Research analysts at United Capital Research have suggested that a gradual rather than a sharp pullback in stocks will hover over the Nigerian equities market given that a return to a double-digit yield environment, expected not earlier than first quarter next year, could impact the current bullish sentiments in the local bourse
The suggestion comes on the back of recent happenings across the country that appear to threaten the Nigerian investment environment.
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The NSE All-Share Index has so far rallied 8.0 per cent on a month to date (MTD) improvement, defying the recent social unrest across the country which some analysts have inferred could hamper investors’ confidence and market activities following the Black Tuesday shootings in Nigeria’s commercial nerve centre. That rally has seen the market outperforming it peers (up 8.0% YTD) within the sub-Saharan African region’s exchanges.
Also, compared to the 31st-Mar- 20 event, which led to the economy being shut down for weeks, followed by a COVID-19 induced market crash, the Nigerian bourse is up 36.1 per cent. But despite all that had befallen the market, will the Nigerian stock market rally be sustained?
Research analysts at United Capital Research in a market commentary note seen by Business A.M. said the local equities market is clearly the only game in town due to the low yield environment which has been projected to impact on stock prices as investors are busy taking profits from lower-priced stocks.
“Earlier, we hinted that the stock market is clearly the only game in town, thanks to the low yield environment. Thus, we urged reluctant investors to get involved, ahead of huge maturities expected to bolster stock prices.
“With mouthwatering returns delivered to investors so far, we are continuously inundated with two questions. 1) When do you see the interest rate environment turning? 2) Do you think the stock market rally is sustainable? Well, we think both questions are related, given that a return to double-digit yield environment will clearly discourage the recent bullish sentiment for stocks,” the United Capital analysts argued.
Meanwhile, foreign portfolio investments (FPIs) funds, which run into billions of dollars, remain trapped in Nigeria. With the illiquidity in the currency market, some of these funds would find their way into stocks, in search of gains.
The analysts also assert that the few earnings releases for the third quarter so far submitted by companies point to stronger than expected full-year earnings, as observed in WAPCO, STANBIC and FLOUR MILLS, MTN, AIRTEL Africa, among others. “Thus, we do not see a sharp pullback in stock,” they said.