Respite Analysts have opined that the capital market is unlikely to see advancements in the performances of indices this week due to the continued delay by the Central Bank of Nigeria (CBN) in developing the new foreign exchange framework for the country.
The Nigerian Stock Exchange was unable to shake the previous week’s negative mood particularly as a result of this inaction. Consequently, the NSE All-Share Index pared on four out of five trading days to accumulate a week-on-week loss of 1.45 per cent.
This performance pegged the year-to-date return of the index at -4.92 per cent. Volume and value of transactions during the week waned by 24.02 per cent and 32.05 per cent in the same order.
The market saw 27 advancers and 42 decliners, of which the advancers’ chart featured Unity Bank Plc, NEM Insurance Company Nigeria Plc, Union Dicon Salt Plc, Neimeth International Pharmaceuticals Plc and OAndo Plc with respective week-on-week gains of 30.43 per cent, 24.68 per cent, 15.69 per cent, 13.92 per cent and 13.64 per cent.
The decliners’ chart was populated by Cadbury Nigeria Plc, Airline Services and Logistics Plc, United Bank for Africa Plc, GlaxoSmithKline Consumer Nigeria Plc and Union Bank of Nigeria Plc with the highest week-on-week declines of 9.71 per cent, 9.38 per cent, 9.11 per cent, 8.95 per cent and 8.59 per cent, respectively.
To this end, analysts at Meristem Securities Limited, said, “We opine that the continuous drag in the performance of the equities market was further impacted by negative news flow that permeated the market, including the cut (-3.8 per cent) in the 2016 economic growth outlook for Nigeria by the World Bank to 0.8 per cent.
“Also, the Niger Delta Avengers continued with its oil pipeline bombings, thereby disrupting production activities of oil companies and heightening skepticism about the near-term resurgence of the economy.
“We do not anticipate a significant recovery at the equities market this week, considering the dearth of positive news. However, we expect some bargain hunting activities within sectors that have recorded substantial price declines during the week ended.”
Demand for the Nigerian Bond instruments opened the week frail, as offer yields advanced across most instruments. However, a late increase in appetite resulted in a marginal increase (+0.38 per cent week-on-week) in average offer yield to peg at 12.89 per cent.
The domestic currency remained stable at a mid-price of N198.89 against the United States dollar, similarly the naira closed the week at N370/dollar at the parallel market.
“We opine that the hike in rates is not unrelated to the relatively low financial market liquidity, coupled with investors’ anticipation of more attractive rate at the CBN’s Open Market Operations auctions considering the Federal government’s borrowing needs. This, we believe is also related to the bearish demand for the Nigerian Treasury bills and bond instruments,” the Meristem analysts added.
In the firm’s weekly report, analysts at Vetiva Capital Management Limited, said, “With overall market sentiment still appearing weak, we see chances of a bearish start for this week.
“In the fixed income market, yields are likely to inch higher ahead of the release of May inflation data which is expected to be significantly higher (Bloomberg consensus: 14.7 per cent).”
The Meristem analysts are, however, upbeat about the agricultural sector’s ability to yield positive returns for investors, based on expectations of continued support to the sector from the government. Albeit, they advise that investment decisions should be grounded in evaluation of company fundamentals.
They added, “Much in line with expectations, the banking sector closed negative last week, as news regarding the new forex management framework was not forthcoming. We expect the same trend over the coming week, baring positive news regarding the aforementioned framework.
“We attribute the negative mood that pervaded the consumer goods sector in most trading days of last week to the general market mood. Therefore, we do not anticipate a significant change from the current trend this week, considering the dearth of positive news and market moving information to steer a sustainable rally.
“Considering that investors negative mood have persisted on the health sector counters in the past four consecutive weeks, amid some weeks of general market gyration, we advise investors with medium to long term investment horizon to consider only stocks with strong fundamentals that are currently not trading at their fundamentally justified levels.
“We expect the sentiments in the market and insurance sector to remain downbeat this week, as investors’ await the flexible forex policy modalities from the apex bank.
“For the industrial goods sector, we believe the country’s weakening economic fundamentals as evidenced by the rising inflation, lower crude oil production levels and output contraction, have all contributed to the prevailing investor apathy for the equities market generally. However, we expect to see some respite in the sector when the dividend of 2016 budget spending starts trickling.”
For the oil and gas sector, they anticipate an upbeat performance from specific sector counters in the new week, given the current trading prices of some sector stocks; while for the services sector, they said profit taking activities witnessed in the prior week persisted during the week concluded, after weeks of substantial price appreciation.
“This week, we advise investors to take position in counters perceived to be trading below their fundamentally justified prices,” the analysts said.
Global markets traded mostly in positive territory for the first two sessions of the past week, following sustained uptick in oil prices, a positive European data (GDP grew 1.7 per cent year-on–year in Q1 2016).