In stock market, it’s time to tread cautiously

Last week, the Nigeria stock market went up by 3.79 percent or N2.1trillion – thanks to bell-weather tickers like Geregu, BUA Foods, Airtel Africa that were major propellers.

Despite last week’s rally, the market began this week on a negative note, dipping by 3.15 percent or N1.82trillion as investors failure to continue bargain hunting activities pushed many value stocks to new low.

The stock market fell massively at the beginning of this week (on Monday February 19) as investors sold shares of largely capitalised counters like Dangote Cement Plc and MTNN, a negative which came on the heels of analysts asking investors to tread cautiously on Custom Street.

“We anticipate a cautious approach in the next session,” Comercio Partners had said in their February 16 weekly markets round-up.

While the negative market sentiment continues on the Nigeria Bourse, some other analysts views/ recommendations collated here can help investors navigate the murky waters of the stock market.

According to Futureview research analysts, “We anticipate a cautious approach in the trading session. We advise investors to invest in high-quality stocks with strong fundamentals backing them.”

Also, in their recent recommendation, Meristem research analysts said “While the local bourse closed in the green zone last week, the bell-weather tickers (like Airtel Africa, BUA Foods, Geregu) were the major propellers.

“We note that the market sentiment still leans towards the negative as evinced by the market breadth which remained below the 1.00x mark at 0.68x.”

Meristem analysts further said, “Also, amid the deteriorating macros (particularly the free fall of Naira), we expect cautious trading to persist as investors adopt a wait-and-see approach to get clarity on policy directions. Thus, activity levels are expected to remain subdued.

“Furthermore, with two primary auctions holding in the fixed income market this week coupled with elevated yields, we anticipate a potential outflow of funds and a tepid inflow to the equities market. Ultimately, we project that the Nigerian equities market will close in the red zone this week,” they noted.

Also in their views, United Capital research analysts said, “As negative sentiments continue to outweigh the positives in the short-term, we expect broad-based bearish sentiments to thrive in the short-term. We foresee activities in the fixed income market to stand as key demotivator for equities investments this week”.

“The uncertainty and overall market expectation of a hike in the MPC’s next meeting (to be held on February 26 and 27) may underpin a cautious investment approach toward risk assets.

“Given the tremendous value that still exists in the equities market, on the back of currently undervalued stocks particularly the banking stocks (which are currently trading beyond the oversold region), we still expect background bargain hunting activities, albeit overshadowed by the short-term negative sentiment, pending the release of Full Year 2023 financial results and corporate actions from top-tier banks, and other corporates,” United Capital research analysts further said.

In a recent note, Coronation research noted that last week their Model Equity Portfolio rose by 5.01percent compared with a rise of 3.79percent in the NGX All-Share Index, outperforming it by 122 basis points (bps). “Year-to-date it has returned 50.87percent compared with a return for the NGX All-Share Index of 41.39percent, outperforming it by 948bps”.

“The market reached an all-time high of 105,722.8 points last Friday, yet we did not get the impression of a broad-based bull run. Once again, the driving force in the market was a handful of large-cap stocks whose prices moved sharply upwards, in this case Geregu (up 33.3percent on the week), BUA Foods (up 20.8percent) and Airtel Africa (up 10percent).

“Strip out the performance of these stocks and the market was not so healthy, barely registering a gain. It paid off, in terms of outperformance, for us to be underweight banks as the sub-index of banks fell by 1.3percent.

“This week we will do three things. We will carefully calibrate our major notional holdings in order to be in line with their index weights (which is easier said than done). We will further cut our overall notional position in the banks by a further two percentage points (to bring the overall position to half its index weight). And, noticing recent strength in oil prices, we will increase our 50percent overweight in Seplat Energy to a double overweight notional position,” Coronation research stated.

Analysts at CardinalStone research in their February 19 note said the underperformance in their Model Equity Portfolio (MEP) [the benchmark index was up 41.39percent year-to-date (YtD) as at Friday February 16, while their MEP returned 40.41percent] was driven primarily by the absence of Geregu, which gained 33.3percent week-on-week (WoW).

“The stock accounts for circa 3 percent of the equity index. Given the weight of the ticker and increasing momentum, we will begin building a notional neutral weight. In addition, continued profit-taking activities across banking names and weak investor sentiment, especially in Access Corporation, in light of the tragic passing of the group MD/CEO Herbert Wigwe, cost the portfolio 51bps”.

“Nevertheless, we remain steadfast with our banking holdings as selloffs create strong re-entry opportunities ahead of FY’23 earnings and dividend announcements. Elsewhere, we are pleased with our Airtel Africa holdings as market participants position ahead of the company’s proposed share-buyback programme of up to $100m, starting early March 2024 for over 12 months. We will begin building an overweight position in the ticker.

“Meanwhile, SEPLAT continues to gain traction, which we attribute to the comments to the Minister of State for Petroleum Resources (Oil) that the sale divestment of ExxonMobil’s shallow water assets to the company is now 98percent completed.

“In anticipation of 100percent completion of this transaction and strong full year (FY) 2023 earnings, we would begin increasing our overweight position in the ticker. This week, we will continue to actively monitor these positions and, if need be, provide mid-week commentary on portfolio changes,” CardinalStone research said in their February 19 note to investors.