- Investors Face Downtime in Second Half as Uncertainties Stoke Fears
Investors in the capital market will struggle with low returns in the second half of this year and may end the year with less-than-previously projected returns as macro-economic risks combine with political risks to weaken the immediate return horizon for Nigerian assets.
Major investment firms at the weekend were unanimous on the precarious outlook for the second half, with most analysts reviewing downward earlier return projections made for the year. Nigerian equities had closed first half almost flat with a marginal average gain of 0.09 per cent, after reaching as high average return of 17.9 per cent in January 2018.
Nigerian equities recorded net capital loss of N236 billion in the first week of the second half, pushing the average year-to-date return further negative at -1.61 per cent. The benchmark index for Nigerian equities had recorded average decline of 1.71 per cent for the five-day trading period.
Analysts at Cordros Capital, GTI Capital and Afrinvest Securities said while the Nigerian equities market still hold good prospects in the medium to long-term, the immediate outlook calls for caution and readjustments.
“While still optimistic about the macro-economic climate over the second half of the year – highlighted by stable macros – the combination of heightened political concerns locally and continued external market risks necessitate a readjustment of our prior guidance to cater to a more cautious market outlook,” Cordros Capital stated in its mid-year report.
Afrinvest Securities said the determining factors for 2018 including earnings fundamentals of companies; stability in the foreign exchange market and fund flow dynamics to emerging and frontier markets had been “skewed towards negative than positive” and are expected to continue to be the major themes during the second half.
“Although we had forecast a 19.8 per cent return for the market (base case), emerging events in 2018, especially policy normalisation in global markets as well as risk factors around the 2019 general election present compelling reasons to revise our forecast,” Afrinvest stated.
With this consideration, Afrinvest halved its base case to 10.0 per cent with a bear case of 2.2 per cent and bullish case of 18.3 per cent. This implies that equities’ return might hover between 2.2 per cent and 18.3 per cent, according to the investment firm.
Afrinvest also placed a higher probability of 50.0 per cent on its 2.2 per cent bear case, noting that market performance will continue to be pressured by capital flow reversals ahead of the 2019 general election.
“Nevertheless, we do not rule out the possibility of positives that could boost sentiment; thus, we place a 30 per cent probability on our base case scenario with the most unlikely 20 per cent chance of occurrence on our bull case. Even though our revised market projection suggests reduced return for 2018, we still expect a positive performance for the year,” Afrinvest stated.
According to analysts at Cordros, in the short to medium term, sideways trading is likely to remain the theme in the absence of a near-term positive trigger. However, macroeconomic fundamentals remain strong and supportive of gains in the long term.
Analysts at GTI Capital noted that the slowdown witnessed in the stock market was due to both domestic and external factors, with the main domestic factor being the political climate.
“In the light of all these issues, our outlook for the Nigerian Equities in second half 2018 is moderately negative. From late August when the election season begins with the primaries, we expect the air of uncertainty, which the election brings to weigh on the stock market, causing increased selloffs by foreign portfolio investors, also influencing domestic investors to do the same,” GTI Capital stated.
Analysts said the stock market will witness increased volatility as bargain-hunters step up speculative trading on undervalued stocks.
Turnover at the Nigerian Stock Exchange (NSE) declined to 1.84 billion shares worth N16.59 billion in 18,941 deals last week as against a total of 2.0 billion shares valued at N21.58 billion traded in 18,534 deals two weeks ago.
Aggregate market value of all quoted equities at the NSE dropped from its opening value of N13.866 trillion to close at the weekend at N13.630 trillion. The All Share Index (ASI)-the main index for the Exchange declined from opening index of 38,278.55 points to close weekend at 37,625.59 points.