Despite its positive start to this week, mixed feelings still trail Nigeria’s stock market as investors shift focus to fixed income securities.
The Central Bank of Nigeria (CBN) last week Wednesday sold record N1.8 trillion worth of Treasury Bills, nearly two times the N1 trillion on offer.
That was the highest amount of cash raised through T-Bills in a single auction since the CBN started tracking data. Treasury Bills are a form of short-term government debt that is issued by the Central Bank.
At the Primary Market Auction (PMA), T-Bills totalling N1trillion (N200billion, N200billion and N600billion across the 91-day, 182-day, and 364-day instruments, respectively) were offered.
The stock market had decreased last week by 2.45 percent as investors started to rotate funds in search of higher yields on Treasury Bills (T-Bills).
With low-risk assets providing more attractive yields, some investors are expected to reprice dividend yield upwards, thereby leading to a correction in the short term in the equities market.
“The market recorded its first negative weekly close as sentiment remained bearish amid rising rates in short-term fixed income instruments. We expect a mixed trading session this week, as investors trade cautiously in the market,” also said Vetiva research analysts in their recent note.
Unlike the volatility seen in stock market, T-Bills are considered one of the safest investments available because they are backed by the full faith and credit of the government.
Lagos-based CardinalStone research analysts also said in their recent view that “we expect bearish sentiments in the equities market to persist as some investors will likely continue to rotate out of equities to take advantage of high yields in the fixed-income in the short term.”
“Nevertheless, this will create strong re-entry opportunities for stocks like banks that typically benefit from a high interest rate environment and other companies with low leverage,” they noted further.
“Our tactic is to maintain our holdings in banks, anticipating a potential rally on the back of strong full year 2023 earnings performances and dividend announcements. We have restored our position in Dangote Cement to a notional neutral weight as the rally in cement names continues to wane.
“Nevertheless, we might see some excitement in the sector upon the release of Full Year 2023 earnings. Ditto for MTNN. This week, we would actively monitor these positions and if need be, provide mid-week commentary on portfolio changes,” according to CardinalStone research analysts in their February 12 note.
According to United Capital research analysts, “We expect the technical adjustment of the All-share index to continue. Also, given the market’s anticipation of a hawkish stance by the Monetary Policy Committee at its next meeting, we expect investor focus to shift towards the fixed-income markets. Nonetheless, crucial corporate disclosures such as dividend declarations are set to move the market”.
Meristem research analysts said, “This week, we anticipate the market to close on a positive note driven by increased bargain hunting activity especially as investors seek value in fundamentally sound stocks that present attractive upside potential”.
“However, higher yields in the fixed income market and potential jitters over the Monetary Policy Committee (MPC) actions may limit inflows into the Nigerian equities market.
“Additionally, there is a prevailing negative sentiment as market breadth remaining below 1x for the third consecutive week. Overall, we project that the local bourse should end the week in the positive territory,” Meristem research analysts further noted in their February 12 note.