Speculative investors are moving to reduce their bet on Nigerian equities, following renewed pressure on crude oil prices which reached new lows Monday.

Declining crude oil prices, volatile FX, companies’ unimpressive earnings, as well as the Central Bank of Nigeria (CBN) tightening measures, have forced stock investors into exploring new investment havens.

“Notwithstanding the possibility of further bargain hunting across banks amidst depressed valuations, we think the renewed pressure on oil prices (Brent crude at $38/bbl – one month low) could soften market sentiment in the sessions ahead,” said analysts at Lagos based Vetiva Capital.

Oil held around its lowest at $38.81 a barrel in a month on Monday, as investors ditched some of their bullish bets on another price rise and the chance that top exporters would agree to rein in overproduction appeared to fade.

The stock market of Africa’s biggest economy started this week on a negative foot, an indication that investors are repositioned for a move towards lower oil prices which impacts prices of Custom Street stocks.

Nigerian stocks recorded their biggest quarterly decline in 15 months to Thursday, falling 11.6 percent in the three months to March 31, after a currency rout triggered by the plunge in oil prices hurt sentiment.

Oil prices have fallen by more than 65 percent since mid-2014, when booming US shale oil output and supply from within and outside OPEC created one of the largest global surpluses of crude in modern times. Equity investor sentiment at the Nigerian bourse has been largely negative of recent, despite an influx of earnings releases (over 40 companies performance score cards released) into the market.

The NSE benchmark performance indicator was down by 1.5 percent last week, to 25,507.1 points, putting YtD loss at -10.9 percent and the month of March returns at 3 percent.

The month of March recorded the first positive month-on-month close in 2016, driven by bargain hunting, as investors moved to position for attractive dividend at the peak of Full Year 2015 earnings releases.

“While investors ‘optimism is fast diminishing, and the domestic economy projected to experience slow growth, the prospect of a sharp recovery in the market remains dim; even as investors have shifted positions in anticipation of other market surprises,” said analysts at another Lagos-based investment house, Dunn Loren Merrifield.

Trading began this year at the Nigerian Stock Exchange with equities market capitalisation at N9.850trillion and NSE All Share Index (ASI) at 28,642.25 points but it closed the first quarter at N8.704trillion and 25,306.22 points respectively–signifying a loss of about N1.2trillion in the first-quarter (Q1) to March 31 2016.

“We expect profit taking on earlier gains to continue this week, as the FY-15 earnings season draws to a close. Though we may see moderate bargain hunting, as speculators exit positions post closure of registers. “This should leave the market in search of new triggers, which will likely shift attention to the strength of domestic macro fundamentals,” research analysts at United Capital said in their newest investment views.

Meristem Securities analysts said that, “declared corporate actions were insufficient to cause significant rallies on the equities of some of the companies that released results, adding that they envisage that the sell-down witnessed last week will persist this week, especially on counters with their closure dates elapsing this week.

“It is not very strange to see a wave of profit-taking and some unwinding of long positions, and some people even saying they could reposition for a move towards lower prices. That is part of a normal cycle that I think can continue this week. “We might see $36 or $37… Prices are coming down because of speculation that Saudi Arabia will not join (the freeze deal) and that is probably what we will see over the next three weeks – more speculation and more verbal intervention,” said ABN Amro’s chief energy economist, Hans van Cleef.

Fears of Nigeria’s economic slowdown, increased volatility in FX market, falling oil prices and the current equity market turbulence have all contributed to the slow start to the year for Initial Public Offerings (IPOs).

Nigeria’s IPOs market which would have helped to entice liquidity into the stock market dried-up in year-to-date, as many prospected companies showed there are more alternative funding avenues than Customs Street capital. “Most of the negative news is in the price, and for oil prices to weaken materially, something big would have to happen,” Gain Capital analyst Fawad Razaqzada said.

http://www.financialwatchngr.com/2016/04/05/stock-market-faces-uncertainty-as-oil-price-decline/