Inspite of the a rebund in both year-to-date (YtD) and month-to-date (MtD) returns seen in the stock market, investments experts have said that uptick in inflationary pressure and weakness in the macroeconomic environment may constitute a threat to the continued recovery of the stock market.
The experts project that the year-end may not be rosy due to the impending staflation, as headline inflation rose to 13.71 per cent, according to September inflation report by the National Bureau of Statistics, and is projected to rise further through December.
Performance of the stock market last week shows a sustained uptrend on the back of negaive real returns in fixed income and significant buy pressure in some highly capitalised stocks. As a result of this, the benchmark All Share Index (ASI) rose by 0.9 percent to settle at 28,659.45 points, while the MtD and YtD return for the index grew to 6.8 per cent. The market had closed the week flat on four of the five trading sessions, but was driven to another positive close after 1.11 percent gains recorded on Friday session.
Commenting on the issue, Daid Adonri, Managing Director/CEO, Highcap Securities and Investment said: “Performance of equities beats every imagination. The market moved in opposite direction of the economy. Perhaps the expansionary monetary policy and NESP N2.3 trillion rescue package have positively impacted equities.
“Delibrate measures to force down interest rate may also have facilitated migration of financial assets to equities. The rally may not be sustainable due to expectation of ravaging inflation. More so, the fundamentals of the economy does not support rally. Year end may not be rosy because of reaction to impending staflation.”
Analysts at Cordos Capital, a Lagos-based investment banking firm projected that the stock market might continue to benefit as domestic investors seek alpha-yielding opportunities in the face of increasingly real returns in the fixed income market. However, they advise investor to trade in only fundamentally justified stocks as the weak macro environment remains a significant hedwin for listed companies.