Investors’ cautious stance drives equities choppy deals

The future of Nigerian equities market remains bleak pending when there is clear-cut economic direction that could make naira equity assets attractive to investors.

At the Nigerian Stock Exchange, investors still maintain careful position on equities purchases, evidenced in choppy transactions which often tilt in favour of the auction side, as uncertainties rocking the domestic macro landscape continue to batter stocks prices. 

Recently, Nigeria’s economy has come under immense pressure with deteriorating effects on major macro-economic indicators and a negative spill-over effect on household incomes and businesses earnings –with a ripple effect on returns to investors.

“We expect to see sustained lackluster activities in the absence of a clear-cut economic direction,” research analysts at Cowry Asset Management Limited said in their weekly financial markets review and outlook.   

According to research analysts at Lagos-based investment bank, Dunn Loren Merrifield, “Without a sustainable catalyst and weak macro-indicators, we believe investors’ will remain wary of the market until the macro-indicators improve significantly and as such, the market may continue in the bearish territory this week.” 

“While we expect the third-quarter (Q3’15) earnings season to generate positive investors’ sentiment, we recommend buying into equities with strong fundamentals in the interim with medium- long term investment horizon for meaningful return and capital preservation,” Dunn Loren Merrifield analysts said in their equity market brief.

Nigeria’s weakening economic fundamentals is further buttressed by the sharp deceleration in GDP growth to 2.35percent year-on-year (yoy) in the second quarter of 2015, down by 184basis points (bps) from 4.19percent recorded in 2Q14 and 161bps lower than the 5.94percent posted in first-quarter (Q1) 2015, analysts noted.

Despite a positive start this week, the benchmark indicators of Nigerian equities market had declined last week to 30,165.22 points, from 30.588.41points, down by 1.38 percent. Also, listed equities which opened for trade with capitalisation of N10.513trillion declined to N10.367trillion at the close of deals last Friday.

Research analysts at Afrinvest said “we do not expect the market to close significantly positive this week, though pockets of opportunistic position taking will be likely witnessed”.

“We believe activities on the Nigerian bourse in the near term would be driven by third-quarter earnings releases; hence, we maintain our medium to long term investment case for equities”, Afrinvest added.

In a related view, research analysts at another Lagos-based investment house, United Capital plc said “third quarter earnings expectation will steer market mood this week.”

Accordingly, the analysts noted that the gains recorded in banking stocks at the close of last week are expected to be sustained in the early part of this week. “However, we look to see the profit-taking activities being upheld this week”, they added.

“Performance indicators may trend downwards as profit-taking activities continue,” team of economic intelligence at Access Bank plc said in their market analysis and outlook for this week.

Iheanyi Nwachukwu