Investors await further clarity around flexible FX policy

Specific guidance around flexible FX policy will likely be the next major trigger for Nigerian equities and could drive demand at Customs Street trading.

Demand for Nigerian equities remained strong last week while market indicators reached all time highs following the Monetary Policy Committee (MPC) vote for a more flexible FX policy regime.

As the pace of economic reforms continues to gather momentum in Africa’s largest economy, investors who hitherto were on the sideline are seen renewing their buying interest in naira asset classes.

Nigeria’s stock market, the second-biggest weighting behind Kuwait on the MSCI frontier market index hit a six-month high last week after the central bank said it will abandon a currency peg, which has frustrated investors and a shift to a more flexible policy.

Amid all these, some analysts see recent positives likely ushering in pockets of profit-taking by investors who may which to leverage recent rally at the local bourse to hedge the impact of previous losses.

Nigerian stocks dropped 3.1 percent in early trades on Monday as investors sold shares to book profits following a recent rally while also awaiting clarity on CBN currency policy. 

Analysts’ perception

“The Nigerian bourse climbed significantly into positive territory, posting its best weekly performance for the year as investors cheered the MPC’s decision to embrace a flexible foreign exchange regime. Overall, the NSE ASI climbed 659basis points (bps) week-on-week (w/w), putting Year to Date (ytd) return (+0.91%) in positive territory for the first time in the year.

“We expect to see profit taking in the coming sessions given the strong gains recorded in the previous week. However, we think market’s acceptance of the new foreign exchange market framework (if announced during the week) could stretch the bull-run”, research analysts at Lagos-based Vetiva Capital Management Limited said in their latest breakfast report.    

“We anticipate that domestic investors will continue to take position in the market ahead of the influx of foreign investors, thus market indicators may further appreciate,” according to Rotimi Peters-led team of economic intelligence at Access Bank plc.

“Last week, many stocks traded in the positive region on the back of renewed optimism. Ultimately, we are inclined to highlight that it appears to be a situation where overall activity were based on the pronouncement regarding the FX policy rather than on improving economic fundamentals. If the prevalent momentum driving the market is sustained, the Nigerian Bourse may remain in the bull’s territory this week” said research analysts at Lagos-based investment house, Dunn Loren Merrifield.

Market review

The Nigerian Stock Exchange (NSE) All-Share Index (ASI) appreciated by 6.59percent to close the week at 28,902.25 points while market capitalisation rose by 6.58 percent to N9.926trillion. Similarly, all other indices finished higher during the week in review.

Fifty-six (56) equities appreciated in price last week, higher than thirty-five equities in the preceding week. Twenty (20) equities depreciated in price, lower than thirty-seven (37) equities in the preceding week, while one hundred and four (104) equities remained unchanged, lower than one hundred and nine (109) equities in the preceding trading week.

 Iheanyi Nwachukwu