Focus shifts to Q3 results as market seeks rescue from bears

As the bears make efforts to consolidate their position in Nigeria’s stock market, improved
third quarter (Q3) earnings report by listed companies will help dampen the sell-side pressure on the Bourse.

At the beginning of this week’s trading, Nigeria’s stock market witnessed a remarkable selloff as investors who are already in their bearish mood reacted further to inflation rate that surged for eight straight month.

Nigeria’s inflation rate surged to 20.77 percent in September 2022, up from 20.52 percent recorded in the month of August. The National Bureau of Statistics (NBS) attributes the uptick in year-on-year (y/y) inflation to disruptions in food supply, local currency depreciation, and general increase in the cost of production.

To curtail inflation, Nigeria’s central bank has since taken a hawkish approach to its monetary policies which makes equities returns less attractive to investors than fixed-income securities.

The market had increased by 0.46percent or N118billion in the trading week ended October 14.

The record gain on the Nigerian Exchange Limited (NGX) came amid two days of positive closes and two days of negatives in the review trading week.

In the holiday-shortened week, some investors cherry-picked attractive counters across board while others continued to show apathy towards equities due to the monetary policy tightening by the central bank which has resulted in elevated yields on fixed-income securities.

No doubt, the decision of the Monetary Policy Committee (MPC) took policy parameters to multi-year highs and underscored the CBN’s growing concern about the surging domestic inflation.

Read also: Stock market’s free fall seen eroding 2022 gain

Here are what analysts say about equities market…

“The dynamics of Nigerian markets are remarkably similar. Nigeria’s NGX-All Share Index has registered a correction, down 12.05 percent from its 27 May high. Bearish sentiment reflects the implication of interest rate hikes and the pass-through to Naira fixed income yields,” said
Coronation research analysts in their recent note to investors.

“Across the curve, secondary market yields have risen by an average of 220 basis points (bps) between January 1, 2022 and October 14, 2022. For Nigeria, our view remains that continued policy tightening by the monetary authorities and elevated Federal Government domestic borrowing will continue to drive yields upward over the coming months amidst global monetary policy normalisation this year.

“Nonetheless, Q3 2022 results are also due to be released in the course of the month. These may give a degree of support to the market though we remain fundamentally cautious about Nigerian equities for the rest of this year, given the upwards trajectory of market interest rates,”
Coronation research analysts further said.

In their opinion, Meristem research analysts said, “mood in the local bourse is still largely bearish”.
“The gain recorded in the market last week is attributable to buying interest on bellwether stocks such as GTCO, Zenith Bank, and BUA Cement.
“We also note that inherent macroeconomic risks continue to keep investors off the equities market. Particularly, the inflation report …could trigger selloffs in the market.
“Furthermore, we consider the bond auction this week, which could further stifle system liquidity and cause a flow of funds from the equities market. Thus, we expect the market to close in the negative zone,” Meristem research analysts further noted.

For Lagos-based United Capital research analysts, they expect continued bargain hunting “as investors look forward to the third quarter (Q3) 2022 earnings season, thus cherry-picking stocks with great underlying fundamentals. However, we maintain that the broader equities market will remain in a lull pending the release of Q3-2022 results”.

According to Vetiva research analysts, “While we still expect cautious trading sessions this week, we are likely to see more cherry-picking action across board.”