Sell-off threatens market expectation of ‘positive April’

The renewed sell-off across board at the Nigerian Stock Exchange (NSE) further helped market participants to cancel out their earlier expectation of a ‘positive April.’

Before now not a few market analysts voted for a positive return from the stock market in the month of April, but the stock market in the later part of the months recorded more sells than expected, as investors – particularly institutional and offshore investors – take flight to government securities.

While illiquidity continued to trail Nigerian equities reflecting on the daily and weekly market indicators, it has made many analysts to question whether the bears are back at Customs Street. Amid this, there has been a high level of liquidity in the bond market, driven majorly by activities of offshore investors and Pension Fund Administrators (PFAs).

While the not-too-impressive first-quarter (Q1) financials by some listed companies have further helped to take investors away from equities, analysts say the bond buying spree was largely a reflection of investors growing appetite for government securities.

While the year-to-date (YtD) returns from the stock market was in negative of 5.88 percent in the week ended April 25, recent lull in the stock market is evidenced in the performance of other stock market indexes, which have remained negative in terms of returns – with NSE Consumer Goods Index and NSE Banking Index topping chart.

Review of last week shows that 32 equities appreciated in prices, higher than 31 equities recorded the preceding week. Thirty-eight equities depreciated in prices, lower than 42 equities in the preceding week, while 129 equities remained unchanged, higher than 125 in the preceding week.

“Amid relatively flat Q1’2014 results and weak foreign investors inflow, investors booked profit within the financial services sector index, eclipsing the modest rally on Consumer Goods stocks. Are the bears back?” market analysts at UBA Capital said.

These analysts added: “While a few corporate results are still expected, including FBN Holdings and Bellwether Dangote Cement, we see room for further price haircuts in the week ahead, especially within the financials and consumer goods sectors as investors switch asset class for capital protection within the fixed income market.”

While the stock market was in line with the analysts expectation of a weaker open this week, they also reiterated that the Nigerian market offers attractive opportunity from a value perspective; “we are conservative on equities in the near term, as our preferred counters find new support levels,” UBA Capital analyst noted.

Following the recent negative trend, market analysts at Access Bank plc are still optimistic in their outlook about the market.

“This week, it is expected that activities will pick up on all indices as market breadth expands with major investors exploiting trade strategies for higher returns,” they added. According to them, “expected release of more Q1’14 financial scorecards by some banks and other blue-chip companies could also spur an upward swing in performance indicators.”

Amid recent price losses witnessed across many equities, investment analysts at Cowry Asset Management said expect to see “renewed bargain hunting activities amid absence of treasury bills issuance.”

Given their positive outlook on the Q1 earnings of large cap companies on the exchange from sectors such as Banking, Consumer goods and Industrial goods, research analysts at Meristem Securities Limited said they expect positive investors’ sentiments to feature on stock trades. “Nonetheless, the events in the monetary policy atmosphere as well as profit-taking activities by investors will be a major test of the sustainability of a positive market mood,” according to them.

Iheanyi Nwachukwu