Ahead of expected impact of earnings season on stocks pricing, investors are likely taking advantage of low prices of stocks currently at the Nigerian bourse to position themselves for short-term gains when market recovers.
At the stock market, ‘early birds’ are seen taking position in value counters ahead of full-year earnings release by listed companies.
The Nigerian stock market bottomed-out last week erasing almost N427 billion in past gains as liquidity-pull from both domestic and foreign investors caused stocks prices to crash.
Despite a turnover of 2.221 billion shares worth N21.045 billion in 27,855 deals traded last week by investors on the floor of the Nigerian Stock Exchange (NSE) in contrast to a total of 1.758 billion shares valued at N21.024 billion that exchanged hands the preceding trading week in 28,949 deals, the liquidity-pull caused the stock market to record a negative return of 1.83 percent.
Amid improved bargain tendency witnessed in the banking sub-sector, the equities market took off this week on a positive note, signalling investors’ gradual return to buy side in the equities market.
In what many market participants saw as a correction point, the stock market recently witnessed a huge decline in the prices of most equities, the worst hit being stocks in oil/gas, banking, consumer goods, and insurance sub-sectors at the bourse.
Despite the market’s current state and the value erosion that caused the returns trajectory to go negative, many investment and equity analysts within the market are still positive that the market will close positive this week.
For instance, in their view, Meristem Securities analysts say, although the equities market sentiments are downbeat, relative pricing reflects investors would still reap good returns with companies’ corporate actions to serve as the major driver.
“While Quantitative Easing (QE) tapering poses a major downside to the exchange rate, the attractiveness of yields at current levels compared with peer countries will sustain the flow of funds. Hence, the need for investors to stay calm as macro-economic indicators as well as supply and demand dynamics stabilise in the near term,” say market analysts at Meristem Securities.
Also, market analysts at Morgan Capital say: “We expect the onslaught on banking shares to subside as some of the banks have opened good entry windows.”
Partnership Investment Company plc in their market outlook said “Liquidity tightening may trigger a sell down, shift to low priced equities and dumping of banking stocks. Positive corporate result may reverse the trend in the short term.”
They anticipate cautious trading “as foreign portfolio investors keep eye on the US tapering. We advise clients to do less of speculation. Medium priced equities with good fundamentals provide safety at this time.”
In a similar view, a team of economic intelligence at Access Bank plc who says that stock market direction is uncertain due to the lagged effects of the US Fed QE taper and Central Bank of Nigeria (CBN) Cash Reserve Ratio (CRR) on public sector deposit, however, adds that “short-term investors may want to take advantage of the low pricing to position for short-term gains in anticipation of market recovery and adjustment to shocks.”
Also in their market outlook this week, Cowry Asset Management analysts say they expect to see interplay of the bulls and the bears; “albeit, we are overweight on the former given bargain-hunting opportunities created by recent profit-taking activities.”
Recently in their economic outlook for 2014, CBO Capital says “expensive equities should see period correction. A lot will also depend on the subsequent pace of QE unwinding and the implications for portfolio flows.”
Accordingly, market analysts at the advisory and investment management firm note that growing domestic institutional and retail investors interests might provide a buffer.
“Return profiles of equities could soften as the market factors current valuations, and while foreign investors are guided by US QE tapering.
Foreign investors expect to stay on the short to mid end of the yield curve while targeting value stocks,” they further state in their outlook.
By: Iheanyi Nwachukwu
