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“We see the slide in prices providing buy or entry opportunity for investors” – Temitope Adeosun, MD, FBNQuest Securities

September 26, 2018 5:54 pm Publications

At the end of the first quarter of 2018, the Nigerian stock market experienced a relatively impressive return on investment (ROI) with high-profit margins. The All Share Index (ASI) also improved by 8.5% quarter on quarter, mainly buoyed by growth in the economy. Operators and analysts had attributed the early year market rally to the activities of bargain hunters who were still swayed by positive developments in 2017 and were taking positions ahead of positive results from companies for the year-end.

With the second quarter of the year already coming to a close, investors are in some ways uncertain about what lies ahead. After weeks of a bear run, the equities market has slipped to a year-to-date decline. Most investment analysts had alluded to the fact that the bear run on the heels of the impressive FY ’17 corporate figures was because the inspiring results were anticipated and fully priced into the bullish trading that preceded the results. Consequently, the same development may happen in a couple of weeks as Q2 ’18 results are expected to start rolling in.

Analysts expressed optimism as the equities market remained upbeat following bargain hunting in value stocks that had bottomed out during the protracted downturn. A chat with some market operators revealed that while strengthened macroeconomic fundamentals and attractive prices of value stocks remain supportive of gains, investors and players are cautiously optimistic.

According to Temitope Adeosun, Managing Director of FBNQuest Securities Limited, in May, the equities market suffered its biggest monthly decline in more than a year with lingering investor apathy from global economic and geopolitical uncertainties, such as concerns around fading optimism about the resolution of US-China trade dispute, FX pressures, and early pre-election gloom, fuelling uncertainty in the local bourse. We expect weak sentiments to linger in the market in view of concerns over the impact of lingering indicators. However, the quarter-end activities of portfolio managers coupled with the imminent take off of the multi-fund investment structure by PFAs may provide some support.

Adeosun pointed out that going into the second half of the year, the duo of policy normalisation in advanced markets and election uncertainties in Nigeria could potentially create foreign investors’ aversion towards naira assets and, by extension, reduce capital importation into Nigeria. “In May, we witnessed some pressure at the Investors’ Exporters Window (IEW). This was fundamental as a result of a slowdown in Foreign Portfolio Inflow, with the equities market returning -7.7% MoM while average yields in the fixed income market expanded 31 bps MoM in May. Thus, the slowdown of FPI flows at the IEW window points towards a moderation in capital inflow in Q2 18”.

Commenting further, she attributed the relatively bearish run to profit-taking by investors in most stocks that had been overbought in the beginning of the year, the exit of foreign investors, and weak sentiments towards emerging and frontier markets. The current market indices may persist for a while as some investors are likely to exit due to emerging higher returns on mutual funds in the United States and Europe. This is attractive to foreign portfolio investors and they are offloading and selling down their shares to take advantage of these investment opportunities.

“For us at FBNQuest Securities Limited, we see the slide in prices providing buy or entry opportunity for investors. The good news is that the market fundamentals and most stock valuations remain strong. The current bearish trend is temporary. We are confident the market will regain its momentum”, she concluded.

A closer look at the factors underlying the swing in the market’s fortune merely highlights the issues at the heart of the economy’s exposure to external forces, and hence it’s fragility. There is, therefore, the need for investors to be cautious while taking a position. Sustainability of positive market sentiments will depend on a reassuring mix of the government’s monetary and fiscal policies, positives in the macroeconomic aggregate, actions of the regulators and the political landscape.

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