Sunday, June 5, 2016

Delayed forex policy deepens capital market woes –Analysts

Stanley Opara

The Nigerian capital market is still awaiting the planned flexible foreign exchange policy framework announced by the Central Bank of Nigeria, financial analysts have said.

The uncertainty surrounding the current forex regime, they said, was aiding the sub-optimal performance of the capital market in recent days.

Commenting on factors that would shape the financial markets in the coming week, analysts at Vetiva Capital Management Limited, in the company's last weekly report, said, "We note the renewed interest in large capitalisations across key sectors and expect this to filter into the coming sessions. We however expect that market will continue to keep an eye on development surrounding the new currency framework.

"While we expect the short end of the yield curve to remain broadly upbeat this week (given the modest system liquidity), we believe sentiment in the bond market will remain tepid as investors stay cautious ahead of the June bond offer circular."

The Nigerian equity market see-sawed between green and red closes last week as investors continued to await details from the CBN on the new foreign exchange regime.

Notably, the market recorded two straight positive sessions after two previous sessions of sizeable declines to finish the week 4.39 per cent down week-on-week with year to date return at negative 3.52 per cent.

For fixed income, the Treasury bills market traded mostly higher this past week, supported by a healthy system liquidity stemming from the Federation Account Allocation Committee inflows at week open and relatively lower, clearing rates at the bi-monthly T-bills Primary Market Auction.

Overall, yields declined three basis points on average across maturities. However, trading in the bond market was mixed as investors continued to await details of the flexible foreign exchange regime. Yields declined 1.25 per cent on average across maturities.

Global markets continued to waver between positive and negative territories this past week.  Notably, markets traded mixed with a bullish bias at the opening sessions of the week as investors reacted to a number of mixed economic events, namely, volatility in yen, mixed Chinese and Japanese economic data, better than expected economic growth figure for Australia and France.

Markets turned mostly lower towards week close as the Organisation of Petroleum Exporting Countries members failed to reach an agreement on oil-output strategy, the European Central Bank's decision to stand pat on it policy rates and sharp miss on United States non-farm payrolls for the month of May and other economic data which renewed concerns on economic growth.

In the same vein, analysts at Meristem Securities Limited, in the firm's weekly report, said the bullish run of the equities market came to a swift end last week, as the positive sentiments which pervaded the market following the Monetary Policy Committee's mandate to the CBN to institute a more flexible forex management framework dissipated, to allow profit taking dominate activities.

Consequently, the Nigerian Stock Exchange All-Share Index declined by 4.39 per cent week-to-date to peg the year-to-date return at -3.52 per cent, on the back of the losses recorded on the first two trading days of the week (-7.01 per cent), which abruptly wiped out the gains of the previous week (+6.43 per cent).

There were 13 gainers and 59 decliners last week. The gainers for the week were led by Cadbury Nigeria Plc, E-Tranzact International Plc, Trans-national Express Plc, PZ Cussons Nigeria Plc and Union icon Salt Plc, which recorded respective gains of 21.66 per cent, 17.37 per cent, 13.82 per cent, 4.99 per cent and 4.72 per cent.

 Conversely, Oando Plc, Neimeth International Pharmaceuticals Plc, Axa Mansard Insurance Plc, Stanbic IBTC Holdings Plc, and Honeywell Flour Mill Plc were the largest underperformers, after recording value declines of 17.87 per cent, 15.05 per cent, 13.79 per cent, 11.07 per cent and 10.22 per cent accordingly.

For the agric sector, the Meristem experts said, "We envisage sustenance of the current cautious mood of investors to the sector counters, until clear-cut directions are seen regarding government regulations as it relates to the listed sector companies."

While for the banking sector, they said, "This week, we anticipate that buy side activities will fade, and profit-taking dominate, provided there are no news flows regarding the new flexible forex management framework."

Following three consecutive weeks of substantial price appreciations across most of the consumer goods sector counters, the analysts said investors took profit on stocks that witnessed price rallies during the period. Given that most of the sector's stocks have now declined below their intrinsic values, they expect some position taking in the week. "Notwithstanding, we advise investors to balance their optimism with caution amidst the unfavourable macro-economic environment," they added.

They added, "We anticipate that the health sector's performance will stay in line with the general equities market over the coming week, and advise investors to take advantage of fundamentally justified stocks in the sector which are trading below their intrinsic values in the coming week.

"For the insurance sector, the performance last week was much in line with our general expectations as investors took profits after the substantial gains recorded on some tickers recently. We expect moderate gains this week, as investors take position in anticipation of the institution of the more flexible forex management framework.

"We anticipate reduced levels of activities on the oil and gas sector stocks in the coming week; while not ruling out the possible persistence of current investor sentiments."

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