…As oil price push investment sentiment
By Emeka Anaeto
The bullish trend in the Nigerian equities market which greeted the international oil price rebound since beginning of this month has pulled back, indicating short term perspectives of investors in a long-drawn bearish market, contrary to advice by most investment analysts.
The development also signaled lack of confidence in sustainability of the oil price firm-up in the medium to long term.
It is believed by investment analysts that the positive developments in the international oil market may not automatically translate into economic recovery in Nigeria, at least in the short term.
The market opened the week bearish as investors booked profit on Oil & Gas as well as Banking stocks. The All Share Index (ASI) shed 45bps to close at 26,586.56 points while year-to-date, YTD, loss reversed its three-week recovery trend to -7.2% following 4.9% losses in Seplat Petroleum Plc, the only upstream oil company quoted in the Nigerian Stock Exchange, NSE, which has been leading in price gain for two consecutive weeks to yesterday, and -9.7% losses in Forte Oil Plc.
Other key reversals came from the banking sector with Ecobank Transnational Incorporated, -4.9% and Guaranty Trust Bank at -0.8% which weighed on the benchmark index.
As a result, investors lost N41.5 billion as market capitalization fell to N9.1 trillion. Similarly, activity level was lack-lustre as volume and value traded declined 70.0% and 60.0% to settle at 262.9 million units and N1.7 billion respectively.“Performance across sectors was broadly bearish as three sector indices declined while the Consumer Goods index was the lone advancer, up 28bps on account of strong buying interest in Guinness Nigeria Plc (+9.5%) and Dangote Sugar Plc (+4.1%).
The Oil & Gas index topped the losers’ chart, closing 3.6% lower as investors continue to book profit in Forte Oil and Seplat“As a result investor sentiment reversed to soft yesterday after sustained three-week strengthening as market breadth (advancers/decliners ratio) retreated to 0.6x (from 0.7x recorded on Friday) consequent on 16 advancing stocks against 27 decliners.
Given the uptrend in market performance lately which has been attributed to a rally in Oil & Gas and Banking stocks coupled with selective bargain hunting, the loss yesterday, according to analysts at Afrinvest West Africa, a Lagos based investment house, can be linked to profit-taking in bellwethers in the two sectors. However, they expect the bearish sentiment to be short-lived as investment managers rebalance portfolios towards year-end.
NSE, key indicators have been on up-tick into the third week in December following the sharp rises in oil price in the international market, with some equities’ analysts believing the bullish trend would continue through end this week.
Giving their views on the market trend analysts at Afrinvest West Africa had indicated that the upbeat is mainly driven by the oil price developments as Nigeria’s economy is hugely dependent on the oil market developments.
The analysts, therefore, stated last weekend: ‘‘We expect short term uptrend to persist as global oil prices stabilize above US$50.00/ per barrel.’’
But on their part, analysts at Cordros Capital Limited, another Lagos based investment house, pointed at the year-end factor that may moderate bull run in the market. They stated: ‘‘We expect a relatively quiet and cautious trading session in the week ahead of the year end. That said, we still expect bargain hunting to continue in fairly valued stocks.’’
The local bourse recorded gains for the third consecutive week after its bearish run in the month of November.
To lend credence on the driver of the bullish trend, Cordros Capital analysts had explained that ‘‘gains were driven by the players in the Oil & Gas sector mainly, as members and non members of the Organisation of Petroleum Exporting Countries, OPEC, agreed a deal to curb their production leading to a rally in the price of crude oil.’’
Majority of other sector indices finished strong last week, except for the Consumer Goods which receded by -1.68 per cent week-on-week, WoW and Insurance which dropped by -0.53 per cent WoW.
They noted that Oil & Gas Index recorded +7.36 per cent WoW gains, showing the biggest gain last week, following gains posted by Seplat Petroleum Plc, the only upstream operator listed on the NSE. The stock chocked up +20.59 per cent WoW.
Seplat was followed by another Oil & Gas operator in the downstream, Forte Oil, which garnered +9.42 per cent WoW.
They were trailed by banking stocks as Banking Index moved up +6.28 per cent WoW, with analysts also linking this to the positive developments in the oil sector since banking sector had suffered setback on account of drop in oil prices. The banks had committed huge funds to the Oil & Gas sector in form of loans which became problematic since 2015 due to failures in international oil market.
Consequently there were significant gains in banking stocks led by gains in Guaranty Trust Bank at 9.25 per cent WoW and Stanbic IBTC Bank at 6.71 per cent.
Moderate gains were however recorded in others sectors. Industrial Goods appreciated by 3.51 per cent WoW, led by cement giants, Dangote Cement at 6.25 per cent and WAPCO at 0.46 per cent WoW.
Consequently, market breadth was positive, with 39 gainers topped by Honeywell Flour at 24.53 per cent WoW, as against 19 losers led by Portland Paints at -13.54 per cent WoW, compared to 26 gainers versus 35 losers previous week.
Also the positive trend was sustained in trade volume as total volume traded increased by 286.29 per cent WoW to 3.46 billion shares, with banking stock taking lead as Union Bank, UBA and FCMB accounted for 52.26 per cent of traded volume.
Similarly, total value of trades increased by 18.33 per cent WoW to N12.58 billion with Nestle Foods, Union Bank and Nigerian Breweries accounting for 56.77 per cent of total value, exchanged in 12,860 deals last week.
International oil price had rallied, last week to USD58 per barrel, the highest this year and past 18 months.