Business

Equities market to sustain investors’ pullback in July- Analysts

By Kayode Tokede

A group of analysts at FSDH Research have disclosed the equities market is expected to sustain investors’ pullback in July ias it has closed negative in the first six months of 2020.

The capital market this year has faced numerous challenges, most especially the COVID-19 pandemic that has led to foreign investors exit.

The research company that is based in Lagos said, “After a record-breaking month in March, which saw the equity market rally significantly as the All Share Index (ASI) gained 9.8per cent, June has been relatively soft in market movements but with a bearish bias. Month to date, the ASI is down 1.7 per cent.

“The weak sentiment in equities was broad-based as all sub-indices trended lower during the month. We note that the lull in the market was very much in line with our call in our May note.

“However, despite the weakness, we observed an interesting technical trend as the ASI managed to remain above its 100-day moving average support level in June, with significant room to break its 200-day moving average resistance.

Going into July, we remain very cautious on the equities market in the short term, due to a number of factors. From a fundamental perspective, July is an earnings reporting month which would span the April to June period where the coronavirus pandemic hit the economy and many businesses hard.

“Thus, we expect many companies to report significantly weak numbers save for Telecoms, Logistics, Pharmaceuticals and Food focused companies. From a technical analysis perspective, the ASI remains very close to the overbought region with Relative Strength Index (RSI) at 53.8per cent.

“This indicates the market in July has more downside potential than upside potential. In addition, investors have not been enthusiastic about taking positions in the market, with average activity level in June remaining below 2020 monthly average.

”Furthermore, investor sentiment was soured by the recent MSCI review, that placed Nigeria on a watchlist due to FX illiquidity. Thus, we expect minimal activities from index fund managers, while we expect any resumption of FX sale to FPIs could trigger a strong sell-off.

“Considering these factors, we make a call that the ASI would pull towards its 50-day moving average in July, particularly if earnings results from major bellwethers prove underwhelming.

“Thus, we advise short term focused investment managers to trade with a bearish bias. However, for long term focused investment managers, we note that any weakness in July would be short term, thus, we urge them to take advantage of any knee-jerk sell-off to buy quality names on lower prices.

“Our perspective is further strengthened by the low valuation of the Nigerian market, relative to emerging market peers as well as historical average.”

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