The bear reign, which pared Nigerian equities in the just ended third-quarter (Q3) of 2014, will likely give way as foreign portfolio investors (FPIs), portfolio managers and capital raising activities by banks drive market sentiment.
Also, the release of improved third-quarter earnings this month by early bird companies will further drive investors’ appetite for equities. Before now, while foreign investors decided to reduce their holdings sighting market related risks; local institutional investors have also remained conservative in buying stock.
The market expectation is that equities decline may bottom out this month. This implies that investors should buy now that the market is weak and sell when the market is strong. Analysts have listed opportunities in banking, cement and consumer stocks.
“Q3’14 corporate earnings will drive the market in the month of October. Earnings not expected to be impressive. Investors will be gripped by fear. Heightened political tension will increase insecurity. The market will witness impact of IPOs and increase in supply of bank shares,” market analysts at Financial Derivative Company Limited, say.
They note that implementation of Basel II and Capital adequacy ratio will pare stock prices, saying “capital raising activities of banks will increase supply of equities leading to a further correction in equities market as primary market activities must come at discount.”
Despite that the Nigerian stock market witnessed an overweight of the bulls last week, it could not change the year-to-date (YtD) return in negative of 0.55 percent. The NSE All Share Index (ASI) declined by 6.25 percent and 3 percent in Q1 and Q2, respectively. In 2013, YtD return was 30.29 percent – which implies that the market current stands far from attaining the return recorded same period of last year.
On the recorded bearish trend last month, the message is that Nigeria was not alone as emerging markets indices declined. Market returns in the month of September show S&P 500, Dow Jones, FTSE London, IBOVESPA Brazil, NSE ASI, JSE South Africa, and GGSEC Ghana closed with negative return. In September, MSCI Emerging Markets Index declined by 7.5 percent.
This was driven by interest rate expectation from US Federal Open Market Committee (FOMC) meeting, which drove equities down. Investors adjusted portfolio in preparation of an increase in interest rates.
“September sent equities down the valley further. The correction in equities prices continued in the month. Market gained in 10 out of 22 days. Reshuffling of portfolios continued in the month. Foreign investors appetite for Nigerian market remain. Atlas Mara paid $275 million for 20.9 percent stake in Union Bank. QNB paid $483 million for 23.5 percent stake in Ecobank Transnational. Investment Corporation of Dubai paid $300 million for 1.4 percent stake in Dangote Cement. Bargain hunters spark mild rebound at tail end of the month,” the Financial Derivative analysts say.
Already, Monday and Tuesday were public holiday in commemoration of the Eid-el-Kabir Sallah celebration. The market closed for business on those days to observe the holiday and reopened yesterday, Wednesday, October 8, 2014.
Looking at the equities market this week, analysts at Access Bank plc say: “This week, we expect the market to remain positive as investors continue to position for stocks with good fundamentals and attractive prices.”
They attribute the overturn of the poor performance last week at the equities market to positive expectations from third-quarter (Q3) 2014 financial performance of blue-chip companies.
“Soft selling on large-cap banks and consumer goods counters weighed down the equity market index, losing 8bps to put its YTD loss at 0.6 percent.
“With no major catalyst in sight (Q3 earnings season will be mixed, thus the impact will be relatively muted), we remain conservative on equities,” analysts at Associated Discount House Limited note. These analysts say they expect equities to trade sideways this week, “as we do not foresee any catalyst in the near term.”
“We expect a dominance of the bears owing to low key investment tempo triggered by the two days public holidays for Eid-El-Kabir celebrations,” say market analysts at Cowry Asset Management, a Lagos-based investment company.
Iheanyi Nwachukwu
