The budding recovery at the Nigerian equity market may soon give way another round of depreciation, according to analysts at Afrinvest (West Africa).
In a weekend review of the stock market, Afrinvest noted that the uptrend, which started on Thursday and continued on Friday, might be a temporary trend as investors might soon resort to profit-taking, thereby undermining the bullish trend.
“Whilst the market mood seems to have turned positive towards the last two trading days of the week, we see the current rebound in the market as a temporary phenomenon as investors seem to be taking advantage of some low prices only to take profit in trading sessions ahead. Against this backdrop therefore, we anticipate a mix bag of trading in the coming week,” Afrinvest stated.
Nigerian equities on the second day of the recovery on Friday gained N328 billion. The benchmark index at the Nigerian Stock Exchange (NSE) indicated average gain of 1.21 per cent, representing a gain of N328 billion within the five hours of trading. The rally helped to moderate equities’ average year-to-date return to -29.08 per cent at the weekend. Aggregate market value of all quoted equities on the NSE regained the N10 trillion mark to close at N10.005 trillion as against its opening value of N9.677 trillion. The All Share Index (ASI), which tracks prices of all quoted equities, also crossed the 30,000 points, rising from 29,311.25 points to close at 30,306.51 points.
After eight consecutive days of depreciation, Nigerian equities had on Thursday rode on the back of renewed bargain-hunting to halt the bears advance and regain N115 billion out of more than N1 trillion that had been lost in recent days.
Analysts said they expected investors to remain cautious about Nigerian equities and bonds. According to analysts, the under allotment and higher marginal rate at the December re-opening, when marginal rate was 279 basis points higher on average than the November re-opening, pointed to higher risk perception of the Nigerian market by investors.
“We expect investors to continue to tread the bond market with caution given future expectation of higher yields while we also see long term investors taking advantage of the current high yield environment in anticipation of future lower yields,” analysts noted.
Analysts anticipated that rates will moderate further and trade within the 10.0 per cent to 20.0 per cent in the money market. This is based on the expectation that Treasury bills maturity inflow anticipated on Thursday and the Central Bank of Nigeria’s recent policy which barred banks from using their funds to speculate on foreign exchange.
“We expect this to have a knock on effect on the money market, boosting liquidity and moderating rates on money market instruments,” analysts stated.
In the foreign exchange market, Afrinvest said the pressure on Naira would continue all through to the New Year.
Central Bank of Nigeria offered and sold $400 million and $399.91 million at her bi-weekly RDAS auctions last week, $50.2 million higher than the amount sold in previous week at marginal rate of N168 to $1. To halt the speculative activities, the CBN released a circular last Wednesday, paring the foreign exchange trading position of authorized dealers at the close of each business day to 0.0 per cent of shareholders fund from 1.0 per cent. The CBN introduced another demand management tool last Thursday, informing dealers that funds purchased from banks by their customers at the autonomous/interbank foreign exchange market must be utilized within 48 hours from date of purchase.
“Whilst the cocktail of polices introduced could potentially weed out speculative demand for the greenback, we expect the pressure on the Naira to build into the New Year. Our expectation is based on the observed trend of foreign exchange demand pressure during the yuletide season, and the looming 2015 general elections,” Afrinvest stated.
