Investor apathy may trigger further sell-off
by Iheanyi Nwachukwu
September 4, 2014 | 12:21 am| | | Start Conversation
Contrary to earlier expectations that the performance of Nigerian stock market would be positive this week, the sell-off recorded in the early trading days of the week has further dimmed the hope for an upbeat.
Recently, investor apathy has continued to pound the Nigerian stock market as investors continue to factor in possible impact of risks like election, insecurity in the north on companies’ earnings, and outbreak of the Ebola Virus Disease.
In addition, the release of perceived disappointing half-year (H1) earnings by most companies and their impact on expected corporate declarations and full-year financial numbers further helped investors to take flight to safety out of equities.
“The narrowing risk spectrum in the fixed income securities may have contributed in making the equities unattractive to investors. We expect the market to close lower this week as investor apathy continues to trigger share sell-off,” noted Access Bank plc economic intelligence team.
In the trading week to August 29, 2014, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) and market capitalisation depreciated by 0.08 percent to close at 41,532.31 points and N13.714 trillion, respectively. The probability of this trend continuing this week is high as the market records more negative outings.
Four of the NSE indices appreciated last week with the exception of the NSE Consumer Goods Index (-0.23 percent), NSE Lotus II (-1.39 percent) and NSE Industrial Goods Index (-1.51 percent), while the NSE ASeM index closed flat.
“As a new trading week commences, the forthcoming general elections and the slowdown of economic activities in some areas of the economy as a result of the outbreak of the Ebola Virus Disease in the country remains the major challenges mitigating positive sentiments in the market,” according to investment analysts at MorganCapital, a Lagos-based investment company.
These analysts said they expect “further flight to safety this week as investors favour stocks with strong dividend history”.
MorganCapital analysts insist that investors should continue to invest based on the principles of sound fundamentals at good entry prices bearing in mind that in a bear market, stocks with good fundamentals have the capacity to retain value, and even when their prices crash, they are the quickest off the mark in price appreciation when the market peaks.
“In line with our expectation, the Nigerian equities market saw a mixture of bargain hunting and profit taking activities, howbeit closing in green territory at the end of last week trading. This week, we anticipate some buy pressure as stock prices remain at attractive levels,” according to analysts at Cowry Asset Management Limited.
Market analysts at Meristem Securities believe the re-emergence last week of the bears was due to the cautious trading on the part of investors “as they continue to factor in the country’s rising security challenges ahead of the 2015 elections, as well as the continued northern insurgency”.
“We, however, anticipate a reversal of the trend in the coming weeks given the attractiveness of the industrial goods sector on the back of expected increase in building and construction activities across the country,” they say.
In a related view, research analysts at UBA Capital plc, also an investment company based in Lagos, said that given the rebound in the market and the spark in activity level, “we see the positive mood in the market being sustained, though marginal”.
The UBA Capital analysts, who noted that the equities market traded bearish for the first three days of last week due to sell pressure on large-cap stocks, said they expected the market to close the week with a marginal gain.
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