Despite the large-cap driven loss of N194 billion, which shrank the value of Nigerian equities at the beginning of this week trading day, attractive valuation of equities still strengthens market participants’ optimism of positive close this week.
Investors took profit in the early part of this week’s trading on the back of recent gains in some stocks and sell-offs in major large cap stocks.
Market watchers expect gains in the banking counters, building materials, consumer goods and construction sectors stocks to trigger the positives in the market this week.
In addition, it is expected that good half-year (H1) 2014 performances by some of the companies in these sectors will help to sustain the positive sentiment, despite recent rush by most investors to take profit from stock price recent increases.
Despite politically related market risks ahead of 2015 election as well as increasing rate of insecurity, which affects the Northern part of the country and companies doing businesses there, and the latest fear of imported Ebola outbreak in Nigeria, investors, particularly foreign investors, still stare at the valuation of Nigerian equities compared with its emerging market peers.
Though, the value of foreign transactions at the Nigerian Stock Exchange (NSE) declined by 21.45 percent, according to data by Financial Derivatives Company Limited, the share of transaction participation slightly tilted towards foreign portfolio participation. “International share of transactions now 52.32 percent in June and was 45.56 percent in May,” they noted.
Coming on the heels of two weeks of bearish trends, the NSE All Share Index (ASI) traded in favour of the bulls last week, returning 1.58 percent week-on-week (w/w) and peg the year-to-date (YtD) return at 3.07 percent.
Many analysts had linked the bull-run to investors reaction to corporate earnings and dividend declaration, in addition to bargain hunting by most speculators who saw need to take position in equities that were priced lower than their market value.
Analysts had also linked last week’s rally to most investors’ positive expectation that blue-chip companies will berth with improved half-year performance associated with corporate rewards.
“In our opinion, we see a marginal improvement in the market this week. Our position is drawn from expectation of positive results from large cap stocks and bargain hunting driven by rich valuation. We also expect improvement in the fixed income market with some short-end gains in this space,” said analysts at UBA Capital plc.
“We initially stated our opinion that the market will extend the bearish mood witnessed on Friday in the early part of the week, but we expect a pick up later in the mid-week, hence our prognosis of a marginal gain compared to the previous week,” these analysts noted further.
In addition, Cowry Asset Management analysts said: “We expect sustained investor appetite for equities, especially in the banking sector, given the drive for improvement in risk management measures being instituted by the apex bank and corresponding capital raising activities by financial institutions.”
Supporting this view, Access Bank analysts said they “expect current pick-up in the market to remain as investors intensify moves to grasp juicy stocks.”
Iheanyi Nwachukwu
