Buying the Dip or to Stay Out?

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The local bourse spent most of 2020 on a bullish run closing the year with a record-breaking 50.0% return.

The bourse kicked off 2021 with a similar sentiment, gaining 5.3% in Jan-2021. However, Nigerian equities have since maintained a southward direction, losing 5.6% in Feb-2021 and has shed 0.7% in March-2021.

Naira Gains against the USD at the Bureau De Change, Parallel (“black”) Markets Brandspurng
Afolabi Sotunde Illustration Naira

The question on many investors’ minds is largely to know if this is a temporary lull, a correction, or a significant crash.

Firstly, we have reiterated in several publications that the sustained reversal in the yield environment has weakened investors’ interest in equities and has led t o the active selloffs observed over the past month.

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The reversal in yields appears some way off its peak. Thus, we anticipate yields will continue to reverse higher in the near to mid-term.

Furthermore, the benchmark All Share Index (ASI) has formed a bearish reversal signal a s it has crossed its 5 0-day MA below and closed below it for five trading days. This signal has historically preceded prior major corrections in the market.

More concerning is the slump in activity levels which signals reduced appetite for risk assets.

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That said, we view the current bearish performance in the market as a correction that is likely to extend through the period when yields in the Fixed income market stabilizes.

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We recognize this as an opportunity for investors to take advantage of lower prices to buy into stocks forecasted to deliver solid earnings in 2021, employing a patient approach in building up positions.

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Buying the Dip or to Stay Out? - Brand SpurBuying the Dip or to Stay Out? - Brand Spur

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