Santa Claus Rally: Stocks on Radar as December effects drive prices


Wednesday, December 21, 2016 3.20 pm / TheAnalyst 

As 2016 is moving faster to a close, the fresh optimism witnessed towards investment in equities in the early weeks of December again defied the unimpressive economic outlook and bearish macro-economic fundamentals, just as we had witnessed in Q2'2016- this indicates that market is experiencing early 'December Effect' or Santa Claus rally.

In case you don’t understand what Santa Claus rally is- It is the uptick in stock prices in the month of December, which mostly occur towards the end of the year, in anticipation of better prospects in the New Year.

Nigerian economy is still battling  with recession, weak revenue, low economic activities, shortage of FX and yet to tame growing inflation, which had really dampened risk appetite towards investment in equities from June to November as market posted 8.78% loss within this period.

The need for portfolio reshuffling had really engineered the fresh optimism while the December effect had aided the bullish run witnessed so far in the month of December. This may see the year 2016 close with a modest loss as YTD loss has already been lowered as at 19th December to 7.18% from 12%.

As a result of this, some of weathered blue chips and value stocks have really benefited from steady and consistent bargain hunting, which has placed MTD market performance at 5.33% Gain as at December 19 2016.

On the other hand, some stocks have been under sell-off pressure as their fundamentals remain unimpressive and battered as a result of the impact of the economic recession.

As revealed above, market had already gathered momentum significantly as market RSI has jumped from 13.16% to 69.68%(overbought threshold)- this suggests market may experience cautious trading (profit-taking) soon. We anticipate a brief pull-back as we move closer to Santa Claus rally period.

In building up to year-end bargain hunting, we expect improved oil price at the global market to continue to induce or sustain positive sentiments towards certain sectors (Oil and banking sectors), which also shows it is time to buy into certain stocks.

Though, it looks like we have had Santa Claus rally early before the expected period. Nevertheless, lot of blue chip stocks are still trading far below their fair value, which means there is possibility that Santa Claus rally or December effects can still push prices further up.

Subsequent paragraphs would reveal stocks on hunters’ radar as we anticipate Santa Claus Rally to regain momentum after on-going modest price correction.

In the table above are top stocks on hunters’ radar as investors repositioned portfolios ahead new year for better returns. We expect these stocks to experience a modest price pull-back as market seems to have switched into speculative mood in the last 2days.

In the above table are stocks that are under continued or fresh sell pressure as investors reduced stakes significantly due to unpleasant postures of (un)known fundamentals of the companies.

Performance Outlook per sector

Full list below

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