Analysts still hold bearish outlook for Nigerian equities
Most stock holders had cause to offload their shares at significant discounts in the half year (H1) of 2015, following the waves of illiquidity that pervaded the Nigerian stock market.
Amid this circumstance which pushed the equities returns further south, and in line with most research analysts perception of equities market in the second half (H2), investors are advised to tread with caution at stock market as analysts expect no much surprises that could trigger any sudden positives in favour of equities.
Though, for bargain hunters who are searching for long-term gains, the current state of equities market offers them the opportunity to take positions in most downbeats but value stocks as they offer attractive entry points in terms of pricing.
In the seven months to July 31, 2015 the Nigerian stock market return stood at -12.92% with investors in consumer goods sector worst beaten.
Nigerian equities lost approximately N313billion last week as investors with long-term horizon failed to take position in value stocks.
Week-on-week (wow), the NSE All Share Index (ASI) which tracks the performance of the local bourse lost 911.42 points or 2.93 percent from a week open level of 31,091.69 points to 30,180.27 points last Friday. Also, in value terms, equities capitalisation dropped from N10.657trillion to N10.344trillion.
“Profit taking activities may prevail in the market as investors await clearer economic directions”, said Rotimi Peters led team of economic intelligence at Access Bank plc in their latest market analysis and outlook for stock market.
“Amid negative sentiments which have pervaded the bourse in recent weeks, we anticipate some bargain hunting activities as beat down value stocks present buy opportunities,” according to research analysts at Lagos-based investment house, Cowry Asset Management Limited.
Regardless of the positive trade witnessed at the beginning of stock trading this week, analysts believe that key drivers of bearish sentiments for naira assets, majorly macro uncertainties, issues around FX and weak corporate earnings, are still actively in play.
In their recent market outlook for H2’2015 research analysts at Lagos-based United Capital plc said they continue to hold a bearish outlook for Nigerian equities in 2015, “as a combination of domestic and external macro headwinds are not expected to abate in the near term. “Our outlook in the beginning of the year was anchored solely on the direction oil prices with a -4.5% return forecast for 2015 based on a base case oil price scenario of $55per barrel (pb)”.
“Considering various market developments since our last report, we are more bearish now than we were at the beginning of the year for the following reasons: foreign investor participation is yet to recover as exchange rate risk remains on the horizon; domestic participation has been at best speculative, and is expected to remain so until interest is rekindled by increased FPI inflows; an imminent rate hike in the US, though appears to have been modestly priced into emerging market assets, remains a key risk especially when the post election one-day outlier return performance of 8.1% is discounted; the outlook for banks’ earnings, which we discuss in the next section, remains negative and could further pull back equities”, the analysts stated.
Analysts at United Capital plc are also more bearish on equities because “the possibility of a further currency adjustment would create pass through on consumer companies, though we note that this may be a catalyst for possible FPI comeback; expected high interest rate environment could potentially make fixed income instruments more attractive to large institutional domestic investors; the macroeconomic impact of an eventual cabinet announcement (now due in September this year) may be delayed till the Q4-15; and the recent success of the Iranian deal will cap oil price movement for the rest of 2015, with continued pressure on government revenue. Based on the forgoing, we have revised our returns expectation to -9% for the Nigerian equity market in 2015.”
Iheanyi Nwachukwu