Nigerian equities started the year 2013 on an upbeat note. Even unloved stocks rallied inexplicably and many investors rushed to buy stocks as the general sentiment is that a good number of Nigerian stocks are currently undervalued and so the market has been correcting itself.
Many investors (offshore and local) keep asking for a fundamental backing to explain the current rally. And I concur, because for every effect, there is an underlying cause, especially in the financial markets. So I decided to find out why, because if I can understand a particular market behavior as a historically repeated phenomenon, then I can exploit in future with a greater degree of certainty and profitability.
In my opinion, when trading the financial markets, be it equities, currencies, or whatever the security, you do not need to know the why of a market to be profitable, all you really need to know is what is happening and how it is happening, but a truly professional trader/investor knows that going the extra mile to understand why it is happening will give you an authoritative edge over other traders/investors.
And personally, having been burnt in the past by blind trading/investing, I, as a trader and investor, always like to know why a security or asset is appreciating or depreciating, so I have decided to explore further and so far, my findings have been quite eye-opening, as I have attempted to investigate, understand and explain the rally from both fundamental-value and technical-momentum perspectives.
I will be sharing my conclusions, in more technical terms, as time goes by and as the markets prove or discount them but for now, all I can say is, in the light of sentiment analysis and behavioral finance (increased offshore risk appetite/January effect) as well as technical analysis (Darvas Box Momentum Breakout Trading), the rally was due to:
– the resolution of the fiscal cliff gridlock in USA at the end of the Q4 2012 loosened up risk capital for institutional investors to redistribute risk into EMEA economies, on a rolling quarterly basis. As such, I expected that at least for the Q1 2013, the market momentum would rally unhindered and stall by March in anticipation of fundamentals shown in earnings by blue chip stock, as well as the leading stocks in the banking, brewery and fmcg sectors.
– the NSE AllShare Index retesting its previous October resistance level and breaking it upwards in December, thus further continuing and accumulating its momentum rally. I personally see it targeting an all time high psychological level of 38,000 and who knows 40,000, if the nation’s macro-economic fundamentals as well as the individual stock earnings are encouraging.
– the spotlight on Africa as the last frontier, as constantly emphasised in Davos 2013, is enticing foreign investors.
You simply cannot discuss Africa without mentioning Nigeria and right now, in my personal opinion, by reason of her sheer population size, emerging middle or something-like-that young upwardly mobile class and petrodollar economy, Nigeria has greater room for growth ( insecurity, lack of infrastructure and corruption, not withstanding) than the more established economies of South Africa (increased labour crises and local content participation), Egypt and Libya (nascent political stability) and similar growth economies as Kenya, Angola, Liberia, Mauritius and Ghana.
To put it quite simply, the offshore investors who control the major inflows into Africa, the continent of greatest risk and greatest reward right now, seem to think Nigeria is the next stock market bubble and so they are pumping smart money into our economy.
Enough with the technical jargon. Simple Google research will explain these basic concepts better.
Suffice to say that to downplay the importance of acquiring basic financial intelligence and investment knowledge of stocks, shares, real estate, small business development, etcetera, is at best naive and at worst reckless, especially if you are an African youth in an emerging economy because we are the custodians of this last and wealthiest frontier called Africa.
You may not have the skill set or disposable income to start investing into your future, but you have time, and over time, you can learn anything! Everything every successful man ever achieved in life was done over time, so take time out to learn today what will secure your tomorrow. Or wouldn’t you like to have a robust pension plan and retirement package one day?
Remember, a good man leaves an inheritance for his children’s children! Be good!
Olufukeji Adegbeye CWM
- Last Frontier: African stocks offer wealth of untapped opportunities for US investors (vancouverdesi.com)
- Nigeria stock market surge seen gaining momentum over 2013 (uk.reuters.com)
- The Final Frontier | Foreign Policy (ramyabdeljabbar.wordpress.com)
- Experts task Nigerians on investment opportunities in global markets (vanguardngr.com)
- Nigerian Banks May Shun Retail Bonds Amid Push for Transparency – Bloomberg (bloomberg.com)
- Risk Unrewarded as Emerging Stocks Lose in Worst Start Since ’08 (bloomberg.com)
- RenCap Says Add Nigerian Equities as Economic Growth Booms – Bloomberg (bloomberg.com)
- The January Effect Rally Of The Nigerian Stock Market: How Does That Concern You? (mytrustfunddreams.wordpress.com)
- Nigeria: hot money? No worries (blogs.ft.com)