Amid speculations from various quarters within the market that recent sell pressure, which weighs on Nigerian equities, heralds a bearish market for equities, many investment analysts are still positive about the market.
They premised their views on what could be termed ‘earnings season factor,’ when most investors, in anticipation of corporate actions – like dividend and bonus, hold on the sale of their equities, thereby limiting supply for stocks in the market.
Already, market participants are expecting the full-year financials of “early bird” companies to hit the market, though from a quarter-on-quarter (QoQ) basis, most companies will turn in impressive full-year financials that could trigger their board decisions to reward shareholders.
In the week ended January 24, the Nigeria stock market recorded a return of 1.42 percent, while week-on-week (wow) it grew by 0.40 percent. In the review week, the NSE-Industrial Goods Index, which recorded a return of 4.87 percent since the beginning of this year, shows it outperformed the market.
In addition, as profit-taking weighs, most stocks whose prices are overvalued will experience correction while the value stock that are currently underpriced will begin to attract investors. Analysts had favoured stocks from industrial goods to insurance, and banking stocks.
Though, market participants may have started being sceptical about returns on their investment in most banking stocks, particularly those with higher exposure to public sector deposits due to increase in Cash Reserve Requirement (CRR) to 75 percent.
Already, analysts say the recent increase in CRR on public sector deposit by the Monetary Policy Committee (MPC) from 50 percent to 75 percent and concern over impact of BASEL II implementation in the banking industry are dousing investor appetite for financial services stocks.
In their recent outlook for the market this week, Cowry Asset Management analysts say: “We anticipate a mixture of bargain hunting and profit-taking ahead of the full-year corporate earnings season.”
Also, market analysts at Morgan Capital say banking stocks are in the eye of the storm as the sector bore the wrath of investors in a swift reaction to the hike in the CRR.
“The uncertainty about the various exposures of the banks to public sector deposits heightened investor apathy for the sector. Going forward, we expect that the apathy for the banking sector will thin out, as some of the stocks may have reached good points for investors to consider a re-entry,” these analysts say in most their recent weekly report.
Though, market analysts at Access Bank plc say they anticipate bullish market “hinged on expected release of commendable financial scorecards by blue-chip corporations.”
In their investment views for this week, UBA Capital analysts say “earnings season will drive equities market gains.
“Notwithstanding the relatively weak investor appetite for banking stocks, expectation of earnings season should stimulate gains on value stocks in the sector. Thus, we expect market to trade in tight range, with modest gain in select banking stocks.
“As the dust settles, banks’ stocks should trade higher, especially as “early birds” take position ahead of earnings season. More so, higher yield environment will compensate for the increased CRR, thus reinforcing our modest earnings growth outlook on bank.”
Recently, in their outlook for 2014, market analysts at Partnership Investment Company plc say also they expect 2014 to be more exciting, especially with more foreign portfolio investors keeping tab on developments in Nigeria.
Accordingly, they note: “Indications of a review of the Quantitative Easing policy by the US government may precipitate some level of apprehension, especially in developing economies. The multiplier effect of the policy to pump $80 billion monthly into the US economy has, in no small way boosted the global economy, especially developing economies.”
“Positive signals on the recovery of the US economy may portend a tapering of the QE. The implication for developing economies is that interest rates may go up, while also tightening the liquidity space. Already, the International Monetary Fund has indicated that improvement in the US economy could signal the start of tapering. The flip side is that improvement in the US economy would also have positive spill-over effect on the global economy as well. The implication is that we expect more vibrancy in the international capital market which could spill over to Nigeria and other promising developing economies.”
By: Iheanyi Nwachukwu
