Domestic retail investors are expected to play an important role in shaping the market in the second quarter of 2014, according to a recent report by CBO Capital.

The investment advisory firm said in its outlook for Q2 2014, entitled ‘Tight rope’ explained that although the Nigerian Stock Exchange was bearish in the first quarter of the year despite the release of year-end results by most companies, the equities market would depend on positive earnings in Q2.

The firm, which observed that bargain opportunities persist for investors, said, “In the interim, the market would depend on positive earnings release as local investors look for bargains on cheaper prices. Earnings will provide a guide; domestic retail investors are important to the outlook.”

On the outlook for the fixed income market, it said, “The existence of negative term premiums at the long end of the yield curve presents arbitrage opportunities in anticipation of spread correction. Selling long and buying short is advised. Yields could advance further with foreign investors groping for short-term confidence factors and finding little.”

The report, which observed that the market at the end of Q1 was 5.8 per cent below the 2013, year-end level, stressed that the effects of the development were bigger than the mere correction, which analysts predicted.

According to it, the bearish trend persisted despite the release of year-end results by most companies, possibly because there were no positive earning-surprises.

In addition to that, it said outflow of portfolio capital was a major factor when it comes to the bearish trend witnessed in Q1.

“Outflow of portfolio capital is also largely responsible. Excluding earnings release, investors’ confidence dropped precipitously due to market-distorting activities in the polity and external impact-known as the Quantitative Easing tapering effect,” it said.

CBO capital, however, observed that bond yields rose in Q1, a trend likely to continue in Q2.

It said, “Bond yields have advanced in Q1, with five-year papers trading comfortably above 14 per cent on average. Upward shift in the yield curve is the manifestation of foreign portfolio withdrawals which have neutralised bargaining and positioning by ex-AMCON investors.

Source: Punch (by Simon Ejembi)