By Goddy Egene
Following the positive performance recorded by the Nigerian equities market in 2017, more analysts are optimistic that the bulls will remain in control in 2018.
After three years of consecutive losses, the Nigerian bourse rebounded in 2017 and posted a growth of 42.3 per cent. Assessing the market performance for 2017, analysts at Afrinvest said at the start of the year, performance was underwhelming against the backdrop of elevated macroeconomic risk and FX market distortions which weighed on sentiment.
They noted, however, that improved flexibility with regards to administrative structure of the FX market – particularly the introduction of the Investors’ & Exporters’(I&E) Window – at the turn of the first quarter(Q1) marked a turning point in FX market stability and investors’ perception of the Nigerian market.
“Sentiment was further bolstered by resilient corporate earnings, recovery in the oil market and improved domestic oil production which moderated the risk profile of the Nigerian economy. These fuelled a year-round bull run on the Nigerian bourse, with the All Share Index touching a 3-year high of 39,534.14 in the first week of December, eventually closing the year at 38,243.19,” they said.
Looking ahead, the Afrinvest analysts said they remain bullish on the market performance in 2018.
They said: “Our near term outlook for the equity market remains positive due to improving fiscal and current account balances – supported by rising oil prices – which is expected to have positive knock-on impacts on FX market stability and earnings. However, a major downside risk is the upcoming general elections which could weigh on polity stability and lead to more short-term thinking in economic policymaking.”
Last week, Vetiva Research has projected continuous growth in the equities market in 2018
“Despite the 2017 equity market rally driven by a partial liberalisation of the country’s exchange rate regime, the Nigerian Stock Exchange remains relatively undervalued,” analysts from the firm had said.
They projected further gains for the equities market in 2018, with an estimated full year return of between 15 per cent and 20 per cent.
Vetiva also presented its “10 High Conviction Stocks” for 2018, representing key counters on the NSE that present strong fundamentals and are expected to outperform the market in the year.
With their “10 High Conviction Stocks” outperforming the board market return by 15 per cent and 16 per cent in 2016 and 2017 respectively, Vetiva highlighted Tier II banking stocks amongst others as key recommendations for 2018.
On the broader economy, Head of Vetiva Research, Olalekan Olabode, said: “As the Nigerian economy continues its recovery, possible political tension ahead of 2019 elections could cap gains from the wider economy. The second half of 2018 is likely to be blurred by possible political and social volatilities, whilst electioneering could potentially distract policy-makers and delay investment. The silver lining can be found in Nigeria’s more mature democracy in terms of credibility and transition, ensuring that the economy progresses relatively unencumbered.”