Hike in fixed income rate threatens equities market rebound

By Peter Egwuatu

Against the backdrop of the bearish trend in the equities market last week occasioned by the hike in yields on   Fixed Income , FI securities, financial analysts have indicated that a rebound in equities may not acqualise as risk averse investors are expected to trade cautiously this week.

Bearish sentiments dominated the equities market on the Nigerian Stock Exchnage, NSE last week, as concerns about the uptick in yields in the fixed income, FI market prompted investors to sell down their portfolio.

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Notably, the NSE recorded losses in all of the trading sessions of the week. Accordingly, the All-Share Index shed 1.7 percent Week on Week, W-o-W, to close at 41,709.09 points.  

Consequently, Market capitalisation fell by ¦ 368.0 billion to N21.8 trillion while Year-to-Date, YtD, return fell to 3.6 per cent.

Meanwhile, activity levels were however strong, as trading volumes rose by 7.4 per cent W-o-W while value traded rose by 6.4 per cent. The sell offs in WAPCO (-11.2 per cent ), Zenith Bank (-4.4 per cent), Nestle (-3.7 percent) and Dangote Cement (-2.5 per cent) drove the weekly loss.

Sectoral performance was broadly negative as all sectors closed in the red. The Insurance (-6.0 per cent ) index led the losers chart followed by Consumer Goods (-3.2 per cent ), Banking (-2.3 per cent ), Industrial Goods (-2.1 per cent) and Oil and Gas (-0.2 per cent ) indices.

Commenting on the performance of the market, analysts at Cordros Capital, a lagos based investment firm said:  “With the moderation in the prices of bellwether stocks last week, we expect savvy investors to take advantage of this and make re-entry ahead of their Full year, FY 2020 earnings announcement.  

“However, we note that the recent hike in OMO rates by the CBN will continue to stoke uncertainties on the direction of yields, keeping risk-averse investors on the side-lines. Thus, we expect a zig-zag market performance in the week ahead. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

Also commenting,   analysts at Afrinvest Research said :” We expect trading sessions to be a mix of bargain hunting and sustained profit-taking activities. The direction of yields in the fixed income market would also influence trades especially given the increase in marginal rates at the OMO auction last week.”

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