Bank stocks race to 6-yr high on FX reforms

Nigeria’s banking stocks are heading for a six year high as investors cheer the Central Bank of Nigeria’s foreign exchange (FX) liberalisation.

Stocks like Access Corporation (+79.4 percent), FBN Holdings (+55percent), GTCO (+42.2 percent), Fidelity Bank (+60 percent), Sterling Bank (+99.3percent), UBA (+53.9 percent), and Unity Bank (+80 percent) have turned investors delight.

“What should investors do about Naira exchange rate liberalisation? The last time the official foreign exchange rate and the parallel market rate converged was in 2017. Are there lessons to be learned from that experience?

“We think that there are, if one is careful with the data. Bank stocks look like beneficiaries as well as the stock market overall,” said Lagos-based analysts at Coronation Research.

Other banking stocks that have seen increased bet by investors include: Stanbic IBTC Holdings has gained 54.9percent this year, Zenith Bank (+35.4 percent), ETI (+43.4 percent), and FCMB Group (+30.4 percent), and Wema Bank (+27.9percent).

Read also: World Bank sees N3.9trn savings for Nigeria with subsidy removal

Nigeria’s equities market strengthened its journey into the green zone on Monday by 0.22percent as the record positive sentiment persists on the Nigerian Bourse. This month, the market has risen by 6.40percent. The stock market’s positive return year-to-date (YtD) increased to 15.78percent.

The Nigerian Exchange Limited (NGX) All-Share Index and its equities Market Capitalisation which stood at 59,206.63 points and N32.237 trillion respectively as at Friday increased to 59,338.76 points and N59.338trillion.

Futureview research analysts in their June 26 stock recommendation said, “Considering that there are many stocks trading at attractive discount, we expect positive sentiment in the market this week. However, we note the attractive yields in the fixed-income space could serve as a distraction to investors. Profit-taking could also take a toll on market direction”.

“We anticipate a cautious stance to the market this week, as investors look to book profits from gains recorded in previous session,” according to analysts at Lagos-based Vetiva research.

“This week, we expect the positive momentum in the local bourse to continue, despite the decline in market turnover {-32.74percent week-on-week (WoW)} and volume traded (-21.74percent WoW) witnessed last week.

“Our expectation is premised on investors’ optimism in the Nigerian equities market. Additionally, the robust system liquidity ahead of the scheduled T-bills auction minimises the likelihood of a significant flow of fund from the equities market.

“Nevertheless, we recognise the potential of profit-taking on certain stocks that have appreciated significantly in recent weeks. In general, our outlook for the week is optimistic, we anticipate that the overriding sentiment is positive, barring significant selloffs on large cap stocks that could potentially sway the market in a contrary direction,” said Meristem research analysts in their recent note.