Industry analysts have predicted that there will be cautious trading in the nation’s stock market this week.
This is coming after global bourses plummeted at last week’s close as the United Kingdom voted to leave the European Union. The move had triggered a negative sentiment among investors.
Notably, the Financial Times Stock Exchange Index and Shanghai Stock Exchange Composite Index declined 130 basis points and 278 basis points respective at week close.
While trading largely in the green for most part of the week, the Nigerian Stock Exchange receded into negative territory at week close.
Notwithstanding, the NSE All-Share Index appreciated by 4.79 per cent for the week, putting year to date return at 7.01 per cent.
“Noting the emergence of risk-off sentiment across global markets following the Brexit decision, we expect cautious trading across market as investors seek safe havens,” analysts at Vetiva Capital Management Limited said in the firm’s weekly report.
On June 23, Britain voted to leave the EU in a 52 per cent to 48 per cent vote in favour of exit. The exit is expected to happen over the next two years. The decision has set in motion an unprecedented and unpredictable process that threatens a period of uncertainty for Britain, Europe and the global economy.
“Amidst renewed global uncertainty, we also expect the post-Brexit risk-off sentiment to dampen the current positive sentiment in the Nigerian market in the coming days as market participants continue to assess the overall impact of the decision,” the analysts maintained.
In other developments, Fitch ratings downgraded Nigeria’s long-term foreign currency Issuer Default Rating to “B+” from “BB-“ and Long-term local currency to “BB-“ from “BB’ while maintaining a stable outlook.
The agency cited worsening vulnerability in Nigeria’s fiscal and external positions, slow monetary and fiscal adjustments to low global oil prices, lower oil production from renewed insurgency in the Niger Delta region, and magnifying pressures on export revenues, among others.
The Vetiva analysts continued, “In the near term, we expect this to trigger an uptick in the yield across the curve as investors price in the increased risk. We highlight that this might hurt the Federal Government’s plan to secure external debt in a bid to finance the expanding budget deficit as foreign borrowings become more expensive for the country.”
On what will shape markets in the coming week, the analysts said, “While we highlight that the result of the Brexit referendum dampened the positive market sentiment, we are of the opinion that the market was due for modest profit-taking, given recent rallies. That said, we anticipate a mixed trading session in the coming sessions as the investors further digest the impact of the Brexit decision.”
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