Investors’ Fears Over Elections to Fade in February ―Analysts

• Investors’ Fears Over Elections to Fade in February ―Analysts

Analysts at Meristem Securities Limited have said the apprehensions that investors have about the forthcoming elections are expected to fade in February.

In a report, titled, ‘Resilience in vulnerability’, the analysts said they expected 2019 to be driven by similar factors that shaped 2018 but with a slight twist.

According to the report, although apprehensions about the election are expected to fade by February, contentions about the result, whichever it goes, have the potential to keep the market within a tight range bound trading in the first quarter of the year.

It said concerns about the United States slipping into recession in the medium term, expected slower pace of Fed rate hike, and progress towards resolutions of the challenges that crippled major emerging market economies in 2018 could trigger a bet on EMEs, and consequently the Nigerian market, but not until mid-year.

The analysts said corporate earnings were projected to be mixed and not strong enough to drive the market except in dividend seasons.

They said, “Offset to these upsides are country risks emanating from mounting debt profile, lower oil price outlook relative to 2018 and the impact on foreign exchange reserves at a time the defence of the currency is paramount.

“On the balance of factors, we are bearish on the first quarter, progressively positive from a neutral early second quarter to a bullish mid-year into the end of the year. Our models project a 2019 3.7 per cent, which is largely hinged on a low baseline.”

The analyst noted that the equities market opened 2018 with the euphoria of the 42 per cent gains in the Nigerian Stock Exchange All-Share Index in 2017 driving sentiments further higher.

They said the market accelerated at a pace that could not be supported by any fundamental driver as there were no revisions in consensus corporate earnings outlook, no optimism on macroeconomic variables and no respite in the political space.

The ASI, by the second week of 2018, hit the highest weekly gain since April 2015, and by the end of January, had reported the seventh highest monthly gains in 33 years.

The analysts said, “Within the first 14 trading days, no fewer than 39 stocks had gained equivalent of the yield on 364-day Treasury bills issued same day. However, a painful correction kicked with serial monthly losses from February through November, with the exception of June in which the ASI inched up by 0.46 per cent.

“Weak corporate earnings, contagion from EMEs and the attendant capital flight, apprehensions ahead of the 2019 general elections combined to send the ASI 17.81 per cent underwater in 2018. This, however, is half the story.”