Pundits skeptical of  sustainability of rebound in equities

By Chioma Obinagwam

After a protracted lull in the equities market, the Nigerian Stock Exchange’s(NSE) key metrics- NSE All-Share Index and Market Capitalization leaped marginally by 0.30 per cent and 0.32 per cent to close the week
at 25,817.69 basis points(bps) and N8.883 trillion respectively.

Nevertheless, analysts argue that the market may not sustain the rally that took place in the week under review(the week ended December 9, 2016).

The rebound, which was triggered by mostly gains in the stocks listed on the Oil and Gas sector of the NSE, highly capitalised, impacted significantly on the NSE key indicators.

Extracts from the NSE weekly report in the review period showed that the NSE Oil/Gas index increased the most during the week from 287.77bps to 310.04bps; representing an increase of 22.77points or 7.74 per cent week to date.

Expectedly, investors sudden appetite for the Oil and Gas stocks was stimulated by the recent increase in the global oil prices.

Notwithstanding the gains recorded in the sector, pundits are skeptical about the sustainability of the upward trend.

They argued that the prices of the oil stocks have grown repeatedly on the exchange which may lead to profit-taking.

If it happens, the sector responsible for the rebound would witness a free-fall in its share prices, which may drag the measurement indicators down.

Charles Fakrogha, analyst and Stockbroker at Foresight Securities Limited said: “You would recall that the crude oil prices went up. Oil stocks like Forte Oil, Mobil, Oando, Total etc went up as well as. Since, they are high cap stocks, they influenced the All-Share index and the Market Capitalisation.”

Although Fakrogha mentioned other factors like investors trying to balance their portfolio to prepare for the forthcoming year, the sustainability of the trend is not certain.

“The market must be a market. I don’t expect to see the market maintaining momentum. I expect to see stock prices, particularly, the Oil stocks go down because the prices have really grown,”he said.

With respect to other sectors, he’s also of the opinion that they may not witness a boom, “except there’s significant development or news that’ll drive it,” he added.

Olufemi Timothy, President of Renaissance Shareholders Association of Nigeria, believes that the rebound is not realistic because the end of the year is characterised by huge spending brought bought about by the festivity, hence pressure is usually exerted on the capital market and other channels to satisfy the needs.

“Maybe money is coming in from somewhere we don’t know. I know that this is the time when the market is down because of pressure from investors who’ll be selling their stocks in order to shop for the festive season. I don’t see the market sustaining it,” he said.

Timothy reiterated that he has severally advised investors to look at the fundamentals of the companies they intend to invest in before delving.

Meanwhile, as investors trade on the Nigerian bourse after the holiday, market observers are watching with keen interest to see the direction and the posture of the market and if the proposition of the analyst and the shareholders would come to play on the market or not.