Taking a cue from the poor performance of Nigerian stock market indices last month and the causative factors, analysts believe that the supremacy of the bears in the market will continue this month.
Analysts premise their outlook on the fact that the capital market has continued to bleed as money market and other low risk investment instruments remain attractive with high rates.
Not a few of them believe that the raising of interest rates in money market and removal of holding limitation on Federal Government bonds have continued to drain and worsen the liquidity position of the capital market, as investors particularly the institutional investors opt for low risk investments as alternative.
“We remain cautiously optimistic as the low valuation and penny posture of blue-chip stocks could trigger speculative buying in the short term while possible bargain rumble in the banking sector towards recapitalisation/merger and acquisition would drive activities,” state Proshare analysts.
“To this regard, regulatory bodies and government need to play the major role in restoring confidence in the market and in the economy at large, by proffering necessary measures to jump-start flow of liquidity into the market - this in our opinion will return life to market activities,” Proshare analysts add.
Taking another look at the market, Cowry Asset Management analysts say: “This week, we expect to see some level of bargain hunting as the 5.54 percent drop in the market’s year-to-date performance, confirming to discerning investors the profound opportunities for strategic investment purposes. However, our expectation of further interest rate rallies remains a drawback to consistent equities upbeat in the short term.”
Bismarck Rewane, CEO, Financial Derivatives Company Limited, believes that two schools of thought are possible in the stock market outlook.
First, the bulls which must be accompanied by improved corporate results that will stimulate renewed interest in the market; economic growth driven by strong oil production and prices and improved private sector credit that will improve corporate performances, especially for Fast Moving Consumer Goods (FMCGs), and cheap valuations which are bargainers’ paradise.
On the side of the bears, Rewane links their activities to structural problems, few tradable stocks, market disconnect from economy as telecom and oil companies not listed, demutualisation, technology, governance issues, sustained low domestic retail and institutional investor participation.
“Investors preference for fixed income securities coupled with liquidity tightness may also have contributed to the bearish trend. While market direction remains generally uncertain, we expect the ongoing successful recapitalisation process in the banking industry to positively impact on market performance,” according to Access Bank analysts.
“Market trigger will be another round of great bank results; followed by the seamless sale and recapitalisation of rescued banks. Stock market performance shows that market continued its downward trend losing 4.62 percent in July, bringing year-to-date (YTD) return to -3.81 percent. Same period in 2010 was 24.09 percent. Daily market turnover is on steady decline as investor apathy continues. Global market recovery has been bumpy in 2011, as sovereign debt crisis continues to reduce market momentum. Institutional investors are underweighting emerging markets. Winning companies are sitting on piles of cash, Rewane told participants at the monthly economic news and views at Lagos Business School executive breakfast meeting with the theme “Down to the wire.”
“The bearish trend witnessed in the month of July revealed the weakness of the market fundamentals as market/investors failed to react with measurable performance to the impressive earnings reported during the month. The investors apathy witnessed during this period buttressed above fact, though lack of economic direction, uncertainties in the market coupled with unbalanced monetary policies contributed immensely to the extended bearish sentiment that depressed All Share Index (ASI) below 9 months low. “The YTD market status (-5.08%) which performed below our expectations however suggests serious attention to the market fundamentals in which liquidity and improved regulatory oversight would be the key ingredients coupled with balanced monetary policy to revive market activities,” Proshare states in its monthly market report.