Stocks rally to moderate as earnings season wanes

With a negative take-off this week, the possibility of the Nigerian stock market attaining the level of growth it achieved last week remains in doubt, particularly as the last batch of earnings releases comes through.

With the exception of a few, following last week’s one-month grace the Nigerian Stock Exchange (NSE) granted companies to file their Full Year 2013 scorecards, majority of the earlier expected earnings of companies, particularly the banks, found their ways into the stock market, followed by bullish run on equities that caused the market value to rise by 0.99 percent.

At the peak of earnings season, many investors’ decision to take position in companies with strong fundamentals and consistent history of corporate reward spurred market’s rally, which consequently reduced the recorded year-to-date (ytd) loss.

Though, many schools of thought within the market still believe that stock market rally will continue throughout this month; as the bout of earnings release begins to fade, the associated stock rally will likely moderate, particularly as investors take profit from recent price gains.

Before the waning outlook, the flurry of released results had helped the market as investors scrambled for the shares of companies that turned up good performances and declared good dividends.

Quarter-to-Date (QtD), the stock market has lost 0.09 percent, while as of last week, it recorded a loss of 6.33 percent (ytd).

With the exception of emerging markets, ytd, global equities have trended upwards. For instance, the MSCI World index rose by 0.77 percent ytd; MSCI Europe up 1.52 percent; MSCI Frontier market increased 3.86 percent; S&P 500 up marginally at 1.29 percent ytd, while MSCI emerging markets declined 0.80 percent.

To further bring down investors buy mood is recent S&P negative outlook on Nigeria, which analysts believe does not help confidence, particularly by foreign investors who are major buyers of Nigerian equities.

Looking at what drives the market going forward, analysts at Financial Derivatives Company Limited highlighted factors like: policy developments, political and social manifestations (market remains indifferent); foreign market developments, and increased foreign investor participation or lack thereof. “Stock market relief rally will continue through April before a correction,” they said recently in their monthly economic news and views at Lagos Business School Executive Breakfast Meeting.

Market analysts at Access Bank plc who noted that equities got off to a solid start in the second-quarter (Q2) on bulls activities still believe that investors will continue to take position in stocks, especially banking, “to benefit from expected share price upticks and dividend payments that accompany financial results releases.

“This week, the bullish trend may persist. This view is hinged on the feel-good mood that pervades the market.”

Market analysts at Partnership Investment Company plc said that weak but sustained bargain optimism and a decline in price volatility helped to revive the market last week, adding that “cautious trading prevailed on medium and small cap stocks, albeit with low patronage.”

These analysts anticipate that the lows which some equities have dropped “will provide new entry level for bargain investors and this affirms our expectation that the market will do better in the weeks ahead.”

“Equities in the Consumer Goods, Conglomerates and industrial Goods provide good opportunities at this time,” the analysts at Partnership Investment Company plc added.

Iheanyi Nwachukwu