The Nigerian stock market is currently searching for new triggers following increasing sell-side sentiments at the local bourse.
Investors buy sentiment weakened last week as the benchmark index fell 2.6percent week-on-week (WoW) to close at 35,005.57 points, while year-to-date (YtD) return lowered to 30.3percent.
Recall that the introduction of the Investors and Exporters (I & E) FX window in April this year had helped pave the way for a weighty increase in trading activities as foreign investors who were once shy of naira assets plied into the market.
Also, the much improved economic data and decent earnings scorecards in first-half (H1) of 2017 spurred investments in the stock market, which helped shoot the All Share Index (ASI) forward high.
As buying momentum slows, analysts foresee the possibility of further correction till fourth-quarter (Q4), noting that the Nigerian stock market currently trading in a historically challenging quarter.
“Over the past 19 years, the third quarter (Q3) of the year has been the worst-off for stocks, followed by the fourth quarter (Q4). This indicates that we may see more correction in the market going into the last quarter of the year”, United Capital research analysts said in their recent insight.
“In the last few weeks however, we observe that sentiments have cooled off as investors began to sell the rally after the bullish streak witnessed during the earnings season”, the analysts added.
While they still maintain a base case of positive, double-digit gains in the Nigerian equity market this year, United Capital analysts still belief the recent moderation in trading activities amid a dearth of bullish triggers in the interim suggests that appetite for stocks have cooled-off.
Afrinvest Securities analysts who noted their weekly sentiment index weakened to 2.5 points last week from 2.8 points the preceding week expect to see an uptrend in market performance “as investors take advantage of bargain opportunities.”
Equity research analysts at Lagos-based Vetiva Capital Management who noted that market sentiment remained tepid throughout last week, indicated by the consistently negative market breadth expect this sentiment to filter into this week and “anticipate a negative week open.”
In line with Vetiva analysts’ expectations, the Nigerian stock market opened the week on a negative note with a record 0.38percent loss on the first trading day of this week.
The recent auction of FGN Savings Bond for the month of September also helped moderate investible funds flow into equities.
The 2-year FGN Savings Bond due September 20, 2019 and 3-year FGN Savings Bond due September 20, 2020 were offered at 13.817percent and 14.817percent per annum respectively. The auctioned started Monday September 11 and ended Friday September 15, 2017.
Market data show that total transactions at the nation’s bourse decreased by 11.86percent from N220.27billion recorded in June 2017 to N194.15billion (about $640 billion) in July 2017.
The aggregate value of equity transactions from January to July 2017 increased by 58.05percent from N714.60 billion recorded in 2016 to N1.129trillion in 2017.
Domestic investors outperformed foreign investors by 37.68percent. Total domestic transactions increased by 12.56percent from N118.74 billion recorded in June 2017 to N133.65 billion in July 2017 while foreign transactions decreased by 40.41percent from N101.53 billion to N60.50 billion within the same period.
Monthly foreign inflows outpaced outflows. However, foreign inflows decreased by 41.70percent from N65.93 billion in June 2017 to N38.44 billion in July 2017. Foreign outflows also decreased by 38.03percent from N35.60 billion in June 2017 to N22.06 billion in July 2017.
Iheanyi Nwachukwu
