Nigeria’s inflation report is no doubt one of the key factors that will affect both policy and investment decisions week.
After a bullish outing at the Lagos Bourse last week, the negative start (-0.11 percent) to this week further confirms that some stock investors have entered brief “wait-and-see” mood despite Full Year (FY) 2024 earnings reports.
In the trading week ended Friday February 14, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and equities market capitalisation appreciated remarkably by 2 percent and 2.78 percent to close at 108,053.95 and N67.418 trillion respectively.
“Given our expectation of minimal surprises from the upcoming MPC meeting, we do not anticipate any significant impact on the equities market.
“However, we recognise the possibility of profit-taking on stocks that have posted gains in recent weeks, particularly in the industrial goods, and insurance sectors, which may lead to some market volatility.
Read also: 7 things to know ahead rebased inflation figures
“Overall, we anticipate that the local bourse will close the week on a positive note”, said Meristem Research analysts in their February 17 note.
A higher inflation rate may lure the Central Bank of Nigeria (CBN) into further tightening decisions at its forthcoming Monetary Policy Committee (MPC) meeting later this week (Wednesday February 19 and Thursday February 20).
Ahead of the inflation data and MPC meeting, here are what other analysts expect in the equities market that should guide investors in stocks this week.
“We will actively monitor our market-weight banking positions for attractive entry points before the release of FY’24 financial results and potential dividend announcements. We will publish mid-week portfolio adjustments when needed,” according to CardinalStone Research analysts who also noted that year-to-date (YtD), their Model Equity Portfolio (MEP) has gained 5.55 percent, outpacing the All-Share Index (ASI) 4.98 percent YtD increase by 57 basis points (bps).
“We anticipate a mixed-to-negative sentiment in the near-term as investors digest recent gains and adjust positions ahead of fresh market catalysts. Overall, we expect sideways to cautious trading in the sessions ahead, with investors likely to remain selective, focusing on earnings releases and macroeconomic drivers for direction,” Vetiva research analysts said.
“Looking forward, the equities market is expected to maintain its positive momentum as investors continue to position themselves ahead of the FY-2024 earnings season and possible corporate action declarations. “Nevertheless, given the elevated interest rate environment in the fixed-income market, we still expect bearish sentiments to linger in the background,” according to United Capital Research analysts.
“Last week, the NGX All-Share Index (NGXASI) surged 2 percent week-on-week (WoW) to 108,053.95 points, up from 105,933.03 points, driven by strong corporate earnings and dividend expectations. We expect a mixed market performance as investors take profits from recent gains while trading cautiously ahead of interest rate and inflation data,” Futureview research analysts said in their recent note.
“Nigeria’s monetary authorities are in the middle of a determined assault on inflation. We believe that Nigeria has a further six-to-nine months of inflation-targeting monetary policy ahead of it.
“The obvious question about the CBN’s monetary policy is: “Why doesn’t the CBN raise interest rates to the level where they are above the level of inflation?” This would be the orthodox response to a rise in inflation and several other emerging market central banks follow it,” Coronation research analysts said in their 2025 economic outlook.
“The answer, in our view, is that it would prove too difficult for the Federal Government to pay the interest on its outstanding T-bills and FGN bonds if interest rates rose to a level higher than inflation. As things stand, the FGN’s budget proposal sees the debt service cost rising 91percent from N8trillion ($5.2billion) in 2024 to N15.4 trillion in 2025.
Read also: Businesses expect higher spending amid inflation fear, CBN survey reveals
“So, we term the CBN’s policy a semi-orthodox approach to monetary policy, using a combination of the MPR, fairly high market interest rates, control over public-sector money supply and tight liquidity conditions for banks,” the analysts further said.
“The market is anticipated to maintain its upward momentum this week, driven by bargain hunting as investors respond to robust earnings results and position themselves in dividend-paying stocks. “Additionally, we expect investors to explore opportunities in sectors that have experienced declines in recent weeks, making them attractive for capital gains,” Meristem research analysts said.
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