As investors’ sentiment for profit taking remained on the surging trend over the past two weeks in the Nigerian equities market, investment researchers at Bancorp Securities Limited, a leading investment research and consulting services firm in the country, have predicted a bearish trend in the local bourse’s trading this week.
The firm’s analysts, in the ‘Weekly Stock Recommendation: Nov 20th-24th 2023’ report circulated to our correspondent on Monday, hinged their forecast on the equities market’s performance this week primarily on the prevailing micro and macroeconomic indices of the economy.
The experts projected: “In the current week, we expect a flattish return on the bourse skewed towards the negative scale. This is likely to be precipitated by increasing profit taking activities particularly on growth stocks whose performance have been unprecedented in recent times.”
They recalled that in the recently concluded week, the October 2023 inflation report by the National Bureau of Statistics showed that there was a 27.33% growth in the consumer price index for the month.
According to the experts, a major implication of sustained and increasing inflation rate is that it consolidates declining propensity to consume in the broad economy, thus shortchanging the lower income consumers, whom are statistically significant in the Nigerian context even as lowering debt service costs, could count as a singular upside to hyperinflation, however, it reduces overall demand due to its propensity to trigger interest rates hikes by apex authorities.
The investment researchers pointed out that sequel to the lowering debt service costs, the major concern of the Monetary Policy Committee of the CBN’s meeting, which kicked off today, would be the concern of the members to stabilize the value of the naira whose volatility is at unprecedented levels with the attendant implications for reducing the hyper-inflated macroeconomy given Nigeria’s net importer status.
The analysts pointed out that the decision of the MPC on interest rates, which currently stood at 18.75% could return either a hike, which is expected to signal foreign investors on the enhancing potential of their projected fixed income yields.
However, they expressed concern that the risk return framework undermined the gains from this move, given the amplified perception of the Nigerian economy and its institutions on the foreign scene while a reduction of the rates is expected to stimulate internal inertia, which is geared towards lowering finance costs for domestic companies thus improving their bottom lines.
They further maintained that retaining the rates by the committee may be in consideration of the push and pull frame work between the points highlighted above.