• Analysts Cautious on Equities Outlook in Second Quarter

Corporate earnings, macroeconomic performance, bargain value and election activities are major factors that will shape the performance of the Nigerian equities’ market in the second quarter of 2018.

Market analysts were cautiously optimistic on the sustained positive performance of the market, after investors netted N1.38 trillion in net capital gains in the first quarter. Analysts, however, expected a relative quarter-on-quarter slowdown in the second quarter as preparations for Nigeria’s national elections gather momentum.

Afrinvest Securities Managing Director, Mr. Ayodeji Ebo, said equities market performance in the second quarter will be a spillover of the first quarter and the emerging political environment in the second quarter.

According to him, the pricing trend in the second quarter will reflect the earnings reports of companies for the first quarter as investors seek to outline the prospects for each company based on its early operational figures.

“While we expect less activities relative to first quarter, Nigerian economic indicators remain strong, hence, should sustain investors’ confidence. As election activities kick in, investors may trade cautiously prompting more volatility in the equity market in second quarter relative to first quarter,” Ebo said.

Cordros Capital stated that the improving macro-economic performance will positively impact the equities’ market in the medium to long term.

“Still-positive macro-economic fundamentals continue to strengthen our medium-to-long term outlook for Nigerian risky assets, while lower prices of value stocks suggest likely bargain-hunting in the short term,” Cordros Capital said.

President, Chartered Institute of Stockbrokers (CIS), Mr. Oluwaseyi Abe, said the commencement of the meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will give further direction to the financial markets. After a four-month delay due to protracted delay in confirmation of the new members by the National Assembly, the MPC began its first meeting this year between yesterday and today. It held its last meeting in November 2017.

Abe noted that with the delay, investors in the money and capital markets have been denied the current policy direction on the Monetary Policy Rate (MPR), cash reserve ratio, liquidity ratio and asymmetrical corridor as they affect investment decision on the activities in the money and capital markets.

“The MPC is supposed to drive activities both in the money market capital markets as the two markets are inversely related. The inability of the MPC to meet since the beginning of the year has a major drawback on our market. What it means is that there are no policies that the market can react to. Policy announcements by the MPC drive the economy,” Abe said.

According to him, the impact of policy decisions by the financial authorities and the government should ginger activities in the capital market.

Economist and Head, Investment Research and Advisory, SCM Capital, Mr Sewa Wusu, said the current macro-economic environment is supportive to a positive outlook for the equities market.

“Despite the fact that the market has failed to respond to some of the impressive results released so far, I still think the outlook for second quarter looks positive. Most stocks are trading at their lows and that presents an attractive entry point for the second quarter. The only downside risk will be the election cycle,” Wusu said.

Network Capital Limited Managing Director, Mr Oluropo Dada said lack of policy direction can bring about distortions and uncertainties in the financial markets.

FSDH Merchant Bank noted that although Nigeria’s Gross Domestic Products (GDP) growth rate improved further in fourth quarter 2017 at 1.92 per cent from 1.40 per cent in third quarter 2017, the recovery is still very fragile, thus additional monetary policies are required to stimulate a broad-based growth.

FSDH pointed out that the increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance.

“FSDH Research, however, recognises the vulnerabilities of the Nigerian economy to the adverse movements in the crude oil prices, thus the need to stimulate other non-oil sectors to reduce these vulnerabilities,” FSDH stated.

Analysts at FSDH added that Nigeria recorded the highest Foreign Portfolio Investments (FPIs) inflows in 2017 during the last quarter, which implied improving confidence on the short-term outlook of the Nigeria economy.

“FSDH Research believes the inflation rate may drop to single digit mid-year, while the exchange rate should remain stable in the short-term. Therefore, there is a need for monetary policy easing to boost credit creation and stimulate economic growth,” FSDH stated.

Investors in Nigerian equities had ended the first quarter of this year with a net capital gain of N1.38 trillion, sustaining the upswing that had seen quoted equities with net capital gain of N4.36 trillion in 2017. A strong start in January and February helped the market to moderate a running downtrend in March and sustain the positive quarter-on-quarter performance of the Nigerian equities market.

Nigeria’s sovereign equities index-the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), indicated average year-to-date return of 8.53 per cent for Nigerian equities in the first quarter, implying that an average investor has earned some 8.53 per cent nominal return on investment over the past three months.

The first quarter performance places Nigerian equities on the trajectory to sustain the bullishness that had dominated transactions in 2017 and in line with double-digit return projections by many reputable investment firms. Nigerian equities closed 2017 with full-year average return of 42.30 per cent, ranking within the top 10 best-performing equities across the world. Aggregate market value of quoted equities closed 2017 with net capital appreciation of N4.36 trillion.

Aggregate market value of all quoted equities closed the first quarter of 2018 at N14.993 trillion as against its year’s opening value of N13.609 trillion, representing a net increase of N1.384 trillion or 10.17 per cent. The ASI also rose from its 2018’s opening index of 38,243.19 points to close the first quarter at 41,504.51 points, representing average gain of 8.53 per cent. The difference between the ASI and aggregate market value was due to supplementary listings of shares.

Nigerian equities had in January 2018 hit all-time high market capitalisation of N15.3 trillion while the ASI had risen to 43,041.54 points, its highest index points since October 2008. The market, however, showed a slowdown in March with average month-on-month decline of 4.21 per cent. The downtrend in March was due largely to profit-taking transactions as investors turned to monetise accrued capital gains.

Sectoral analysis showed that most investors in Nigerian equities ended the first quarter with positive returns. Investors in industrial goods and banking stocks were ahead of other investors. The NSE Industrial Goods Index recorded the highest quarter-on-quarter return of 10.96 per cent. The NSE Banking Index followed with a return of 9.49 per cent. The NSE Insurance Index rallied average gain of 8.41 per cent. The NSE Oil and Gas Index appreciated by 4.90 per cent while the NSE Consumer Goods Index posted a modest return of 0.21 per cent. The NSE 30 Index, which tracks the 30 most capitalised companies at the stock market, posted a three-month return of 7.30 per cent.

With the performance in the first quarter, investors have earned net capital gains of N5.744 trillion over the past 15 months. With this, Nigerian equities have technically recovered what they had lost in a three-year period between 2014 and 2016. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015 and N604 billion in 2016.

However, the three-month performance was moderated by a running downtrend in the last month of the quarter as investors lost total net value of about N557 billion in March. The peak of the earnings season failed to sustain the bullish start that had dominated transactions in the first two months of the year.

Benchmark indices at the Nigerian Stock Exchange (NSE) showed a market-wide downtrend in March, despite the release of most audited reports and accounts and dividend recommendations in March. Investors appeared to have shifted from dividend expectation in the early week of the month to sustained profit-taking selloffs, momentarily ignoring the steady improvements in corporate earnings of all the major quoted companies and increases in dividend payouts.

The ASI dropped from the month’s opening index of 43,330.54 points to close March at 41,504.51 points, representing average month-on-month decline of 4.21 per cent. Aggregate market value of all quoted equities also declined from its month’s opening value of N15.550 trillion to close the month at N14.993 trillion, indicating net capital depreciation of N557 billion.