Rising from the positive performance at the nation’s bourse in recent past, impressive financials being submitted by listed companies are further fuelling expectations that the rally will continue.
In line with analysts view, the Nigerian bourse sustained bargain hunting activities particularly on value stocks. This resulted to the NSE All-Share Index appreciating by 1.19 percent week-on-week (WoW) to 37,794.75, while the market capitalisation of the listed equities on the main-board advanced by 1.14 percent to close at N12.075 trillion.
Amid impressive financials and investors’ move to position ahead of better outlook for half-year results, market analysts believed that the tilt in favour of equities became more visible with negative sentiments seen dominating bond market activities. As a result of sessions of relatively tight liquidity, the over-the-counter market for Federal Government bonds witnessed bear dominance, resulting in price depreciation and increase in yields across all maturities.
Though, in their view, analysts at Cowry Asset Management said they anticipate a mix of profit taking and bargain hunting, particularly on value stocks. But while also looking into the market for this week, analysts at Access Bank said: “This week, we expect recent bullish trend in the market to persist. This is in view of increased investor confidence in the short-term.”
Analysts at Meristem Securities said: “With the current pace of economic growth, relatively stable price levels as well as attractive yields, we expect the financial markets’ performances to remain strong. Hence, we see significant potential returns in both the equities and fixed income markets.”
Also, the NSE 30 Index appreciated by 1.05 percent to close at 1,809.91. Index movement further showed that all except one of the NSE sectoral indices appreciated same as the preceding week: NSE Consumer Goods (0.66%), NSE Banking (0.19%), NSE Insurance Index (1.17%); NSE Oil/Gas (0.58%), NSE-Lotus II (0.62%), and NSE Industrial Goods Indices (1.68%). Only NSE-ASeM Index depreciated by 0.95 percent.
Already, with the yield-to-date (ytd) at 34.60 percent witnessed last week at the Nigerian Stock Exchange (NSE), it is an indication that the nation’s bourse may have consolidated its position to well defy the ‘Sell in May’ theory, which analysts had advised.
Recently, in their bi-monthly economic and business update, analysts at Financial Derivatives Company said: “For months, stocks have been up, up and away. Most of the market believes a pullback is near. But as always, the stock market can and will do what is least expected. The recent surge in the market, which comes after a slight pullback in April, has been dominated by bellwethers (the top 10 most capitalised stocked have increased by an average of 8.8% in the month). This makes the current rally a defensive rally rather than a risk-on risk-off rally as we initially saw at the start of the year.”
These analysts stated: “The NSE continues to hit multi-year highs, as it shoots to its highest since October 2008. It is expected that testing will see a small pullback initially then, either blow by the high or pullback. As the oxymoronic “defensive rally” that has pushed the NSE to multi-year highs continues, investors’ desire for not just high but sustainable dividend yields has boosted sectors, which traditionally lag when equity markets are rising. The focus on sustainability explains why the correlation between dividend yield and return is appearing stronger.
“Furthermore, investors are showing interest in companies that have given them an opportunity to increase their holding through bonus issues. Some of the biggest gainers in May so far have offered investors bonus issues for their holdings.”
“Earnings are underway and that could instil more volatility. All the while, the market is looking for a pullback. There are question marks as to whether the earnings will match investors’ expectations. There are already signs that the consumer goods companies might not meet expectations as the brewery companies are showing slowdown in sales and decline in profit due to the high finance charges. There has also been weakness in the earnings of agricultural companies stocks due to a sharp decline in commodity prices,” Financial Derivatives analysts, noted.
The analysts added: “Despite this, we expect the operating environment to ease in the second half of the year as the central bank loosens its monetary policy stance. The capacity increase initiative embarked on by most of the manufacturing companies will eventually come into play in the second half of the year and beyond. We believe that this is the year that many of the companies will absorb the high interest cost before the storm settles again in 2014. If that theory holds, then stocks might still have some upside left. Maybe we might see a slight pullback in the second half of the year before stocks move higher again. What we know is that, “Sell in May and go away” may NOT be the thing to do this year.”
Looking at the prospects in the global market, Maria Pinelli, global vice chair, strategic growth markets, Ernst & Young, said: “Majority of investors are focused on domestic markets. So, where are investors intending to place their bets? Mainly domestically – investors expect to favour investment in their home or regional markets for the next three years. Investors are attracted to financial services due to high demand for financial services globally and a rise of innovative service.”
