Oil price rout further dampens stock investor sentiment

Nigeria’s reeling equities market looks set for further decline oil price turmoil continues to shatter investor’s opinion in favour stocks.    

Oil prices hit their lowest since 2003 on Monday at $28 per barrel as the market braced for a jump in Iranian exports after the lifting of sanctions against the country over the weekend.

The sanctions on Iran were lifted last Saturday after an inspection of its nuclear facilities showed that it had kept to its end of the deal.

“Oil prices are expected to tank in coming weeks as Iran seal deal with the west, which is expected to heighten the supply glut in the market. That, coupled with CBN capital control measures will keep Foreign Portfolio Investors (FPIs) sitting on the side-lines or dumping Nigerian equities”, said research analysts at Lagos-based investment company, United Capital plc.

Market watchers have noticed how stock selling showed no breather throughout last week as oil prices reached 12-year lows and global risk-off feeling pushed stock prices lower all through the review week. Also this week, Nigeria’s equities decline further due to sustained sell-off which left the market to close Monday with worst daily performance since January 2015.

Stocks trading at the Nigerian bourse began this year with equities market capitalisation at N9.850trillion and NSE All Share Index (ASI) at 28,642.25 points, but the market performance indicators declined to N8.086trillion and 23,514.04 points respectively last weekend. The NSE ASI closed Monday at 22,550.83 points and market capitalisation lowered at N7.755trillion.

The analysts noted that full year 2015 corporate performance expectation remains feeble “and does not support a market rebound”.

“We maintain our expectation of a bearish market in the short term, banking on a possible reversal of market drags which will trigger a rebound. That said, value stocks are getting more attractive with prices at ridiculously low prices. Hence, we advise bargain hunting for long term horizon of greater than two years”, United Capital plc analysts added.

“The oil story undermines the capital inflow story we published in October.  Instead of over $50billion of extra capital in 2016, now I would see under $40billion as oil becomes a negative rather than a positive”, said Charles Robertson, global chief economist and head macro-strategy unit, Moscow-based Renaissance Capital.

In a similar view, analysts at Vetiva Capital Management Limited said, “The sustained rout in oil prices continued to dampen investor sentiment on the Nigerian bourse with key sectors retreating further south. Similarly, global markets continued to trade mostly in the red pressured by the sustained decline in oil prices.”

“Whilst we note the opportunity for bargain hunting across select large caps, we think macroeconomic concerns will continue to weigh on market sentiment in the coming week even as oil prices remain under pressure,” Vetiva Capital Management analysts added.

“This week, the local bourse presents bargain hunting opportunities as stock prices have dropped to more than three year lows,” said market analysts at Lagos-based investment firm, Cowry Asset Management Limited.

Also taking a look at the market, analysts at Meristem Securities said “Given investors’ apathy towards the equities market, coupled with the dearth of positive news inflows amidst unfavourable economic fundamentals, we do not anticipate a quick revamp in market performance in the near term.”

Meristem analysts added, “We expect some investors to take position in fundamentally justified stocks trading below their intrinsic value in order to average down losses on their portfolios”.

“The downtrend at the stock market last week maybe attributed to concerns that the plummeting crude oil price in the global market could worsen Nigeria’s foreign exchange management. This week, selling pressure may like persist and consequently push indicators further southwards,” said market analysts at Access Bank plc.

“The market demonstrated negative dynamics as barrage of selling across board beset domestic equities throughout last week; caused by risk-off sentiments stemming from dampened economic growth prospects and the plunge in oil prices. The Nigerian Bourse is expected to be largely bearish this week due to lack of catalyst to drive the market”, said research analysts at Lagos-based investment house, Dunn Loren Merrifield.

Iheanyi Nwachukwu