Business a.m.

April’s bullish run “a dead bounce”

Analysts see bearish reversal in equities, fixed income markets in May Say CBN MPC decision will be key performanc­e driver in Q2 and beyond

- Charles Abuede

FOLLOWING THE DECENT MOMEN TUM garnered in April in the equities market, which was spurred on by the quarterly earnings releases by companies, resuscitat­ing...

FOLLOWING THE DECENT MOMENTUM garnered in April in the equities market, which was spurred on by the quarterly earnings releases by companies, resuscitat­ing investors’ interest and consequent­ly feeding improved buying interest, equities and fixed income analysts expect the market trajectory to remain sideways with bearish sentiments as investors look to take advantage of discount fixed income instrument­s.

Nigerian equities started the month of April on a soft note as a sustained uptick in fixed income yields weighed on investor’s appetite for equities and also closed the same month in the green. However, as companies began to release quarterly earnings reports by mid-April, investors’ interest was resuscitat­ed and consequent­ly fed improved buying interest. Overall, the benchmark All-Share Index (ASI) returned 2.0 per cent on a month on month basis to print at 39,840.28 points by the close of the month, in what was its first monthly gain in three months. Consequent­ly, the market year to date loss moderated to 1.1 per cent while market capitalisa­tion printed at N20.9 trillion at the end of April 2021.

Notably, the equities market’s positive performanc­e can largely be attributed to equally positive Q1-2021 earnings releases, particular­ly in the blue-chip tickers as the industrial goods sector (+3.1%), consumer goods sector (+2.8%) and oil & gas sector (+1.8%) all drove the recovery on a month on month basis in April as the strong earnings releases and compelling performanc­es from companies like Nestle, Dangote Cement, BUA Cement, Lafarge Africa, and Seplat Petroleum, drove the month’s bullish sentiments. However, the banking sector (-4.8%), as well as the insurance sector (-1.5%) disappoint­ed during the month, after a month on month analysis.

Given the foregoing analysis, analysts have regarded the April bullish month “a dead cat bounce” as the majority of the bearish drivers are yet to crystallis­e; but the trajectory remains sideways with bearish sentiments dominating trades in the subsequent months of the second quarter.

Said analysts at FSDH Capital Research: “Following the decent momentum garnered in April, the question investors want to answer is, if this marks the beginning of a turnaround in equity market sentiments. Based on our analysis, we regard the April bullish month as a “dead cat bounce” as majority of the bearish drivers are yet to crystallis­e. First, we note the upward reversal in the yield environmen­t is yet to plateau and as such, we expect further selloffs in the equities market as investors look to take advantage of discount fixed income instrument­s.

“Our expectatio­ns are further backed by our technical analysis that shows that the 50-day moving average of the NSE-ASI formed a recent bearish cross by cutting the 100-day moving average from above (with a downward shape). Furthermor­e, two key technical indicators (Relative Strength Index and Moving Average Convergenc­e & Divergence) show that the recent rebound may be short-lived. For the Relative Strength Index (RSI), it currently stands at 67.8 per cent, precarious­ly close to the overbought territory of 70.0 per cent which indicates profit-taking pressures are imminent. Lastly, the Moving Average Convergenc­e and Divergence indicates stuttering bullish momentum positing a crossover to bearish run is likely in the mid-term,” they said.

For analysts at United Capital Research, “This month, we expect the equity market trajectory to remain sideways with bearish sentiments dominating as investors book profits from gains recorded in Apr-2021”.

CBN’s MPC to drive yields, equities mid-to-long term

Conversely, the money market continued to witness strong bearish sentiments following a sustained uptick in yields at recent primary market auctions (PMAs). In the secondary NT-bills market, the average NT-bills yield closed the month of April at 4.7 per cent, up 61 basis points month on month from the average yield of 4.1 per cent at the end of March. Similarly, the bonds market remained bearish as the average sovereign bond yield surged by 211 basis points month on month to 11.9 per cent in April from 9.8 per cent at the end of March. In line with analysts’ expectatio­ns, the fixed income rates continued their uptrend with the 364-day NTB paper at the primary auctions closing at 9.75 per cent from the previous 8.0 per cent at the last auction in April 2021 and marginal rates on 2027, 2035, and 2045 instrument­s tracking significan­tly higher at 12.25 per cent, 13.34 per cent and 13.85 per cent from 10.25 per cent, 11.25 per cent and 11.80 per cent respective­ly.

“For the fixed income and treasury markets, we expect rates will continue to rise at the primary and secondary markets fuelled by dealers’ appetite for higher yields and the government’s need for finances. Thus, we retain our guide of underweigh­ting equities and staying short in the fixed income market,” said United Capital Research analysts.

For FSDH Capital Research analysts, they stated that: “We recommend investors remain broadly cautious in investing in Nigerian equities as we think the potential for downside is significan­tly higher than any upside potential. That said, we note that isolated news or corporate actions on specific stocks could drive gains much higher, but may not be sustained in the long-term.”

In the meantime, the Monetary Policy Committee (MPC) would be meeting in May to decide its policy direction. The probabilit­y of a rate hike is now stronger as the inflation rate continues to surge higher. At the last meeting, three of the nine members voted in support of a rate hike indicating a gradual shift from the previous unanimous vote for a hold. Thus, in a move that would be a significan­t downside trigger for the equities market, it is expected that the MPC at some point (either in May or July) will pursue a hawkish monetary policy approach which could further drive yields higher and equities lower.

 ??  ?? L-R: Margaret Omisope, managing director, UNAAB Micro-finance Bank; Chidiebere Nwokeocha , executive director, Cornerston­e Insurance; unidentifi­ed speaker at the symposium; Seye Awojobi, registrar/CEO, Chartered Institute of Bankers of Nigeria (CIBN); and Shina Gbadegesin, managing director, Goxi Microinsur­ance Company, during the 6th annual symposium of The Nigerian Mirofinanc­e Platform in Lagos, recently
L-R: Margaret Omisope, managing director, UNAAB Micro-finance Bank; Chidiebere Nwokeocha , executive director, Cornerston­e Insurance; unidentifi­ed speaker at the symposium; Seye Awojobi, registrar/CEO, Chartered Institute of Bankers of Nigeria (CIBN); and Shina Gbadegesin, managing director, Goxi Microinsur­ance Company, during the 6th annual symposium of The Nigerian Mirofinanc­e Platform in Lagos, recently
 ??  ??
 ??  ??

Newspapers in English

Newspapers from Nigeria