High Fixed Income Yield, Others Threaten Equities Market Gains In Q2

Analysts have predicted a volatile trading for the Nigerian equities market in second quarter (Q2) of 2024 amid higher fixed income yields, rising inflation and other macroeconomic challenges.

The market enjoyed a strong Q1 with returns exceeding 39.84 percent or N18.203 trillion and it is expected to face headwinds in Q2, 2024.

Equities trading so far in the month of April started on a negative note, resonating with the broader sentiment among market participants. The witnessed sentiment was influenced by actions of market players who continue to digest the corporate earnings released so far as well as portfolio rebalancing efforts on the strength of expected earnings for Q1, 2024.

The market performance so far in Q2 showed that the overall market performance measure All-Share Index (ASI), which tracks the general market movement of all listed equities on the Exchange, declined by 1.45 per cent to close at 103,046.99 points as at April 8, 2024 from 104,562.06 points it closed on March 28, 2024.

Also, the market capitalisation lost N844 billion to close on April 8, 2024 at N58.277 trillion from N59.121 trillion at which it opened for trading activities for the month of April.

Analysts anticipated a slowdown driven by rising fixed income yields due to Central Bank of Nigeria (CBN) rate hikes and the potential dilution of banking stocks due to the recently announced recapitalisation exercise.

Portfolio manager of FBNQuest, Gbolahan Ologunro said, the bullish momentum that dominated the local bourse in the first quarter is expected to slow down substantially in the second quarter.

“This will be driven by the trioka impact of elevated fixed-income yields, fading impact of corporate actions, and the attendant impact of the ongoing recapitalization exercise in the banking sector,” he said.

The chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said, the stock market started the new quarter on a bearish note in the face of mixed corporate earnings and dividend announcements.

He stated that, “we expect the mixed sentiment and profit taking, as portfolio rebalancing continued in the face of expected earnings reports and higher yields outlook in the fixed income market, despite the rising inflation in Q2.

“Bargain hunters are also expected to take advantage of pullbacks to buy into dividend stocks. Investors are watching with rapt attention as the government takes steps to resolve the country’s lingering FX challenges which has thrown many companies into a negative earnings position. However, retracement to the 101,000bps level and below is possible on correction as global and domestic events unfold.”

Analysts at Cowry Asset Management Limited stated that, “looking ahead, we see weak optimism for the coming week underpinned by actions of market players who continue to digest the recent policy pronouncements by the economic directors as well as the expectation for the March 2024 consumer price inflation report, and the continuation of window dressing activities by fund managers.

“We note that market participants will remain vigilant in digesting Nigeria’s economic data and macroeconomic indicators to navigate the evolving landscape effectively. Meanwhile, we continue to advise investors on taking positions in stocks with sound fundamentals.

Also, the vice president, Highcap Securities Limited, Mr. David Adnori explained that, the earning seasons is almost over with the release of the results of the major banks, so there may be nothing extraordinarily to push the market performance up in Q2.

According to Adnori, the market so far in April has started to show this direction of fatigue and we do not expect Q2 stocks performance to be bullish until we start to see the half year results of listed companies.

He also noted that investors’ attention will be shifted to primary market where Banks and other issuers are expected to come to the capital market to raise funds.