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Despite improved corporate earnings reported at the Nigerian stock market, equity investors are yet to take remarkable buy decisions. Rather, they have chosen to be recouping profit from earlier positions most of them entered in early trading this year.
After impressive run in January 2018, Nigerian equities market performance slid into correction territory in February, driven by sell pressure resulting from profit-taking as well as uncertainty around inflation and interest rates.
Investors had renewed their interest in the Nigerian equities market in the last trading week in February- following expectations of positive results which led to positioning in fundamentally sound dividend paying stocks.
Amid these, stock trading activities on the Nigerian bourse closed in the red as at trading week to March 23 as the market extended bearish haul to two consecutive weeks in a row, analysts noted.
In the review period, Nigerian stock market recorded a decline of 1.11percent week-on-week (WoW). Stock investors lost N21billion as the value of listed equities declined to N14.981trillion from a high of N15.002trillion the preceding week. Also, the Nigerian Stock Exchange (NSE) All Share Index (ASI) closed from a high of 41,935.93 points to 41,472.10 points. The market’s Year-to-Date (YtD) returns stood at 8.44percent.
Across sectors, performance was equally bearish week-on-week (WoW) as four out of five indices closed in the red.
The Insurance index led losers after it declined by 3.1percent; the Industrial and Consumer Goods indices followed same line shedding 2.8percent and 2.2percent respectively. Similarly, the Oil and Gas index fell, 2.1percent wow. On the other side, the Banking index was the lone gainer up 3.3percent.
As at Tuesday March 27, the Nigerian stock market extended two-day losing streak.
“We are in the last week of March and first quarter of 2018. Expectedly, there will be a significant rebalancing of portfolios by fund managers –this may likely lead to increased profit taking activity”, according to GTI Capital research analysts who also noted that they expect this to be a drag in the market space this week.
“By and large,” they expect a quiet close to market this week. For this week’s trading, the market closes tomorrow as Friday is public holiday.
“Regardless of the above considerations, existing economic data and strong earnings’ reports could be a rallying point for the market this week”, the analysts noted/
In the meantime, they strongly advise investors to take a keen interest on firms’ fundamentals before taking an investment position on such firms. GTI Capital equally advises on taking a medium-long term view of the market.
“With investors skeptical of forward earnings vis-à-vis elevated valuations, sentiment has turned bearish in recent weeks. However, we believe declining level of valuation has presented investors with attractive entry opportunity; hence, we expect a reversal of the bearish trend in the near term.
“We expect market performance this week to be largely driven by bargain hunting in fundamentally sound stocks,” according to Lagos-based research analysts at Afrinvest in their stock recommendation for the week.
“As the earnings season comes to a close, we expect more last-ditch earnings declarations and expectations surrounding the much anticipated MPC meeting to impact investors’ sentiments this week. Going by momentum indicators, the market inched further into the oversold region last week, presenting bargain hunting opportunities in the short term”, United Capital analysts said.
At the Nigerian stock market, total turnover declined by circa 46percent month-on-month (MoM) in February, while liquidity indicators (market depth and breadth) also waned within the period with a Daily Average Value Traded (DAVT) of N5.3billion.
The prominent sectors within the month include Financial Services, Consumer Goods and Industrial Goods, with most trading activity in Guaranty Trust Bank (GTB), Zenith Bank and FBN Holdings. Top ten brokers drove 61.79% of total transaction value and 50.92% of total volumes traded in February 2018
The month of February witnessed unstable crude oil prices. However, the nation’s FX reserves continued to rise steadily within the period, signifying that the FX market will remain liquid to support Foreign Portfolio Investors (FPI) flows. Reduced transaction levels in IEFX window could be attributed to slowed momentum in FPI activities as they chose to stay on the sidelines in early February.
Amongst markets under review in February, the NSE ranked as one of the least performing markets on the back of contagion effects of downturn in global markets. Insurance sector proved to be the only one in positive region and this may be attributed to the impact of revised price floor. The news of an economic expansion of 1.92percent in Gross Domestic Product (GDP) and a positive Purchasers Managers Index (PMI) further upheld positive investor sentiments at month end.
Domestic participation continued to lead market activities marginally accounting for 51.4percent of market transactions with the period. Retail (mainly high networth investors (HNIs) and Institutional investors including PFAs largely drove trades in the domestic space. However, foreign investor participation increased from 32.4percent in January to 48.6percent in February 2018.
Iheanyi Nwachukwu
