Following profit taking in the stock market last week that resulted in loss of N463 billion in the market capitalization, Investment bankers have advised investors to build their portfolio on pro-cyclical sectors and stocks.
They, specifically, pointed out the consumer goods, industrial goods and the banking sectors, saying that the outlook for 2018 favours these sectors and other pro-cyclical stocks. Pro-cyclical stocks/sectors are stocks/sectors that respond positively to the overall state of the economy and tend to increase in price when the economy is growing.
The recommendation comes amidst projections of possible return of bullish run in the market this week. According to analysts at United Capital Plc, the recommended sectors will benefit from improved consumer spending and present attractive opportunities.
“Also, banking stocks will come very handy given the improved outlook for asset quality, earnings stability, dividend consistency, and stock market liquidity,” they said. Also analysts at Cordros Capital, another Lagos-based investment banking firm, said: “Impressive 2017 performance beams more light on consumer goods stocks in 2018. The strong earnings growth and share price gains recorded in 2018 should encourage investors to increase focus on consumer goods stocks, which are historically regarded as defensive amidst a broadly bullish equities outlook”.
On the expectation for the week, Mr. Seyi Abe, President, Chartered Institute of Stockbrokers and Executive Director, Magnartis Finance & Investments Limited, said that the bulls would return this week following the expectation of release of full year result by corporates and outcome of the emergency Monetary Policy Meeting, MPC, already scheduled by the Central Bank of Nigeria, CBN, next month as a result of the down market last week.
Meanwhile, a breakdown of trading activities last week, showed that the primary equities indicator – the All Share Index, ASI, fell by 2.93 percent to settle at 43,773.76 points, following four days of profit taking. Similarly, the market capitalization declined by 2.87 percent to N15.692 Trillion from N16.154 Trillion at the beginning of the week.
Further analysis showed that activity was mixed across the sectors with three out of the five sectorial indices recording negative return. The banking sector depreciated the most on account of downturn on the shares of Guaranty Trust Bank, Diamond Bank Plc and Sterling Bank Plc, the sector recorded 6.40 percent negative return.
The insurance sector, went down by 3.33 percent, impacted by 11.22 percent decline on the shares of AxaMansard Insurance Plc, the industrial goods sector recorded a negative return of 2.03 percent following losses sustained by Honeywell Flour Mills Plc.
However, the consumer goods sector was up 2.15 percent on account of uptrend in Dangote Sugar Refinery Plc and Dangote Flour Mills Plc. The oil and gas sector rose by 0.28 percent, propelled by 5.43 percent gain in Eterna Plc.