• Thursday, June 13, 2024
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Nigerian equities suffer contagion of oil price decline

How oil receipts declined from $3bn to zero

There is the tendency that recent sell of Nigerian equities which resulted recently in over N1.4trn loss in the value of stocks will continue.

This outlook comes on the heels of analysts’ view that recent economic indicators and outlook still create a reason for investors caution in the stock market.

First is the series of the negatives trailing the stock market outlook is that foreign investors’ apathy has risen following devalued naira, even as developments in the oil market continues to pressure the FX market.

Taking a look at the market recent, Roseline Oliyide, senior associate at BGL Securities confirmed this saying, “Stock market is largely dependent on foreign investors and the impact on FX contributes to the sell down we see today.

“It is no longer a sell down on oil & gas stocks,” she added, noting that oil price decline now has a contagion effect on other equities prices.

“Even as we think most large-cap stocks should gain technical support in the week ahead, as investors take advantage of the depressed valuation, we are relatively conservative on equities, as fundamentals remain weak,” according to market analysts at Associated Discount House Limited, also based in Lagos.

The price of Brent crude oil recently fell further, taking it to a new six-year low. The price of a barrel of the North Sea benchmark dropped by 3 percent to $48.54 –its lowest level since April 2009.

Goldman Sachs said the price would stay close to $40 for most of the first half of this year, at which price the firm said investment in the US shale gas industry would be held up.    

The local bourse started the year on the negative note which was sustained all through last week.

Read also: JP Morgan: Analysts see less impact on Nigerian equities market

In the review week, the NSE All-Share Index and Market Capitalisation depreciated by 13.05 percent and 13.03 percent respectively to close on Friday at 30,143.02 points and N9.980trn respectively.

Only 14 equities appreciated in price during the week in review, lower than 39 equities in the preceding week. On the negative, 55 equities depreciated in price, higher than 36 equities in the preceding week, while 127 equities remained unchanged higher than 122 recorded in the preceding week.

“The equities segment of the Nigerian Stock Exchange closed on a negative note indicating profit-taking by some investors. Bearish sentiments prevailed on the bourse and equities remained under pressure,” according to investment analysts at Access Bank plc.

“This week, market wind suggests selling pressure may continue and further push indicators southwards,” the analysts added.

Also contributing to recent dismal performance is that investors are still sceptical over the outcome of next month’s general elections – because there will be possible impact of crisis ridden election on investments. Again, there is investor apathy on stocks as activities of insurgents in the northern part of the country continue to impact the companies’ sales.

This will be more pronounced in the fourth-quarter (Q4) 2014 numbers that are likely to be released by FMCG companies.

“We expect position taking by domestic investors on the back of attractive prices and dividend yields. However, present market mood may still persist this week as economic indicators and outlook still creates a reason for caution in the market. This said, we expect a sideways trading this week in favour of the bulls,” said investment analysts at Lagos-based UBA Capital plc.

“This week, we anticipate bargain hunting by local investors on deeply discounted stocks,” said investment analysts at Lagos-based Cowry Asset Management Limited.