By Goddy Egene
Despite profit taking that slowed down the stock market performance since the beginning of February, investors have been reassured of a positive performance by the stock market in 2020.
The assurance came from analysts at Meristem Securities Limited, a full-service investment banking firms, in a report, stating that all indicators pointed at a positive return for the Nigerian equities market in 2020.
Using at least three fundamental and technical approaches and wide-ranging global and national macroeconomic analyses, analysts at Meristem stated that average full-year return at the Nigerian equities market could be 10.27 per cent in 2020. This implies a net capital gain of N1.33 trillion. The Nigerian equities market had opened 2020 with aggregate market value of N12.958 trillion.
Meristem combined fundamental analysis approach, artificial neural networks and econometric analysis to get a weighted average return outlook for the market. The analysts explained that they adopted the combined average approach to provide a balanced and more realistic outlook. The three separate analyses had indicated return range of between 6.40 per cent and 12.56 per cent. All analyses however indicated a positive performance, a major relief for investors who had struggled with net losses in the past two years.
However, Meristem indicated that the Nigerian Stock Exchange All-Share Index ( ASI) could be as high as 30,214.34 points by the end of the year with the lowest point out of the many analyses at 28,559.07 points.
According to the analysts, the factors that will drive the equities market this year include excess liquidity from the money market, depressed valuation, foreign portfolio investments and corporate earnings.
With the Central Bank of Nigeria (CBN) policies in the money market sending rates crashing, the equities market is expected to see some inflows in 2020. The apex bank had disallowed Nigerian individual and institutional investors from participating in the Open Market Operation (OMO).
“We expect gains in the market to be driven by excess liquidity from OMO maturities, some of which should end up in the equities in search of the attractive dividend yields and potential capital gains,” Meristem stated.
The report noted emerging market equities including Nigeria have become very cheap, relative to advanced markets, making them attractive for global portfolio managers. With the accommodative stance by many Central Banks in advanced economies, rates are set to remain low for longer. However, country specific risks will direct the flow of these funds. Notwithstanding Nigeria’s risks, investors will cherry-picking of fundamentally sound counters to drive activities in the market.