Market recovery ignites buying interest in banking stocks

In the course of recent post-election market surge, which pushed equities to a record high, most investors (particularly offshore buyers) raised their bets in Nigerian banking stocks.

Since the start of earning season, most banks – particularly the tier-one counters – reported improved full-year earnings against market expectation, an indication of their resilience following last year’s regulatory headwind.

“We note that the recovery brought heavy buying of tier-one banks by offshore investors which had earlier exited the market,” said Gregory Kronsten-led team of investment analysts at FBN Capital.

Despite recent profit-taking activities, the NSE Banking Index, which provides an investable benchmark to capture the performance of the banking sector, as it comprises the most capitalised and liquid companies in banking recorded 13.22 percent in year-to-date (ytd) returns last week, ahead of the NSE ASI index that returned 0.79 percent. Currently, the NSE Banking Index surpasses other sectoral Indexes in terms of returns.

Also, the equities market has shown remarkable increase in the volume and value of deals traded, even as increased buying continued to impact positively on equities pricing.

Last week, a turnover of 3.511 billion shares worth N25.196 billion in 26,836 deals were traded by investors on the floor of the Nigerian Stock Exchange (NSE) in contrast to a total of 2.632 billion shares valued at N36.583 billion that exchanged hands the preceding trading week in 21,393 deals.

The NSE All-Share Index depreciated by 2.28 percent to close last Friday at 34,930.02 points from 35,728.12 points, while Market Capitalisation declined by 1.95 percent or N232 billion to N11.903 trillion from N12.135 trillion the preceding trading week.

“We expect share prices to slowly improve on positive sentiments hitting the market as companies, especially banks, continue to publish full-year 2014 financial scorecards. The outlook suggests declining sell pressure,” said investment analysts at Access Bank plc.

“Following the peaceful election conducted in most parts of the country and relatively calm post-election environment, we expect to see institutional and foreign investors discounting socio-political risk in the domestic financial markets,” said investment analysts at United Capital plc.

Their words: “We are of the opinion that the market will rebound this week on the back of the relative stability following the conclusion of the polls, though weak macro-economic and fiscal outlook remain medium-term drags.”

While analysts at Lagos-based Cowry Asset Management Limited said: “We except to see a mix of bargain hunting and profit-taking activities.”

“The NSE ASI has soared since the market absorbed the result and the conduct of the presidential elections, and its ytd performance is now comparable to Nairobi’s. We have consistently argued that the earlier sharp fall in the index this year was driven by the macro-economic implications of the slide in the oil price, and that the elections only became a negative factor once the Independent National Electoral Commission announced their postponement on 07 February. In January, we forecast a -1 percent loss for the index over the full year,” FBN Capital analysts further said, adding that “the temptation is to view the post-election surge as froth since the core macro fundamentals, notably oil price prospects, have not changed.”

Iheanyi Nwachukwu