The capital market, this week, is unlikely to see any relief from last week’s downturn notwithstanding the plans by more companies, especially the banks, to release their last year’s full results and that of 2016 first quarter.
In the wake of the announcement of Morgan Stanley Capital International concerning a possible exclusion of Nigerian equities from its frontier market indexes, the Nigerian stocks traded bearish last week.
The Nigerian Stock Exchange All-Share Index declined 240 basis points week-on-week with year-to-date return at negative 13.7 per cent.
“While we highlight the modest improvement in investor sentiment as indicated by sustained rise in market turnover, we expect the mixed trading pattern (with a bearish bias) to persist in the week ahead as we anticipate more uninspiring 2016 Q1 earnings – particularly from the banks,” analysts at Vetiva Capital Management Limited said in the firm’s weekend report.
Pan-African bank Ecobank Transnational Incorporated kicked off first quarter bank earnings season, with profits down 35 per cent year-on-year, while Unilever Nigeria Plc’s Q1 results showed a recovery in earnings (profit after tax up 76 per cent year- on-year). Overall, the financial services sector (+173 bps) recorded the only week-on-week gains as interest re-emerged for large cap banks.
On fixed income, the Treasury bills market oscillated through the past week as investors reacted to a number of open market operation auctions from the Central Bank of Nigeria and a higher-than-expected inflation figure for the month of March.
Meanwhile, trading in the bond market was largely bearish Monday through Wednesday last week as investors looked ahead to the monthly bond auction.
While buying gained momentum on Thursday despite the bond auction clearing at rates higher than secondary market levels, mild sell pressure resurfaced at week close with yields climbing 4bps on average.
Global markets traded largely positive this past week as speculation over oil output freeze sent oil prices higher ahead of Q1 earnings season. Better-than-expected bank earnings and positive Chinese trade data (exports for the month of March rose 11.5 per cent year-on-year while import fell 7.6 per cent for the same period) further fueled market rally. However, global stocks struggled to hold on to gains on Friday despite release of China’s Q12016 Gross Domestic Product, which came in line with market expectation as optimism over oil output freeze dimmed.
In the same vein, analysts at Meristem Securities Limited said the weak investor appetite for the Nigerian equities market was sustained last week, as the bourse closed negative in four out of five trading days in the week.
For the agric sector, they said, “We view the sector’s ability to attract positive sentiments even in the predominantly bearish market as an indication of a consensus optimism towards the sector, owing to the current administration’s economic diversification strategy to develop the sector.
“However, investors are advised to take position in sector counters based on fundamentals, considering longer-term investment horizon rather than short-term sentiments.
For the banking sector, there were gains during the week, as investors took advantage of the attractive trading prices of some of the sector’s stocks.
“We do not expect this to persist over the next few weeks, as consternation regarding exclusion from the MSCI Frontier market index grows.”
For consumer goods, the year-to-date return of heavyweights like Nestle Nigeria Plc, -25.58 per cent; 7-UP Bottling Company Plc, -19.23 per cent; Cadbury Nigeria Plc, -13.88 per cent; Unilever:, -32.37per cent ; Nigerian Breweries Plc:, -22.06 per cent within the sector, illustrates the persistent negative sentiments towards the sector so far in the year, as precipitated by doubts regarding future financial performances of the sector’s companies in the near term.
“We do not anticipate respite in the near term, as investors continue to price in the current economic and operational risks in the sector. However, we note the opportunity for long-term positioning in fundamentally justified companies at currently depressed prices,” the analysts said.
For industrial goods, they said, “Although we do not anticipate favorable investor sentiments towards the sector this week, our general outlook for building material companies remains strong; while for the insurance sector, we expect news inflows this week to dictate the general market and sector performance.”
They anticipate low levels of activities on the oil and gas sector stocks this week, barring positive news inflows capable of spurring activities.
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