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Profit-taking may dominate market this week – Experts

By BusinessNews Staff on February 24, 2015

The gains recorded in the stock market last week is likely to result in profit-taking activities this week, capital market analysts have said.

Following a week in which the Nigerian Stock Exchange All-Share Index fell by eight per cent, stocks rallied last week to recover six per cent of the losses.

Specifically, the ASI gained 6.52 per cent last week after closing on a positive note for all five trading sessions of the week, while the market capitalisation of the listed equities rose by N600.15bn.

Analysts, however, believe that the gains may not be sustained this week with selling pressure likely to outweigh bargain hunting.

Analysts at Vetiva Capital Management Limited, for instance, believe that the ASI may open the week lower.

In their market commentary for the week, they said, “While the continued stability in oil price and some clarity on currency front present a case for further market recovery, we think the ASI might open the week slightly lower as investors take profit following last week’s five days of gains.”

In the money market they said they expected a further reduction of liquidity.

“With Friday’s OMO cancelled, we anticipate another auction at week open which will further reduce liquidity.

“In addition, momentum should ease in the T-Bill and Bond markets following sharp gains recorded towards the end of the past week. Thus, we expect the market to open the week cautious but to be buoyed by maturities which will improve system liquidity.”

Last week, the Central Bank of Nigeria announced the closure of its RDAS/WDAS window in order to curb speculative naira demand, among other things.

The Vetiva analysts, who said the move was anticipated by markets as as an option in addressing the wide margin between the RDAS rate (N168/dollar) and the interbank rate (N198/dollar), explained that it meant “the crawling peg regime has been abandoned” and “all export and import transactions will be converted using the interbank rate.”

The analysts while explaining that the move was another attempt at achieving a realistic exchange rate policy, which may or may not be successful, called for efforts to be made to ensure that it doesn’t result in unchecked inflation.

They said, “A multiple exchange rate regime with such a significant premium between the RDAS and interbank rates is deemed inefficient, considering it represents an implicit tax on exports; as such having a unified exchange rate is ultimately where the market should be. However, it requires a reform process, in particular fiscal reforms to ensure post-unification inflation is contained and credibility is not jeopardised by policy reversals.”

Analysts at Meristem Securities Limited on their part explained that the termination of the bi-weekly FX auction window by CBN last week would further hurt the manufacturing sector.

They said, “With this move, the apex bank intended to direct all demand to the interbank market, offering to intervene where excess demand exists at N198/dollar.

“This, in our opinion, is akin to further devaluation although unofficially. No doubt, this will further hurt manufacturing sector and other businesses with direct exposure to FX.”

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