Bearish sentiments to persist in equities market as elections draw close

The bearish performance at the equities market, driven by negative investor sentiments, is expected to continue throughout the month of September on growing uncertainties surrounding the upcoming 2019 general election, according to market analysts.

Financial Derivatives Company says investors’ fatigue will continue as political uncertainty continues to grow, projecting a growing preference in debt capital market (DCM) to equity capital market (ECM) widens.

The economic think tank also sees an increase in foreign portfolio investment outflows, while opining that expected increase in US Fed rate would further impose pressure on performance.

A review of the Nigerian stock market in August in comparison with South African and Ghanaian markets showed Nigeria was the worst performing amongst the three with a year-to-date loss of 8.88 percent as at the end of August 2018.

The Johannesburg Stock Exchange had a year-to-date loss of 1.85 percent as at August ending while Ghana’s Stock Exchange CI closed with a year-to-date gain of 7.86 percent for the same period.

In the month of August 31, the NSE recorded a net FPI outflow of N38 billion with only five days that closed positive while 16 trading days closed negative.

Average volume of trade was 16 percent down to 257 million units while the average value of transactions was 5.72 percent down to N3.13 billion.

Only 17 stocks appreciated in price in the course of the month, 82 stocks lost, while 69 remained neutral.

Although all sub-sectors closed in negative territory, the banking sector recorded the highest loss of 8.64 percent. The poor performance of the sector can be attributed to Skye Bank (-13%), Fidelity (-17%), UBA (-16%)

The insurance index lost the least closing the month 5.99 percent lower than it opened driven by Universal insurance (-20%), Continental reinsurance (-19%), Cornerstone insurance (-17%)

Speaking on the performance of the insurance sector in light of the recent recapitalization introduced by the National Insurance Commission (NAICOM), Andy Tsaku, an equities trader at Kapital Care Securities said “we are beginning to see a lot of activity around insurance stocks, but quite a number of insurance stocks apart from just a few are trading below 50 kobo levels.”

He said “Going forward, if they are intending to raise capital in order to ensure that they exist at profitable levels and to also align with regulatory requirements, it is very likely that they will tow the lines of trying to do private placing so that they can raise monies in order to ensure that they remain in business.”

Tsaku opined that the insurance firms will continue to agitate the minds of investors going forward and given current price levels it will make some sense if people to begin to look into that sector beyond the apathy that has terrorized it over time.

For the week ended 7th September 2017, Nigeria’s domestic equities market sustained sell offs on market bellwethers dragging the benchmark index 2.33 percent lower.

According to analysts at Afrinvest, the downtrend remains largely driven by the lingering uncertainties around the 2019 general election, which according to them would be sustained.

“Nevertheless, we maintain that the current trend is not necessarily a true reflection of the fundamentals of companies and we believe that opportunities still remain in the market. Consequently, despite the overall negative performance, there were periods of intraday gains during the week.”

The benchmark index declined on 4 of 5 trading days in the week, with the largest loss recorded on Wednesday (-1.5%), while the only gain in the week was on Tuesday (+0.3%).

On a w-o-w basis, the All Share Index fell 2.3 percent to 34,037.91 points while year-to-date loss worsened to -11.0 percent.

Likewise, market capitalisation reduced N295.9 billion to settle at N12.4 trillion.

In the same vein, activity level weakened as average volume and value contracted 41.7 percent and 43.1 percent to 178.5 million units and N2.6 billion respectively.

The major drags to performance in the week were NIGERIAN BREWERIES (-5.1%), DANGCEM (-2.2%) and GUARANTY (-2.8%).

The top traded stocks by value were GUARANTY (N1.7bn), ACCESS (N429.8m) and SEPLAT (N260.8m) while GUARANTY (46.9m units), ACCESS (46.1m units) and AIICO (33.2m units) were the top traded by volume.

Sector performance was also bearish as all indices closed in the red w-o-w. The oil & gas index depreciated the most; down 3.7 percent w-o-w following losses in SEPLAT (-7.2%) and OANDO (-0.9%) while sustained sell offs in NIGERIAN BREWERIES (-5.1%) and UNILEVER (-6.4%) dragged the consumer goods index 2.7 percent southwards.

Similarly, the banking and industrial goods indices fell 2.4 percent and 1.9 percent following price depreciation in GUARANTY (-2.8%) and DANGCEM (-2.2%) respectively.

The Insurance index closed out the negative performance with a 0.1 percent decline w-o-w.

Investor sentiment softened in the week as market breadth (advance/ decline ratio) fell to 0.8x from 1.0x in the prior week, following 32 stocks that advanced relative to 38 that declined.

The top gainers for the week were HMARKINS (+26.7%), CONTINSURE (+16.8%) and CILEASING (+16.0%) while LAWUNION (-26.0%), STDINSURE (-23.7%) and UNIVINSURE (-17.5%) were the worst performers.

Analyst at Afrinvest said the current bearish performance would be sustained as elections draw closer. They, however, expect a “resurgence after the election euphoria settles.

Given current pricing in the market, we envisage opportunities for investors to take advantage of, albeit with a minimum investment horizon of a year,” they noted.