Norrenberger: Investors shift capital from equities to safer instruments

Norrenberger Securities analysts have highlighted the impact of rising inflation and the Central Bank of Nigeria's contractionary policies on the fixed-income market. The surge in yields has prompted investors to shift their capital from equities to safer instruments. This trend has resulted in a decline in equities' performance, but upcoming third-quarter earnings releases are anticipated to influence market sentiment, particularly in the banking and oil & gas sectors. Timilehin Junaid, Research Analyst at Norrenberger Securities, discussed these market movements in an interview with CNBC Africa. The past week in trading witnessed the listing of Aradel company in the oil & gas sector on the NGX. This event boosted volatility and improved investor sentiment regarding equity options. Aradel, Fidelity, and Regency Alliance Insurance were notable performers, with Aradel particularly standing out as a top gainer. Looking ahead to third-quarter earnings releases, analysts are keen on companies like MTN, UBA, and Aradio. MTN is expected to return to profitability following negotiations that have eased FX pressures. UBA's interim dividend payout of two naira signals strength in the banking sector, while Aradio presents a compelling opportunity due to favorable fundamentals compared to competitors like Seplat. The market is also bracing for mixed performance in various sectors against the backdrop of elevated yields and inflation. The economic data for September revealed inflation exceeding 32%, albeit with a slight drop in core inflation. High yields in the fixed-income market have attracted investors seeking attractive returns, impacting equities. While the CBN maintains its hawkish stance to combat high inflation, equities investors are faced with the dilemma of balancing risk and reward in their portfolios. As the market hovers around 98,000 points, analysts caution that significant gains may have already materialized, with limited upside potential expected in the final weeks of trading for the year. Profit-taking activities are anticipated, particularly as institutional trader participation wanes in favor of retail investors searching for higher returns in fixed income. Penny stocks, characterized by low liquidity, present challenges for investors due to limited trading volumes. Retail investors may dabble in penny stocks for short-term gains, but institutional investors prefer stocks with higher liquidity such as banking and oil & gas stocks. Overall, navigating market volatility amidst rising yields and inflation remains a key challenge for investors as they strategize their investment decisions.