In the wake of equities sell-off at the local bourse, a second thought which speaks positive for risk-takers is that most stocks in the market are now attractive as their prices have been significantly discounted.
Considering the spiral movement of equity market graph, the implication of today’s bearish market is that investors who take position in discounted equities will reap bountiful return in capital appreciation when the market rebounds.
Bargain hunters at the bourse who realise that most stocks currently worth less than they should are positioning to buy more equities ahead of future appreciation.
The Nigerian stock market has lost about N2.4trn, and there is the probability of further decline as market awaits positive news to revert the bear reign.
Week-on-week (WoW), the Nigerian Stock Exchange All Share Index (NSE ASI) declined by 4,333.93 points or 11.54 percent last week from a high of 37,550.24 points to 33,216.31 points; while the market capitalisation lost N1.435trn to N11.002trn from N12.437trn the preceding week.
Many analysts referred current trend in the market as a ‘correction’ and noted that it may not reverse strongly until year end. They also anticipate the stock market this week to record a mixture of sell pressure and bargain hunting as stock prices remain attractive at current prices. This optimism played up in the market at the end of trading Monday when stock market index moved up marginally by 0.03 percent.
The Nigeria equities market is a victim of falling oil prices which continue to put pressure on Naira in addition to concerns over heightening political risks. Also, unimpressive third-quarter (Q3) earnings released by companies couldn’t help tame the bears, coupled with the CBN’s recent decision to restrict interest earning deposits at the Standing Deposit Facility (SDF) window to N7.5bn per bank (this will have negative impact on corporate earnings especially banks). This development is already having a rob-off effect on banking stocks with a contagion on non-financials stocks.
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“The downturn in the Nigerian stock market was largely driven by frantic selling of domestic equities by international institutional holders coupled with the weaker-than-expected third quarter results by quoted companies which are sending investors closer to panic mode, analysts had expected the release of the Q3 results to boost the market. This has not been the case as results released so far have largely been mixed. This week, we expect market to remain bearish,” said research analysts at Access Bank plc.
“We attribute the sell-offs in the market to losses sustained by large cap stocks and the run to safety by foreign investors due to concerns about tacit devaluation of the Naira, as CBN banned the sale of dollars at its RDAS auction to importers of telecoms equipment, power generators and finished products during the week. This is happening amidst worsening oil prices in the global space and uncertainty about the 2015 election in the domestic economy,” market analysts at Meristem Securities, a Lagos-based investment firm, said.
“We are bearish on equities this week as we do not see any improvement in the indicators driving negative sentiments in the market. This said, the market remains attractive with prices at significant discount to fair values with attractive dividend yields. We therefore expect bargain hunting in the equities space this, which informs our opinion of a moderation in the losses this week,” analysts at UBA Capital plc said.
Also, FBN Capital analysts in their recent note to investors noted that mounting pressure on the naira exchange rate as a result of falling oil revenues has led to the exit of some foreign investors (both equity and fixed-income).
While looking at the stock market last month which is already having a contagion in this month’s performance, market analysts at Financial Derivatives Company Limited said investors were increasingly overtaken by fear; saying third-quarter (Q3) earnings failed to offer succour as anticipated. “Corporates released disappointing Q3 results,” the analysts added.
“The decline of commodities prices led by oil dampened sentiment towards emerging markets. Nigerian equities hit the most due to mono-commodity nature of economy,” they noted.
On the outlook, Financial Derivatives Company analysts said, “The slide of the NSE ASI will continue as there is lack of positive news in the market. Political tensions will heighten and increase country risk causing Foreign Portfolio Investors (FPIs) to significantly reduce their exposure to the local bourse.
“This and the decline of crude oil prices will sustain the pressure on the naira. CBN will offer attractive rates in order to mop up the excess liquidity. Driving capital from equities to fixed income securities. NSE ASI may slide below 35,000 points by the end of the month. Stocks prices will fall another 5% before bottoming out.”
Iheanyi Nwachukwu
