Investors at the Nigerian stock market are awash with lots of assumptions concerning the direction of equities, particularly as local economic outlook remains uninviting.
At the bond market, expectations are high that FGN bond prices will drop as investors switch to money market instruments for higher returns.
The Federal Government recently lowered its budgeted oil prices (second time in less than a month) to $65, a decision based on circumstances built to cope with impact of declining oil price.
Last week, Bonny Light crude dropped to $69.55 per barrel, down 11.4 percent against the preceding trading week, a development analysts said was driven by Iraq’s government decision to resume export of oil to the autonomous Kurdish region.
With this development, the local currency remains under pressure following growing concerns about falling international crude oil prices and external reserves which caused a further downward review of the benchmark oil price for 2015 budget.
Analysts said investors speculative position at the stock market may result to a mixture of bargain hunting and sell offs in line with recent trends in the market.
The performance of Nigerian stock market year-to-date (YtD) is worst than three other major African stock markets.
Only last week, the Nigerian Stock Exchange All-Share Index (NSE ASI) lost 3.81 percent and closed at 33,228.29 points, compared with 34,543.05 points recorded at the start of equities trading.
Also, the equities market capitalisation dropped to N10.970 trillion, from N11.404 trillion recorded at the commencement of last week’s trading, signalling about N434 billion eroded from equities value last week.
“We anticipate that concerns over the bleak economic outlook could drive market indices lower,” said market analysts at Access Bank plc. “We expect to see oil prices slide further due to a deepening of the supply glut.”
“The ASI has now moved back to the oversold region so we expect to see more speculative plays as well as bargain hunting in stocks with sound fundamentals, attractive valuation and a positive long term outlook,” said market analysts at UBA Capital plc.
Twenty-six (26) equities appreciated in price last week, lower than fifty-one (51) equities in the preceding week. Forty-nine (49) equities depreciated in price higher than twenty (20) equities in the preceding week. One hundred and twenty-two (122) equities remained unchanged, lower than one hundred and twenty-six (126) recorded in the preceding week.
“With no expectation of news flow to trigger a stronger market rebound, and with sustained macro-economic concerns coupled with a bleak outlook for companies in the market, especially the banks, we expect the market to trade sideways this week albeit with minimal gains,” these analysts added.
The Nigerian capital market currently faces certain challenges that need to be addressed.
Currently, Nigerian stock market has low turnover velocity at about 9 percent compared with countries like Mexico (29.8%), Indonesia (23.3%), and Turkey (179.7%).
Many market analysts have identified some of them to include: depressed investor confidence, low liquidity, election cycle affecting investor sentiment, oil shocks and perceived policy inadequacies deterring foreign investors, relatively low daily traded values still a deterrent to large investors.
Other challenges relate to Nigerian economy being greatly exposed to geopolitical and geo-economic risks; currency risk forcing foreigners to withdraw, resulting in negative performance in excess of 19 percent; retail investor apathy still evidently in the market; low financial inclusion, and few products – lack of diversification options; financial sector still dominates trading activity; and quiet SME (ASeM) board.
Iheanyi Nwachukwu
