• Wednesday, May 29, 2024
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Are Nigerian stock investors selling in May to go away?

Are Nigerian stock investors selling in May to go away?

There is currently a dearth of cheering news capable of triggering buy-side activities on the Nigerian Exchange Limited (NGX).

From volatile FX market to rising rate of inflation, and the possibility of another rate hike at next MPC meeting, Nigeria’s stock investors have been put in a wait and see mood lately.

Investors are even worse off as analysts expect further bear reign as first quarter (Q1) results tempo fizzles out.

The market has decreased by 0.53 percent in month-to-date (MtD) while the year-to-date (YtD) return decreased to 30.67 percent as at Monday May,13.

As investors seek best ways to navigate the murky waters of equities trading, the Wall Street’s age-old adage “sell in May and go away” now resonates.

The sell-in-May-and-go-away adage highlights that the summer months between May and October is the worst period for investors to put money in the stock market.

“They say sell in May and go away. The Nigerian stock market seems to be following the adage. The market will lose up to 5percent in May. The CBN will increase the MPR by 100 basis points,” Financial Derivates Company analysts said at the LBS Executive Breakfast Session for May 2024.

Read also: Foreign investors interest in Nigeria stocks seen rise in Q1

They further noted that though the NGX returned approximately 40percent in Q1’2024, “stock prices were not reflective of earnings performance. Equity prices should reflect the discounted present value of their anticipated future earnings”.

They noted in their outlook for May that, “Blue-chip companies will need to recapitalise to replenish lost shareholder value caused by foreign exchange losses. This action will increase aggregate supply relative to aggregate demand, consequently driving prices lower.

“In addition, the new recapitalisation exercise within the banking system is anticipated to boost the supply of new shares in the Nigerian equities market. As a result, prices are likely to decrease further. Persistent FX woes will remain a major challenge to Nigerian company’s profitability and share prices.

“The selling pressure in the Nigerian equities market will persist amidst further monetary policy tightening. We expect the Nigerian equities market to shed about 5percent in May 2024, this will make about 11percent loss in two months,”

“Our commitment to active monitoring of market developments remains steadfast. As the first quarter (Q1) 2024 earnings season continues, we will be closely observing market trends and will not hesitate to make mid-week portfolio changes if deemed necessary,” said CardinalStone Research analysts in their May 13 Model Equity Portfolio (MEP) report.

“We expect activities in the fixed income market to continue to stand as a strong demotivator toward equities investments. We expect April-2024 Inflation report to stand as a key economic data that investors will watch out for this week,” said United Capital research analysts in their May 13 note.

Read also: CardinalStone, Stanbic lead as 10 firms trade stocks worth N1.02trn in 4 months

Also, Meristem research analysts said, “We anticipate that the bearish mood in the Nigerian Equities market will persist, as we do not foresee any positive triggers that could sway the market direction into the green zone”.

“Additionally, the FGN bond auction holding today might hinder flow of funds into the local bourse, especially considering the allure of attractive fixed income yields.

“Nonetheless, we expect bargain hunting on selected tickers, as they present enticing entry points for investors based on our valuation. Ultimately, we expect the NGX-ASI to shed further this week as negative sentiment prevail,” they added in their May 13 note.

In their May 14 note, Lagos-based Comercio Partners said, “the Nigerian Stock Exchange (NGX) experienced a notable correction in April 2024, primarily influenced by the Central Bank of Nigeria’s (CBN) aggressive contractionary policy and the allure of high yields in the fixed-income market.

“Despite this setback, the year-to-date (YTD) performance of the equity market remains strong, reflecting increased foreign portfolio investment and improved investor confidence in the country’s economy due to ongoing reforms”.

“Looking ahead, investor sentiment will likely be influenced by continued economic reforms, global market trends, and policy shifts from regulatory bodies such as the CBN.

“Monitoring these factors will be crucial for investors navigating the Nigerian equity market landscape in the coming months,” Comercio Partners said in the macroeconomic and markets report.