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Q4: Experts Predict Renewed Bearish Trend in Stock Market

02 Nov 2011

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Trading session at NSE



By Eromosele Abiodun

Experts in the nation’s capital market have warned that the capital market would remain bearish in the last quarter of this year citing global economic challenges particularly in the United States of America and the Euro zone, Muslims and Christians festivals in November and December, post merger challenges of rescued banks.

In their quarterly review of the economy and the financial service sector, analysts at Cowry Assets Limited, noted that the fundamentals behind the current bearish market stance remain largely unbridled.

“Global economic challenges particularly in the United States of America and the Euro zone are not likely to see any meaningful recovery hence international fund managers would likely remain on the fence.”

This, Cowry Assets stated, will obviously curtail foreign portfolio investments despite the attractive value offers on the Nigerian equities market.

“With further inflationary pressure, the Central Bank of Nigeria (CBN) would retain its contractionary monetary stance, which has been a major disincentive to investments in the equities market as investors switch their holdings to higher yield fixed income instruments.

“The mergers and acquisitions in the financial sector are expected to linger on as they all await final Federal High Court’s approval and the post merger challenges. This will continue to weigh down on investors’ confidence in the banking stocks with a ripple effect on the entire equities market.

“Other bearish factors include the Muslims and Christians festivals in November and December respectively which ordinarily trigger divestments from the retail equities market segment for merriments, “the experts said.

The experts however, said they anticipated a likely upbeat in October to be triggered by the release of third quarter results of most companies especially the banks and other blue-chip companies.

“Having closed the third quarter on a Year-to-date basis in negative 17.75 per cent we expect the Nigerian All-Share Index or ASI and the market capitalisation to remain in the negative region at the close of the year, “said Cowry Assets.

On the faith of the money market, the experts said tighter monetary policies with the Monetary Policy Rate (MPR) expected in the region of 9.75 per cent and 10 per cent.

According to them, “with one more Monetary Policy Committee (MPC) meeting for the year scheduled for November, we anticipate tighter monetary policies with the Monetary Policy Rate (MPR) expected in the region of 9.75 per cent and 10 per cent. This is premised on the prevailing inflationary outlook as earlier mentioned in this report.

“Also in support of more contractionary measures is the continued pressure on the external reserve for the Central Bank’s Naira defence strategy, albeit, recently breached as Naira traded beyond the +/-3 per cent corridor on  the N150 per dollar  mark.

“Invariably, money market rates are expected to remain high and attractive to fund managers. This will in turn trigger higher yields in the bond market with corresponding southwards trend in the Over-the-Counter (OTC) prices especially at the shorter end of the yield curve.”

Tags: Business, CBN, Featured, MPC, Nigeria, OTC

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