Nigerian stock index futures point to a higher level, suggesting that equity rally is still intact, despite concerns over impact of profiteering activities.
With investors still favouring equities, the stock market has been a strong performer so far this year, evidenced in the All Share Index (ASI) jumping 20.71 percent year-to-date (ytd) and 6.41 percent month-to-date (mtd).
Amid a dismal take-off at the beginning of this week, the ytd rise has prompted many stock analysts to predict a pullback, but so far declines at the Nigerian bourse have been neutralised as stock investors use any dip as a buying opportunity.
The Nigerian equities rally is being driven by investors’ positive anticipation of impressive earnings and corporate rewards, which have already started playing out in the market.
“While we attribute the downward trend in the prices of most stocks on the bourse to profit taking, we do not see this as being sustained in the near term. We expect relative stability pending the release of 2012 results and corporate actions,” analysts at Meristem say.
Year-to-date, the Bloomberg NSE 30 Index has rallied by 20.96 percent; Bloomberg NSE Consumer Goods Index (16.99%); Bloomberg NSE Banking Index (20.58%); Bloomberg NSE Insurance Index (29.83%); Bloomberg NSE Oil/Gas Index (22.74%), and NSE - Lotus II (23.70%).
Looking at this growth, analysts believe that while many people are still cautious about investing in the new highs, especially given the challenges that many investors faced before, there is still room for the market to grow and any pullback should be shallow.
“Although we acknowledge the downward impact MPR reduction will have on yields, we believe that yields on the fixed income instruments should remain attractive to foreign investors. We also see the foreign investors switching to equities with more attractive returns to offset the relatively declining yields on fixed income instruments; hence, we see exchange rate stability and foreign reserves accretion,” Meristem analysts further add.
Week-on-week, the NSE All Share Index appreciated by 636.63 points or 1.91 percent to close Friday at 33,895.08, while the market capitalisation of the listed equities appreciated by 1.91 percent to close at N10.846 trillion. The market recorded a turnover of 2.482 billion shares worth N22.815 billion in 32,471 deals in contrast with a total of 4.249 billion shares valued at N23.177 billion that exchanged hands the preceding week in 39,391 deals.
FSDH analysts say: “In the coming weeks, the expectation of good end-year results and corporate actions would influence market activities, as investors position themselves for the earnings season.
“However, we still expect some levels of profit taking during the week, and also we reiterate that there are still opportunities in the market, with the anticipation of the release of the year-end results and corporate actions of some select stocks such as Zenith Bank, FBN Holdings, Unilever, ETI, Lafarge WAPCO, Okomu Oil and Access Bank, among others.”
They also advise investors to consider investment opportunities in stocks that have good fundamentals that can generate good returns in the medium to long term.
Market analysts at Partnership Investment Company say: “The market sell down due to profit taking may not alter the current market momentum. Market will improve as more companies release year-end results. The focus shifts to highly capitalised and value stocks with good fundamentals. Investors should consider portfolio realignment. Preference skewed towards equities may be balanced with fixed income instruments for diversification. The anticipated drop in interest rates will help drive the market momentum.”
“The slight dip in momentum, due to profit-taking activities at start of the week could not offset gains recorded as sentiment stayed positive. Expectations of impressive 2012 financial performance of blue-chip companies may have supported market trend. This week, the fine run that has characterised the market in recent weeks is projected to persist. This view is premised on increased demand for equities helped by growing optimism,” says Tony Monye-led team of economic intelligence at Access Bank plc.