Stocks risk further negatives as economy bites harder

Retail investor sentiments following developments in Nigerian economy may have a negative rub-off effect on equities this week, an indication of looming further sell-off at the Nigerian bourse.

The stock market lost N60 billion as investors last week looked away from stocks as their living costs continue to skyrocket due to lingering fuel scarcity, which has almost grounded businesses and movement.

In the past few weeks, there has been a slowdown in economic activity due to a lingering fuel scarcity as a result of the face-off between petroleum marketers and the Federal Government over unpaid subsidy claims. The marketers are said to have stopped importing refined products.

They are pressing for payment due to concerns that the incoming administration will subject subsidy claims to greater scrutiny, and may remove the remaining subsidies altogether. Government indebtedness to petroleum marketers is estimated at N200 billion ($1bn).

Amid this development, many analysts did not rule out the possibility of bargain hunting on the back of attractive prices of value stocks at the Nigerian bourse. This is in addition to speculative demand on low-cap stocks that are capable of triggering increased demand in the near term.

Returns from equities investment at the Nigerian Stock Exchange (NSE) moved further negative by -1.11 percent evidenced in the position of the All Share Index (ASI), which closed last week at 34,272.09 points from 34,439.40 points at the beginning of last week. The value of listed equities dipped to N11.644 trillion last week.

“This week, current trend may reverse on expectations of increased investors appetite for banking stocks. The new policy on Cash Reserve Ratio (CRR) may drive this outlook,” according to Access Bank plc economic analysts.

The Monetary Policy Committee at its May 18 -19 meeting took key monetary decisions analysts expect will shape the financial markets in the months to come.

The Committee took the following key decisions: Retain the MPR at 13 percent with a corridor of +/- 200 basis points around the midpoint; retain the Liquidity Ratio at 30 percent, and harmonise the CRR on public and private sector deposits at 31.0 percent.

“This week, we expect to see resumed bargain hunting activities particularly for undervalued banking stocks that recently posted positive first-quarter (Q1) financials,” according to investment analysts at Cowry Asset Management Limited.

“We attribute the recent lull in the market to the lack of market-driving news capable of spurring investor activities,” according to analysts at Meristem Securities Limited. Though the analysts remain positive in their outlook for this week, “as the new government gears up to take office.”

A turnover of 2.943 billion shares worth N16.045 billion in 21,306 deals were traded last week by investors on the floor of the Exchange in contrast to a total of 1.626 billion shares valued at N14.426 billion that exchanged hands last week in 20,124 deals.

The Financial Services Industry (measured by volume) led the activity chart with 2,624 billion shares valued at N8.189 billion traded in 11,611 deals, thus contributing 89.14 percent and 51.04 percent to the total equity turnover volume and value, respectively.

The Consumer Goods Industry followed with a turnover of 82.643 million shares worth N4,752 billion in 3,753 deals. The third place was occupied by the Conglomerates Industry with 73.966 million shares worth N365.50 million in 948 deals.

Trading in the top three equities – Lasaco Insurance plc, United Bank for Africa plc, and Skye Bank plc (measured by volume), accounted for 1.864 million shares worth N2.028 billion in 1,972 deals, contributing 63.33 percent and 12.64 percent to the total equity turnover volume and value, respectively.

Also traded during the week were a total of 25,211 units of Exchange Traded Products (ETPs) valued at N990,777.65 executed in 23 deals compared with a total of 25,469 units valued at N3.339 million transacted last week in 53 deals.

In their view, research analysts at Lagos-based United Capital plc, said: “While we expect the euphoria of a new administration will drive some level of bargain hunting, we still think the overall market sentiment will remain weak as the market waits for new triggers.”

According to the analysts, “market mood will likely be hinged on expectations and uncertainties regarding the change of guard in the country, as well reaction to the recent MPC’s decision to harmonise CRR for private and public sector funds. We do not see any major news flow to trigger a market rebound. We therefore think the market will oscillate between gains and losses this week, though closing the week on the negative.”

 

Iheanyi Nwachukwu