As bearish sentiment in the Nigerian stock market held sway last week, the market capitalisation of equities listed on the Nigerian Stock Exchange has fallen by N1.3tn from a high of N12.135tn recorded in April.
The equities market lost N273bn in market capitalisation last week as it dipped from N11.108tn, at which it opened on Monday, to close at N10.835tn on Friday.
The decline in market value followed lingering equities sell-offs by foreign and local investors, forcing stocks to fall to a three-month low last Tuesday as investors who were worried about a shortage of dollars on the foreign exchange market sold shares.
Following the emergence of Muhammadu Buhari as president, the stock market had rallied impressively, after weeks of sell-offs on the back of political tensions before the election. The market capitalisation of listed equities hit a peak of N12.135tn on April 2.
But since then, the country’s stock market has continued to take a hit from worries over the continued slide in the naira and the impact of persistently low oil prices on government finances.
Analysts at Vetiva Capital Management Limited in a report described last week as another red week for Nigerian stocks as bears tightened their grip on the NSE.
“Sustained domestic macro concerns and the renewed decline in global oil prices fueled a selloff on the exchange across five consecutive days. Despite strong advances in the industrial goods sector at week open, negative sentiment in the consumer goods and financial goods sectors continued to offset gains, steering the NSE ASI to its 8th consecutive red close,” they said.
On what will shape markets this week, the analysts highlighted the potential for modest gains in select large caps given the length of recent losses, saying, “We expect bearish market sentiment to persist in the coming week even as bank earnings season kicked off this past week on a negative note.”
On their part, analysts at Meristem Securities Limited in their investment guide for the week and outlook for the second half of the year, said the Nigerian equities market, pressured by spill-over effects from falling global oil prices, fragile domestic economic fundamentals and largely unimpressive company performances, recorded relatively low market activity in the first half of 2015 evidenced by a 3.46 per cent decline in the All Share Index.
“Although we expect the prevailing challenges to persist into the second half of 2015, we anticipate intermittent upswings in market mood, driven by trickles of positive news inflow from the political space and position-taking in fundamentally justified stocks.”
The analysts said they were not optimistic about the banking sector’s prospective performance for the second half of the year, given the rising cost of funds, limits on non-interest income generation, impaired economic fundamentals and declining quality of loans, even as higher yields on assets are expected.
“Pricing of stocks might also be dragged by expected lower dividend yields from the need to conserve capital.”
They said lacklustre sentiments towards insurance stocks persisted in the first half of the year, as 24 out of the 29 listed insurance stocks currently trade at par value, adding that “Based on the uninspiring outlook for the entire economy for the rest of the year, we anticipate this bearish mood to be sustained.”
The Meristem analysts stated that the insurgency in the Northern part of the country, poor nature of supporting infrastructure, and devaluation of the currency had dragged the agricultural sector in the year.
“We are not expectant of a turnaround in the near term, as the listed agricultural sector companies are being affected by the supply glut in the global rubber industry and consequent fall in commodity prices, devaluation of the naira and the effect on imports of some raw materials, among others.
“The consumer goods sector had a stormy half year, owing to the direct impact of economic realities on the sector and component companies. The hardest blows were however the naira devaluation and the closure of the RDAs market, coupled with production challenges in the form of gas disruptions.”
Noting that most listed consumer goods equities endured negative year-to-date returns, the analysts anticipate a better outing for these equities in the concluding half of the year, riding on relatively low market prices, as the component companies adapt to the economic realities and possibly release better scorecards.
They said, “The oil and gas sector, as gauged by the NSEOILG5 index, settled 3.04 per cent lower, with two stocks (Total (+15.79 per cent) and CONOIL (+7.19 per cent)) closing positive in H1:2015.
“Considering the challenges besieging the downstream sector with respect to accumulating subsidy payments and FX differentials, amongst other structural bottlenecks, we do not foresee a major upside heading into H2:2015. Therefore, we expect the tempered returns seen in the first half of the year to be sustained.”