The outlook for Nigerian equities market is not too bright for many investors as they currently weigh the impact of bargain hunting and profit-taking activities, particularly by portfolio investors who are seen to have started flipping for profits amid 0.48 percent return recorded at the close of deals last week.
While the market’s pendulum still swings – though positive at the beginning of trading this week –many analysts opined that the market, having enjoyed positive investor sentiments in the last couple of weeks could usher in reign of profit-takers.
In line with most analysts’ expectation, the equities market saw sustained speculative activities with the bulls having slightly upper hand leading to the equities market return remaining in the green zone.
Participants in the equities market had waited to know the policy direction of the new CBN governor. Last week also saw the installation of the new CBN governor, Godwin Emefiele, who on assumption of office said he will focus on exchange rate stability, pursue a gradual reduction in interest rates and announced changes to cash withdrawal charges, among other policy statements.
Many schools of thought within the market – including those at Access Bank plc believe that they expect to see increasing investors’ interests in stocks in the financial services sector.
“We expect to see a mixture of bargain hunting and profit-taking, particularly as portfolio investors flip for profit following recent gains,” say market analysts at Cowry Asset Management Limited.
In the week ended June 6, 2014, the stock market recorded 7.18 percent quarter-to-date (QtD) return, while month-to-date (MtD) it stood positive at 0.13 percent.
To minimise market related risks, analysts advise investors to always bet based on the principles of sound fundamentals, good entry prices, bearing in mind that in a bear market, stocks with good fundamentals have the capacity to retain value.
“We expect moderate profit-takings in the first two trading days this week, but we think the market will close the week positively with investor’s focus gradually shifting to H1-2014 performances,” Morgan Capital analysts say.
Also looking at the stock market, market analysts at UBA Capital plc say the prospect of lower interest rate will drive domestic investor preference for equities.
Though, they note that due to improved valuations and lower yield on fixed income assets, foreign investors will turn wary of likely pressure on the naira and weaker foreign exchange reserves.
“Thus, the Central Bank of Nigeria’s plan of gradual cut back in interest rate portends mixed implications for the future of equities in Nigeria. Majorly, equities rallied a soft 13 basis points (bps) last week, amid the expectation of positive soft perch in the week ahead,” these analysts at UBA Capital add.
According to them, “aggregate activity level should trend lower, as the event driven investor appetite in the previous week fades out. The expectation of lower interest rate should spur increased appetite for long-term bonds in the near term. The naira is bound for modest headwinds in the week, as the month end dollar sales tails off.”
Iheanyi Nwachukwu
