Stock market outlook tilts in favour of bears

As political risk, security and Ebola driven social risks heighten in Nigeria, with potential impact on the economic activities, the Nigerian stock market is already feeling the heat as equities price continue to haemorrhage.

The bearish outlook seems not to change this week coming from this week’s early loss of over N3 billion in addition to over N400 billion from the market’s value last week.

With the fading of the first-half (H1) earnings season and no much catalysts on sight, the aforementioned risks will continue to stare investors on the face to consider other asset classes in their portfolio mix.

The stock market has been at the mercy of short-term investors who chose to take profit from recent stock price increases. The effect of this was the decline in the market’s performance indicator – the NSE All Share Index (ASI), which last week fell below 42,000 psychological level.

“We expect the bearish sentiments to continue in the new week (that is this week) triggered by heightened political risks as the general election draws nearer. The Ebola scourge which has seen depressed economic activities, especially in the social circuit, is also another trigger for a potentially negative trading week,” according to market analysts at MorganCapital, a Lagos-based investment company.

Similar views come from research analysts at UBA Capital plc, also based in Lagos, who say that they expect the low level of demand in the stock market to be sustained this week.

Trading activities at the local bourse have witnessed high investor interests on the sale side of the trading floor, thereby propping-up the number of stocks available for sale at the risk of price which continue to fall.

“Though we see a possible bargain hunting driven by attractive valuation and technicals; we therefore expect the market to sustain the bearish mood in this week’s trading,” the analysts at UBA Capital add.

In the trading week to August 15, 2014, the equities market erased the preceding week’s gain after declining by 2.86 percent and further tampered with the year-to-date (YtD) return, which closed last week at 0.12 percent.

“We attribute the bearish mood witnessed last week to sell-offs in large cap stocks, especially the banking counters; market reaction to weak H1 result by Dangote Cement plc; and low level of demand in the market. Yields in the fixed income market inched up by 20 basis points (bps) on average due to profit-taking and liquidity squeeze,” UBA Capital analysts further state.

Other schools of thought within the market say they expect upbeat in the equities space having provided opportunities for bargain hunting.

“This week, we expect the market to close marginally higher in its major performance indicators on the back of resumption of buying activities that was seen prior last week,” according to market analysts at Access Bank plc.

Iheanyi Nwachukwu