Mixed earning reports, rebound in T-bills stop rate to pressure equities

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AS quoted companies continue to release their 2019 full year earnings reports, investment analysts have indicated the possibility of negative performance in the market over anticipated mixed financial result.

They also said that rebound in Treasury Bills (T-Bills) stop rates may keep the market pressured this week.

The market had closed in the negative region last week, resulting in loss of N239 billion to investors.

Specifically, the market capitalisation closed lower at N14.618 trillion from N14.857 trillion, indicating 1.61 percent decline.

Similarly, the All Share Index (ASI) recorded a negative return of 2.7 percent to settle at 28,067.09 basis points fuelled by sell-offs in market heavyweights, namely Dangote Cement Plc, which fell by 5.5 percent, Bua Cement (-4.3%), and MTN Communication Nigeria (-2.2%).

Sectorial analysis showed that with the exception of the insurance sector, which rose by 0.2 percent, the other sectors recorded price decline. The industrial goods sector was down 2.2 percent; oil & gas sector (-3.0%), consumer goods sector (-2.2%), while the banking sector fell by 1.5 percent.

According to analysts at Cordros Capital, “The trend witnessed is likely to persist, as the dual impacts of the weakening sentiment and mixed earnings performances during earnings season are expected to pressure market returns.”

Also, analysts at Cowry Asset Management, said: “We expect the local equities market to close slightly lower amid the rebound in T-bills stop rates which was partly induced by the increase in Cash Reserve Ratio (CRR) by 500 basis points to 27.50 percent.

Nevertheless, they advised investors to take advantage of the low prices to buy stocks with high dividend yields even at cheaper amounts.

Commenting, analysts at EFG Hermes, in their Macro Strategy Report, argued that the late 2019 to early 2020 equity rally has been driven by the seasonal hunt for yield – final dividends, which are usually paid in March/April, rather than allocation of liquidity away from expiring OMOs into stocks.

“Recent price action fits with that seen in previous pre-dividend periods. We have looked at the performance of high-yielding stocks in the run-up to final dividend distributions over the past ten years. Unsurprisingly, we see a sustained rally in the three months before dividends are paid.”

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