mixed sentiment among equity buyers

We are now in the first-quarter (Q1) results season at the Nigerian bourse (as evidenced in companies Q1 earnings that keep tumbling in) but there is still little on much-needed upside to equities pricing.

No fewer than 16 companies have released their Q1’2015 financials at the Nigerian Stock Exchange (NSE) and showed strength of positive performance when compared with the corresponding quarter of last year.

With the expectation of more positive Q1 numbers, equity investors are yet to respond to the trend in betting for a sustained rally, rather the market is seen routing for choppy deals.

At the end of February, foreign investors accounted for 62.28 percent in Year-To-Date (Ytd) equities transactions while domestic equity buyers controlled only 37.72 percent.

Having waited out the elections season and subsequent rally, equity investors may not have stopped pricing in Nigeria’s macro challenges like impact of declining crude oil price and the resultant impact on earnings, which now has a still-over effect on forex market and declining foreign reserves.

Recall that last week Nigerian equities defied analysts initial expectation of a positive close coming on the heels of a relatively peaceful general elections.

The All Share Index (ASI) closed last week at 35,005.1 points, returning a negative of 2 percent week-on-week (wow) and pegged the YtD return at +1.0 percent. The equities market capitalisation also stood at N11.928 trillion.

The bearish start of equities trading this week has only prompted many investment analysts outlook at the market to favour a mix of bargain hunting and profit-taking activities.

“Performance indicators having already edged higher after the presidential election, have sustained the momentum after the governorship elections. Market activities may gather pace as more domestic and international players return to the market following the relatively peaceful elections,” said Rotimi Peters-led team of economic intelligence at Access Bank plc.

In their view, investment analysts at United Capital plc expect the pickup in demand recorded on Friday to be sustained for most part of this week, “though momentum should wane towards the close of the week.”

The analysts premised their opinion on a douse in socio-political uncertainty, attractive valuation for value stocks and investors’ reactions to better-than-expected first quarter earnings of banks.

“We therefore expect the market to close the week positive, though marginally. We note however that valuations have almost caught up with frontier market average as the ASI now trades at 11.0x P/E compared with 11.2x for the MSCI Frontier Markets Index,” the analysts at United Capital said.

“We expect to see a mix of bargain hunting particularly on financial equities following encouraging first-quarter (Q1) financials from most banks,” said analysts at Cowry Asset Management Limited.

Recently, research analysts at Proshare said they expect stability to gradually return to the stock market as uncertainties around elections are out of the way. “We expect stocks to start reflecting fair value based on the key fundamentals while the pre-election rally of 4.51 percent had strengthened our position that market had already discounted the likely post-election crisis.

“Going forward, we remain cautiously optimistic, as market is gradually moving towards participation phase, that the new fiscal policies from new government are likely to chart new economic direction with fresh expansion drive – this would further strengthen the investors’ confidence towards investment in capital market, which of course would attract inflow from both institutional investors and active fund managers,” Proshare analysts said.

 

Iheanyi Nwachukwu