Nigeria’s equities dip on profit-taking

Nigeria’s equities market has been on a rollercoaster ride, with a recent bullish run of 11 days followed by profit-taking activities that have dampened investor sentiment. Olumide Ibikunle, Senior Analyst at Meristem Securities, shed light on the current market dynamics during an interview on CNBC Africa. The abrupt shift in market sentiment has led to a significant dip in the industrials index, showcasing a loss of over 5%. Investors who had been riding the wave of gains have now resorted to capitalizing on profits as uncertainties loom over the market. The expectation of sustained growth post the bullish run has been met with a reality check as investors recalibrate their portfolios to navigate the challenges ahead. The earnings outlook, especially for banks, remains a point of concern for investors. The Central Bank of Nigeria’s policies, including the Loan-to-Deposit Ratio (LDR) directive, have put pressure on banks to increase lending, thereby impacting their profit margins. As Q1 earnings season approaches, investors are cautiously optimistic about the performance of banks amidst regulatory changes and market dynamics. While revenue and earnings are expected to grow, factors such as lower interest income and the reduction in bank charges may weigh on overall profitability. The LDR, currently set at 65% with a possibility of reaching 70%, presents both opportunities and challenges for banks. While some banks may struggle to meet the requirements and face penalties, others are in a comfortable position to comply. Stress tests conducted by the CBN have shown that most banks are resilient to the regulatory changes, indicating a stable banking sector for the time being. In addition to the banking sector, the performance of other key sectors such as industrials and consumer goods is under scrutiny. Cement companies, in particular, are facing pricing distortions that have left investors questioning the sustainability of current stock valuations. Consumer goods companies, on the other hand, are grappling with challenges such as excess duties, lower consumer spending, and increased operating costs. The closure of borders may present opportunities for certain consumer goods firms, but the overall outlook remains cautious due to economic uncertainties. Amidst persistent low yields in the fixed income market, investors, including Pension Fund Administrators (PFAs), are seeking alternative investment opportunities. The influx of liquidity from maturing instruments is expected to drive interest in the equities market in 2020. While some investors opt for traditional fixed income instruments at lower rates, others are exploring fundamentally justified equities to achieve superior returns. The equities market still presents value opportunities for investors willing to take on risks and capitalize on market fluctuations. As Nigeria’s equities market continues to navigate through profit-taking activities and earnings uncertainties, investors are advised to remain vigilant and strategic in their investment decisions. The market outlook remains mixed, with both challenges and opportunities on the horizon. By staying informed and adapting to changing market conditions, investors can position themselves for long-term growth and profitability in Nigeria’s dynamic equities landscape.