Investment analysts in Nigeria’s capital market are still conservative in their decisions to favour a possible rebound at the stock market, particularly in the short term.
Rather, their medium-to-long-term stance on the Nigerian equities market favours bargain hunters who today consider some value stock prices as discounted, following 16.42 percent decline the stock market index has lost this year.
The NSE All-Share Index and Market Capitalisation rose by 1.82 percent to close last Friday, at 34,543.05 points and N11.404 trillion, respectively. Similarly, all indices appreciated with exception of the NSE Industrial Goods index that dropped by 1.62 percent.
In the week to November 28, 2014, 51 equities appreciated in price last week higher than 19 equities in the preceding week. Twenty equities depreciated in price lower than fifty equities in the preceding week, while 126 equities remained unchanged lower than 132 recorded in the preceding week.
Despite that the recovery last week in the market’s performance was attributable to improved confidence by foreign portfolio investors arising from decisions of the Central Bank of Nigeria (CBN) monetary policy committee (MPC), most market analysts’ sentiments are still in favour of possible sell-off in equities following the hike in Cash Reserve Requirement (CRR) on private sector deposits from 15 percent to 20 percent.
The hike in CRR on private sector deposits to 20 percent, according to many analysts, will help bourgeon the supply-side at the stock market, particularly as banks mobilise funds to meet up requirement in their asset realignment strategy.
This not-too-good outlook is in addition to concern over rising pressure on the local currency (due to oil price decline) and political uncertainties over upcoming 2015 elections.
The Nigerian stock market took this week on a negative note after the NSE All Share Index (ASI) shaved 1.28 percent and value of equities decreased by N208 billion.
“We note the gains in the equities market last week to be short term spikes, as a combination of sentiments and fundamentals pointed in an opposite direction,” according to research analysts at UBA Capital plc.
These analysts said: “We look to see more correction this week and we have penciled in some sideways trading with mild losses, as our market momentum oscillator, the Relative Strength Index (RSI) has moved out of the oversold region. That said, we remain long on counters with sound fundamentals and attractive dividend yields at current prices.”
“We expect both local and foreign investors to be increasingly bearish on the market over the near term, especially as uncertainty over further naira devaluation/depreciation as well as political risk will dominate investor sentiment, going forward,” research analysts at Associated Discount House Limited, said.
“More so, local investors will seek flight to safety in higher yield on fixed income instruments; an asset allocation strategy which reinforces our bearishness on Nigerian equities at this time. While noting relatively less impact on some companies, which have headroom to absorb the shock, we are broadly conservative on equities, as the rising yield environment present compelling risk-adjusted return upside over the near term,” the analysts said further.
“We envisage that the renewed investors’ confidence in the Nigerian equities market might be sustained, at least in the short term. Albeit, some uncertainties, notably political tensions and depressing oil prices, still loom on the horizon,” said research analysts at Lagos-based Meristem Securities
“We are of the opinion that these risk factors may result in gyrations in market returns until after the elections in 2015. However, we expect there may be a resurgence post-elections and position taking during this period of depressed prices may present a good opportunity for alpha-seeking investors,” the analysts said.
Iheanyi Nwachukwu
