As the nation’s capital market continues to reflect a regime of weak performance of quoted firms in the third quarter of the year, financial analysts have predicted that the stock market plunge may continue till January next year.
In its economic review, the Lagos-based financial and investment advisory firm, Renaissance Capital projected that the capital market will continue to react negatively to the Q3 2015 results that have been released. It however tells investors to expect a rebound in January next year.
In a report made available to THISDAY last week, FDC stated: “We expect the stock market’s plunge to continue just as international investors await new price bottoms. There will more bargain hunting but the market will recover in January. Should the MPC make a decision on interest rates during its meeting, the market will react given the inverse relationship between interest rates and stock prices.”
The year 2015 has been characterised by a cocktail of macroeconomic challenges that trailed the decline in crude oil prices, and the political and policy uncertainties that shaped direction of the economy so far in 2015. This is reflected in the trend of key macroeconomic indicators such as the slowing economic growth (Real GDP growth slowed to a 10-year low of 2.4 per cent in Q2: 2015), the steadily rising inflation (31-month high at 9.4 per cent in October 2015), weak fiscal spending, and hawkish monetary policy and foreign exchange constraints.
Coupled with these developments is a season of negative third quarter results which has continued to depress the capital market.
Corroborating FDC’s report, however, another leading investment advisory firm, Afrinvest noted that the Nigerian stock market has not been exempted from recent economic challenges as foreign investors sold-down on heightened foreign exchange risk and weaker macroeconomic fundamentals. According to Afrinvest, “Following the streams of majorly unimpressive Q3: 2015 results released by diverse key counters on the Nigerian Bourse ranging from the Banking sector to the Consumer Goods and Oil & Gas sectors, investors’ sentiments have further waned. “Consequently, the All Share Index (ASI) of Nigerian equities declined 6.5 per cent in October while YTD loss rose to 15.8 per cent.
Within the banking space, the constraining operating environment in 2015 was reflected in their levels of profitability in comparison to the corresponding period the year before. The high exposure of Nigerian banks to the public sector and the oil & gas sector (which we estimate at 5.4 per cent and 27.0 per cent in H1: 2015 respectively) have led to a weakness in assets quality as the revenue profiles of government and indigenous downstream and upstream companies were impaired by the oil price crash.”
The report added that the earnings results of companies in the oil & gas sector have directly reflected the glut in the global crude oil market and price crash, foreign exchange-related losses post-currency devaluation as well as delayed payments of petroleum products subsidies to downstream operators. “The late and unimpressive release of Oando’s results – having recorded a monumental loss of N179.3 billion in its FY: 2014 and another 35.1 billion loss in Q2: 2015 — doused overall market sentiments, prompting stakeholders to question corporate governance and risk management practices of NSE-listed companies.
“Given the above, we believe the current state of the market presents the greatest attraction only to investors with long-term horizon. However we advise short to medium term investors to position in dividend paying stocks ahead of full year result,” it said.
Afrinvest’s report therefore concluded that “As the Q3: 2015 earnings season winds off with average performance across sector indicating the adverse effects of macroeconomic strain on corporate profitability in the economy, thus hurting market performance in the past trading sessions. We expect some level of correction in coming sessions.”