Here’s what analysts expect from equites market after recent rally

Stock investors enjoyed lovely outing in the trading week to May 31, as the All Share Index (ASI) ended the session in green.

The upbeat seen at the Lagos Bourse last week was largely driven by buying interest in stocks like Seplat, FBN Holdings, UBA and Dangote Sugar.

In last trading week, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and Market Capitalisation appreciated by 1.73 percent to close at 99,300.38 points and N56.172 trillion respectively.

Also, in the month of May, the market rose by 1.09 percent while year-to-date it has increased by 32.80 percent.

Following last week’s positives at the Nigerian Bourse, some analysts have noted their expectations this week, mostly signalling mixed performance.

Already, the stock market took off this week on a negative note.

“This week, we will maintain our current position while closely observing market trends. We will not hesitate to make mid-week portfolio changes if deemed necessary,” according to Lagos-based CardinalStone research analysts.

They noted that following the broad-based bullish outturn in the equity market last week, their Model Equity Portfolio (MEP) outperformance was primarily driven by “our tactical decision to stand pat on our overweight banking positions”.

“Our conviction was based solely on the strong fundamentals shown by banks in their earnings releases and the projected positive impact of the high-interest rate environment on their future earnings.

“In addition, with most of the banks coasting in oversold territory, investors were expected to take advantage of the attractive entry opportunities opened up by the sell-offs.

“In line with these prognoses, our banking exposures contributed a combined 129bps to the MEP’s performance in the review week,” CardinalStone research analysts.

“This week, we expect mixed sentiment in the equities market as investors digest the recent MPR hike by the MPC, which makes fixed income more attractive.

“However, fundamentally strong stocks still offer long-term benefits, providing opportunities for sustainable growth amidst current market conditions.

“We anticipate selective bargain hunting in dividend-paying stocks, fuelled by upcoming corporate qualification and payment dates,” Futureview investment analysts said in their May 31 note.

Also in their recent note, Meristem research analysts said, “This week, we anticipate the local bourse to sustain the positive momentum from last week, as investors seize the opportunity to enter stocks that have recently declined but present attractive upside potential potentials”.

“The significant improvement in market breadth from the previous week (1.69x compared to 0.41x) suggests a growing positive mood in the market, particularly as investors’ concerns

surrounding banking stocks begin to wane. “However, considering the upcoming T-bills auction and prevailing low system liquidity, there is a possibility that inflows into the equities market may be constrained. Overall, we expect the NGX-ASI to end this week in the green zone,” Meristem research analysts said.

According to Vetiva research analysts, “The equity market remains under pressure, as investors pursue safety in the fixed income space amid attractive yield. However, given the strong buy-side reaction we saw 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”. That said, they expected the market to trade lower at the beginning of the week.

According to United Capital research analysts, they expect the mixed sentiments amongst investors to persist in the local equities market.

“On one hand, we expect pockets of buy-interests in the market as market participants take positions in fundamentally sound stock given their low pricings. Nevertheless, we still anticipate that the high returns in the fixed-income market will continue to negatively impact the equities market as investors switch their asset classes to less risky assets,” they further said.