Equities market: No justification for April, May Rally – WSTC

Analysts have said that equities segment of the Nigerian Stock Exchange has slipped into correction mode after initial rally.

WSTC Securities Limited says its bearish outlook for the equities market remain for the financial year 2020.

According to the firm, the two consecutive months rally witnessed in April 2020 and May 2020 shattered in June 2020.

“In our view, the fundamentals of the economy did not justify the rally in the two months”, WSTC’s analysts explained.

Equities market: No justification for April, May Rally – WSTC
Tofarati Agusto – WSTC Financial Service Chief

However, analysts said they expect to see a normalisation in subsequent months.

“We note the upcoming release of half year results by corporates and the possibility of the market to price-in the prospects of interim dividends.

“Nonetheless, we believe that the impact of half year results release will be minimal due to an overall weak sentiment in the equities market”, WSTC stated.

The Nigerian stock market, as measured by the NSE All-Share Index declined by 3% on a month-on-month basis, from 25,267.82 points as of the end of May 2020 to 24,479.16 points as of end of June 2020.

After two consecutive months of rally in April 2020 and May 2020, analysts believe that the decline in prices in June 2020 was partly driven by profit-taking activities by investors.

Heightened risk expectations in the markets was also cited by analysts as contributed factors.

Using the information from the PMI report, although the data revealed that the economy contracted, the contraction was relatively milder than the previous month’s levels.

“Going forward, we expect to see continued recovery in the economy, albeit very slow and weak”, WSTC said.

Meanwhile, analysts said the foreign exchange market was relatively stable in June 2020, owing to the gradual recovery of crude oil prices in the global markets.

However, there were poor levels of supply and activities in the Investors & Exporters FX window (IEW), resulting from weak inflows from portfolio investors.

Analysts said the intervention of the CBN in the IEW window rose by 300% in June 2020.

WSTC however noted that the external reserves declined marginally by 1% from $36.49 billion as of the beginning of June 2020 to $36.19 bn as of the end of June 2020.

Overall, the exchange rate at the IEW remained stable at N386/$1 in June 2020.

In the same vein, the investment firm said the bullish run in the fixed income markets sustained in June 2020, as continued demand persisted amid the excess liquidity in the financial system, coupled with the lack of other viable alternative investments.

Average yields in the secondary markets declined across all tenors, save for the 1-year fixed income instruments.

FX Market: Naira Depreciates Against Dollar at IEW

In the primary market, there were three treasury bills (NTBs) auctions conducted in June 2020.

Yields across the three tenors declined from 2.02%, 2.20%, and 4.02% during the first NTB auction of the month conducted on June 10, 2020 to 1.80%, 2.04%, and 3.75% during the last NTB auction of the month conducted on June 17, 2020 on the 91-day, 182-day, and 364-day, respectively.

Analysts said the yields at the primary market auctions of the OMO instruments were unchanged in June 2020.

Across the three OMO primary auctions conducted during the month, yields remained flat at 4.95%, 7.79%, and 8.99% on the 91-day, 182-day, and 364-day bills, respectively.

Equities market: No justification for April, May Rally – WSTC

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