• Monday, May 20, 2024
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Here’s why analysts expect a rebound from the bulls

Here’s how interest rate hike will affect investors, borrowers, savers

After the bearish resign on the Nigeria bourse that made investors book about N409billion loss last week, some research analysts in their outlook this week expect the bulls to rebound.

While most of analysts anticipate bullish trading this week as banks announce high profit in half-year (H1) results, others advise investors to see recent sell off as re-entry opportunity to consider high-quality stocks with strong fundamentals.

Notably, the stock market opened this week on a positive note, rising by 0.71percent or N263billion on Monday. The market’s key performance indicators – Nigerian Exchange Limited (NGX) All-Share Index (ASI) and equities market capitalisation increased from preceding trading day’s lows of 67,395.74 points and N36.886trillion respectively to 67,877.17 points and N37.149 trillion.

The appointment of Olayemi Michael Cardoso as new Governor of the Central Bank of Nigeria (CBN) is another development expected to spur positive sentiment in the stock market this week.

Lagos-based United Capital research analysts said in their investment views this week that they expect mixed investors’ sentiments toward listed corporates, “with positive sentiments bordering on corporates with strong fundamentals and corporate actions. Furthermore, we expect sustained positive sentiment toward the Tier-1 Banks, considering the fantastic half-year (H1) 2023 earnings and improved interim dividend declared by the Banks”.

Read also: Emefiele resigns as CBN governor paving way for Cardoso’s appointment

“However, we believe that provided the yields at the short end of the yield curve remain elevated, risk-averse investors will remain more inclined toward the money market. However, Fund Managers may continue cherry-picking stocks with strong fundamentals, particularly Banks with improved interim dividends,” they added.

Also, in their ‘Weekly Stock Recommendation and Corporate Benefit Trigger’ report, Meristem research analysts said, “we expect a rebound from the bulls in the local bourse. First, following the selloffs experienced last week, we posit that the relatively low stock prices present attractive entry opportunities for bargain-seeking investors”.

“Additionally, it is expected that the recent nomination of a new CBN governor and management team should be seen as a positive signal for the market. Notably, banking tickers are likely to benefit significantly from this positive sentiment as investors view a change in leadership as an opportunity for fresh perspectives and policy direction that might benefit the sector,” they noted.

Meristem analysts further noted that the prevailing negative sentiment surrounding Nigeria’s declassification by FTSE Russell “could likely prompt further profit-taking activities on tickers that have appreciated. On a balance of factors, we expect the Nigerian equities market to close up this week”.

In their ‘Model Equity Portfolio’, CardinalStone Research analysts noted that last week, market sentiment was notably weak, with the NGX All-Share Index losing 1.10percent “and our Model Equity Portfolio (MEP) underperforming the benchmark by 29 basis points (bps).

“The key drag on the MEP was the notional positions in the banks. Save for UBA and ETI, constituent banks materially underperformed following a bearish reaction to the circular from FTSE Russell, reclassifying Nigeria from frontier to unclassified market status effective September 18 2023, due to FX illiquidity and subsisting difficulties in repatriating returns from Nigeria,” they noted.

“The aversion to banking stocks also reflected CBN’s restriction on dividend payments from FCY revaluation gains. UBA was the only bright spot, following its 17.2percent uptick in earnings per share (EPS) to N1.98 and increase in interim dividend from 20 kobo in H1’22 to 50 kobo in H1’23. UBA’s corporate disclosure helped to ease the pressure on banking names towards the end of the week,” CardinalStone Research analysts added.

Read also: Cardoso takes helm of CBN as FX backlog lingers

“So far, most Tier-1 banks have announced material increases in interim dividends, and we believe the market is looking forward to the earnings of the last Tier-1 bank, Access Corporation… In addition, the nomination of Olayemi Michael Cardoso to serve as the new Governor of the Central Bank of Nigeria (CBN) may spur positive sentiment this week,” they further noted.

Though, Vetiva analysts in their September 18 breakfast report titled ‘the week ahead’ said, “With the positive sentiments gradually wearing off in the banks, the market is on the lookout for its next catalyst,” adding that they expect mixed trading this week, “as investors mull over the latest inflation data, with headline inflation surpassing our estimate by 47baisis points (bps) to print at 25.80percent.

Nigeria’s August headline inflation increased to 25.8percent year-on-year (y/y), a negative development largely attributed to spike in the PMS price and FX depreciation.