Cordros Capital Limited, an investment banking firm and a major player in the Nigerian capital market has said that the 2018 macroeconomic outlook favours the equities market. Group Managing Director/Chief Executive Officer, Cordros Capital Limited, Wale Agbeyangi, who led the management team to present to investment journalists their outlook titled ‘Nigeria in 2018: Looking Beneath the Surface,’ said when compared to the last two years, Nigeria’s macro outlook, wherein there are seemingly more tailwinds than headwinds, is more favourable to equities.

While they made strong case for equities upside potential, they also considered the number of possible risks that could trigger equity downdrafts this year.

Their outlook for outlook for equities in three-fold, saying that in their past 10 years of existence, Cordros Capital forecasts have been close to reality.

Speaking further, Head, Research and Strategy, Cordros Capital Limited, Christian Orajekwe, said the first scenario assumes that equities will return excess of 40 per cent in 2018.

“We have considered five possible triggers of the rally. The probability of the triggers is low to moderate. The possible triggers, in order of importance to Nigerian equities are: significantly favourable macroeconomic and political backdrop; strong corporate earnings growth; strong portfolio inflows; mergers and acquisition (M&A) activities; and strong moderation of fixed income and treasury yields,” he said.

Their second scenario assumes about 10 per cent to 15per cent equities return in 2018.

“We have considered four possible triggers of the rally. The probability of the triggers is moderate to high. The possible triggers, in order of importance to Nigerian equities, are: moderate improvement in the macroeconomic environment, as widely envisaged; stable to modest corporate earnings growth; modest improvement in portfolio inflows over 2017; and marginal moderation of fixed income and treasury yields,” Orajekwe added.

According to him, the last scenario assumes equities will deliver between 20 per cent to 25per cent negative return in 2018. “We have considered four possible triggers of the sell-off. The probability of the triggers is very low to moderate. The possible triggers, in order of importance to Nigerian equities, are: macroeconomic and political shocks; poor corporate earnings; MSCI delists Nigeria from its emerging market index; and foreign portfolio investors flee naira assets,” he noted, adding: “Though our projections are not static and as scenarios unfold, we will continue to adjust our projections.”

Cordros Capital believes that the downside risks to equities market return in 2018 will be more weighted in the second half (H1). This will be more pronounced in the fourth-quarter (Q4) when it is expected that most investors (particularly contestants during elections) will begin to sell down equities for election spend.