Investment researchers at Bancorp Securities Limited, a leading investment research and consulting services firm, have predicted that the downward trend that characterized banking stocks share prices in the past few weeks will potentially abate amid current indices in the economy.
Last week, the equities market sustained its bearish streak for the sixth consecutive week, with the NGX-ASI slipping by 139 basis points to settle at 98,152.91 points, thereby reducing its YTD returns to 31.27%.
Despite this, the analysts, in the firm’s ‘Weekly Stock Recommendation: April 29 – May 03, 2024’ report circulated to our correspondent on Monday, noted that the NGX metrics such as volume, value, and deals showed a mixed performance on a w/w basis.
For instance, they noted that during the week, banking sector continued to exert downward pressure on the market, with selloffs observed in FBNH, ZENITHBANK, and STERLINGBANK among others.
However, the researchers reported that there was an improvement in the weekly market breadth, which stood at 0.83x compared to 0.45x the previous week, while the UD ratio rebounded to 1.15 points, indicating that the volume of trades for advancing stocks exceeded that of declining stocks.
On the market’s outlook this week, they predicted: “In the current week, we anticipate the impact of the latest Q1’24 earnings releases on select stocks. Additionally, we expect the downward trend in banking stocks to potentially ease. Notably, a robust UD ratio observed in the previous week hints at underlying bullish momentum, poised for further advancement pending stronger directional cues.”
The analysts recalled that the Naira’s trajectory changed last week as it unexpectedly depreciated by 14.47%, closing at 1,339.23 at the NAFEM windows after previously appreciating.
According to them, to meet consumer demand for invisible transactions, the apex bank continued to sell foreign exchange to BDC operators despite this unexpected turn of events.
The analysts further clarified: “At a rate of 1,020/USD, the CBN sold to the BDCs, 8.11% less than it had sold for NGN1,110/USD the previous time. It is anticipated that this action will enhance the CBN’s standing in preserving currency stability and enhancing market liquidity.
“Recent CBN data shows Nigeria’s foreign debt service in 2023 surged by 55% to USD3.50 billion from USD2.60 billion in 2022. This increase is mainly due to higher external loans, pushing the total external debt to USD 42.29 billion in 2023. Naira depreciation also affected the value of foreign debt holdings.
“Nigeria’s growing debt could widen the fiscal deficit, posing challenges to growth and investment. Strengthening debt management and boosting government revenue is vital for sustainable development”, the Bancorp Securities experts added.
