• Tuesday, June 25, 2024
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Fixed income market seen taking shine off equities

Fixed income market seen taking shine off equities

Though Nigeria’s equities market took off the new week on a positive note, it remains under pressure as investors continue their pursuit for safety in the fixed income (FI) space amid attractive yield, analysts have said.

Some analysts whose recent view were collated said the fixed income market continues to stand as a strong demotivator toward equities investments.

While they expect the stock market to close in negative zone this week, investors hunt for value stocks after last week’s dip spurred the market’s positive took off to this week by 0.58 percent on Monday, June 10.

Thanks to stocks like Flour Mills (+10 percent), Total (+9.98percent), Access Holdings (+9.86percent), and others that caused the positive close on Monday.

“The equity market remains under pressure, as investors pursue safety in the fixed income space amid attractive yield,” said Lagos-based Vetiva research analysts in their June 10 note.

They however noted that given the strong buy-side reaction see in the market last week, “we expect to see a reversal in sentiment this week, as investors seek to lock in gains recorded last week”.

Also, Futureview analysts in their June 10 note to investors said they anticipate a mixed sentiment in the equities market, “primarily due to the enduring allure of the fixed income market among investors. This interest is fuelled by expectations of increased rates in the NTB auction and the impending release of the inflation rate”.

“However, amidst these factors, there remains an opportunity for sustainable growth, particularly in fundamentally strong stocks that currently find themselves in the oversold region. We foresee a selective pursuit of bargains, particularly in dividend-paying stocks, driven by the nearing corporate qualification and payment,” they added.

In the trading week ended Friday June 7, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and Market Capitalisation depreciated by 0.08 percent to 99,221.14 points and N56.128 trillion respectively. The NGX All Share Index and Market capitalisation rose to 99,793.71 points and N56.452trillion on Monday June 10.

“Last week, the local bourse relapsed, down 8 basis points (bps), while the Model Equity Portfolio (MEP) lost 24bps. Year-to-date, the MEP has returned 32percent versus the NGX-ASI’s return of 32.70percent,” said CardinalStone Research analysts in their June 10 note.

According to them, “The MEP’s underperformance was primarily driven by declines in our overweight banking positions, especially UBA and Fidelity Bank, which cost the portfolio a combined 20bps. The slide in Fidelity may have reflected profit-taking ahead of the bank’s capital raise announcement.

“Precisely, the stock had closed at N10.80/share on Wednesday June 5, before the bank communicated plans to raise a total of N127.1 billion, split between a rights issue of 3.2billion units at N9.25/share to existing shareholders and a public offer of 10billion units at N9.75/share on Thursday June 6.

“Thus, as of Thursday, there may have been some incentive to book some profit with a view to re-entering the ticker during the public offer. Similar profit-taking activities on the back of prior week gains also provided some explanations for the decline in UBA,” they further added.

CardinalStone Research analysts further noted: “We would begin building an overweight position in Presco in reaction to its announced proposal to acquire a 100percent stake in Ghana Oil Palm Development Company (GOPDC). The company expects the move to increase its earnings capabilities with synergies and economies of scale to solidify its position as a market leader and diversify its earnings capacity through export sales.

“The acquisition of GOPDC is expected to increase Presco’s plantation size to 51,760 hectares. GOPDC operates from two estates in the Eastern region of Ghana, with 21,000 hectares of oil palm plantations, of which 13,000 hectares have been developed. The business had an annual net revenue of c.GHc456.35 million (N24.6 billion using the average exchange rate for 2023), with 41percent of it generated from export sales primarily in USD and euros.

“We would also begin building our position in Dangote Cement back to a market weight to avoid shocks to our portfolio’s performance, given the size of the stock on the index. Finally, we will closely observe market trends with a view to making mid-week portfolio changes if necessary,” CardinalStone Research analysts added.

According to Meristem research analysts in their recent note, they expect the equities market to trade sideways this week, “given the absence of positive triggers that could sway the market direction. Also, the significant decline in market breadth to 1.05x from the previous week (1.69x) suggests a negative mood in the market as investors continue to take a cautious approach”.

They said, “Given the upcoming T-bills auction and prevailing low system liquidity, there is a possibility that inflows into the equities market may be constrained. Nonetheless, we expect that favourable entry points will prompt bargain hunting activities on the bourse. On a balance of factors, we expect the NGX-ASI to end this week in the red zone”.

Also in their June 10 note, Lagos-based United Capital research analysts said “Looking ahead, we expect activities in the fixed income market to continue to stand as a strong demotivator toward equities investments. A strong hope for the market is the expected high base effect for inflation in June 2024.

“Given the indications that equities market is considerably oversold, induced by the +750 basis points (bps) monetary policy rate (MPR) hike year-to-date (YtD), we expect bargain-hunting in the equities market to remain unabated, particularly around fundamentally sound stocks (currently trading around their oversold region)”.