Bears rule as stocks in worst start since 2009

The sell-off by bearish investors that has led to a correction in Nigerian Stocks this year means the benchmark share index has gotten off to its worst start to a year since 2009, after posting one of its biggest annual rallies in 2013.

Stocks have lost -8.41 percent year to date (Fri March 21), the worst performance since stocks fell -8.85 percent between January and March of 2009.

“The investment climate now is fogged by different kinds of headwinds although asset valuations remain low and attractive,” said Abiodun Keripe, research analyst at Lagos based, Elixir Investment Partners Limited.

“Headwinds from QE tapering, CRR hike on public sector deposit, sharp decline in external reserve to about $38.4bn, the CBN Governor's suspension, and uncertainty from impending elections are factors that are depressing markets currently.”

Most banking stocks have fallen this year as investors fret over the possible outcome of this week’s Monetary Policy Committee (MPC), meeting.

Analysts expect a further tightening of liquidity via a possible increase in the cash reserve requirement (CRR) on public sector deposits to 100 percent by the central bank (CBN).

Guaranty Trust Bank Plc, the country’s biggest lender by market value, gained 3.4 percent to N25.85 last Friday, bringing year to date losses to -5.07 percent.

Access Bank, another tier-one lender rose by 0.26 percent to close trading at N7.62 a share.

The lender which acquired distressed lender Intercontinental Bank has dropped -20.73 percent year to date.

The shares of other first tier banks such as Zenith, FBN holdings and UBA have lost -19.71 percent, 23.62 percent and -20.22 percent, respectively this year.

 “The rate of downturn of equities in recent trading days is majorly tied to low investment appetite for equities, weak investor confidence in a recovery as well as the dominance of market-wide negative sentiments,” said research analysts at Meristem Securities.

“The sell pressure has persisted as significant catalysts that may drive demand levels and swing equities in a positive trend are yet to surface.”

The NSE-ASI surged 47 percent in 2013, finishing the year at the highest level since September 2008.

Most analysts had expected the rally to continue at least in the first half of 2014, but that follow through has yet to materialise.

“The major trigger which was initially envisaged was companies’ corporate actions but the declaration of ZENITHBANK and GUARANTY dividends at implied yield of 7.8 percent and 6.12 percent as at the time of declaration was clearly jettisoned by the market,” said Meristem research analysts.

Stocks fell for three out of five days last week.

Wednesday’s (19^th March 2013) decline on the NSE marked a streak of six straight days of losses.

The Nigerian Stock Exchange All-Share Index (NSE-ASI) however rebounded by 490.98 points or 1.32 percent, to close at 37,799.58 points at the 2.30 p.m. close of trading in Lagos, last Friday.

About 309.7 million shares changed hands on Friday, with total value traded of N5.06 billion, according to data from the bourse.

Foreign investors may be selling stocks due to uncertainty over the CBN naira policy and prospects of a smooth confirmation hearing –at the Nigerian Senate - for suspended Governor Sanusi Lamido Sanusi’s successor.

Total foreign outflows from the NSE rose by 34.8 percent between December 2013 and January 2014, according to the latest data from the bourse. Foreign outflows were N50.14 billion in January 2014, up from N37.17 billion in December 2013 and N20.50 billion in January 2013.

The CBN has spent $7.27 billion year to date to prop up the naira at its bi-weekly foreign exchange auctions. 

The local currency has retreated 2 percent this year versus the dollar, despite heavy CBN intervention, while foreign reserves used to bolster the local currency has dropped 11 percent year to date.

Stocks are cheaper now than in 2009, even though company earnings have grown from the levels they were at five years ago.

“The NSE-ASI index price-earnings ratio closed 2009 at 33.58x. This, compared with 13.43x it is presently valued clearly shows how undervalued the overall market is,” said Keripe.