By Nkiruka Nnorom
As the nation awaits the announcement of the ministerial list by President Muhammadu Buhari today, analysts at United Capital Plc have said that investors will assume lukewarm attitude towards equities during the week.
The company, however, noted in a research report reviewing activities in the capital market that reduction of cash reserve ratio by six basis points to 25 per cent by the Monetary Policy Committee (MPC) would result in moderate re-pricing of shares of Tier 1 banks.
“Easing the stance of the MPC is expected to bode well for banks’ earnings going into H2-15. Therefore, we will likely see a moderate re-pricing in banking stocks, especially the Tier 1 banks this week. However, we expect a tepid market as investors await the ministerial list by the presidency on Wednesday. On this note, we think the positives in the market will slightly offset expected profit booking. Thus, we look to see a marginally positive return for the week,” United Capital said in the report.
According to the firm, the rob-off effect of monetary easing by the MPC supported by attractive valuation on stocks pushed allocation increase in equities last week, thereby driving the Exchange marginally northwards.
The firm added that all sectors closed green except the banking sector which lost 66bps w/w.
Reviewing activities in the fixed income market, the firm said: “This week, we expect yields to trend lower though marginally. Liquidity boost and relatively attractive yields will be sustained buy bias towards FI instruments. On the other hand, some level of profit booking is expected as investors may thin out exposures to ‘overpriced’ instruments. Also, an aggressive mop-up by the CBN via OMO auction may reverse the strong buy bias.
Activities in the FX market remained relatively calm in the past week, even with the MPC’s decision to boost market liquidity. The naira traded flat on a w/w basis, closing the week at N199.0. We expect to see some pressure on the naira on foreign portfolio outflows as we enter into the JP Morgan phase out week although impact will likely be doused by ancillary dollar supply by the Apex bank,” it added.