As market operators and investment analysts project another rally in the equities market, they have picked Banking, Building materials, consumer goods, oil and gas as sectors that would deliver significant returns to shareholders in 2018.
In their outlook for the market in 2018, analysts at FSDH Merchant Bank said it remained positive. And they said specifically favoured sectors are Banking, Building materials, consumer goods and agriculture. Similarly, analysts at WSTC Financial Services Limited, are bullish on the equities market, saying fast moving consumer goods(FMCG), industrial goods, banking, construction and oil and gas are poised to benefit most.
The Nigerian Stock Exchange All-Share Index (NSE ASI) closed the year 2017 at 38,243.19, representing an appreciation of 42.3 per cent. According to FSDH, the performance of market in 2017 was driven by: the increase in the price of crude oil; introduction of the Investors’ and Exporters’ (I &E) foreign exchange window leading to stability in the foreign exchange market; improved corporate earnings and the drop in the yields on the Nigerian Treasury Bills (NTBs).
They said: “FSDH expects the factors that drove the equity market in 2017 to support the market rally in 2018. We observed a strong correlation between the historical movements in the NSE ASI and the crude oil price (Bonny Light). The current consensus is that the average price of crude oil will be marginally higher in 2018 than 2017. The inflation rate should decline further in 2018. FSDH believes the expected drop in the equity market in first quarter (Q1) 2018 is an opportunity for strategic investment in the market ahead of the expected rally in second quarter (Q2). The following sectors should perform well in 2018: Banking; Building Materials; Consumer Goods and Agriculture.”
In their own assessment, WSTC said the equities market is expected to be driven by liquidity in the FX market, improving economic activities, impressive corporate performance and softer yields on fixed income securities in first half (H1) 2018.
“FMCG, Industrial Goods, Banking, Construction, and Upstream Oil & Gas are poised to benefit most. Regulation constitutes a key risk to the downstream Oil & Gas industry. We expect a modest contraction in net interest margin (NIM) in the banking industry in H1 2018,” they said.
WSTC noted that high oil prices, easier access to FX, and improving economic activities should strengthen asset quality and enhance modest credit growth.
”Healthier consumer spending will be supported by declining inflation & election-induced public spending. Stability in FX and declining inflation are expected to support lower input and operating costs. Thus, we expect healthier margins from companies in these sectors. However, we reckon that a resurgence of tighter liquidity in the FX market and heightened election-related uncertainties in the year may dampen overall market performance in H2 2018,” they said.