Equity investors at the Nigerian Stock Exchange (NSE) will likely remain on the market sidelines in the short term, as they await the release of full year (FY) 2011 results and dividend announcements.
This observation comes as most stocks’ prices bottom out at the Exchange, coupled with analysts’ expectation that some investors will reposition their portfolio by buying into stocks that are likely to offer dividend and bonus shares.
Not a few market analysts believe that as the fixed income market continues to offer higher yields than the equities market, some investors are likely to tread with caution before taking position in the market, which might slow down any likely bull run in the coming weeks.
This week, equity traders are expected to bet on companies whose corporate benefits declaration is forthcoming.
Muyiwa Jesuro, analyst at Financial Derivatives Company, says political and socio-economic issues currently facing Nigeria may serve to discourage foreign investors seeking investment outlets beyond the troubled euro zone.
“The impact of the fuel subsidy removal is expected to cause an increase in the inflation rate to between 11 percent and 13.5 percent, which will result in a corresponding increase in the cost of economic activities in the short term. The result of such an increase may be a diversion of investors’ funds to the fixed income market that would create a perceived avenue to preserve the value of investment,” the analyst adds, in their bi-monthly economic and business update.
Other analysts note that the stock market started the month of February by witnessing some volatility in trading activity before it began a descent to end the first half of the month with a loss of 2.21 percent. In addition, the first trading day of the month opened with a loss of 0.41 percent at 20,790.87points from the previous day’s figure of 20,875.83 points.
“In recent times, the market has been affected by the changes in the Monetary Policy Rate (MPR) as it implied higher yields on fixed income securities. The outcome of the last Monetary Policy Committee (MPC) meeting held in January seemed to have had no immediate effect on the market, as the CBN maintained status quo with its monetary policies, keeping MPR at 12 percent and Cash Reserve Ratio (CRR) at 8 percent.
Further supporting these views, analysts at Meristem say as Euro area debt default crisis continues to gain headlines, “we see foreign participation on the sideline.”
“The Nigerian market will remain susceptible to short-term news. We expect to see more cautious trading activities. Investors should focus on the financial (banks) and the consumer goods sectors as they prepare to render their 2011FY results. We create room for earnings surprises and mouth-watery corporate actions,” they added.
Furthermore, Meristem analysts note that technically, the market (NSE ASI) just bounced off its 20,314.07pts support, saying “we see it reaching its 20,500 resistance over the coming week. Fundamentally, the NSE ASI is priced at 7.12x P/E and 2.53x PBV multiples. A significant discount compared with 25.45x PE and 1.57x PBV levels of 2009.
“This fundamental mispricing creates avenue for entry. However, negative sentiments in the market place may influence investors’ behaviours and reactions. On the summary, current market pricing offers an opportunity for investors to reposition their equity portfolios ahead of the 2011FY earnings season.”
According to Access Bank analysts, “the bearish trend may have been supported by investor preference for fixed income securities coupled with profit-taking activities by cautious investors. This week, investor optimism may garner traction as some companies report positive year-end financial scorecards. This may push market indices to higher levels with occasional sell pressures by wary investors.”
