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Political uncertainties dominate outlook for stock market in H2’18

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Market ends H1’18 with 0.09% performance
…as CCNN, NEM Insurance Plc lead gainers

By Peter Egwuatu

As the Nigerian Stock Exchange (NSE)  ended the first half of the year,  H1’18, with a disappointing 0.09 percent increase in the All-share Index, and 1.9 percent gain in market capitalisation, analysts have projected that increased political uncertainty generated by pre-election activities,  will further contrain the perfomance of the stock market in the second half of the year H2’18.

Financial Vanguard review of the market for H1’18 showed that the NSE All Share Index recorded marginal increase of  0.09% to close last Friday at 37,733.44 points, from 38,243.19 points at the beginning of the year, while market capitalisation, which depicts the value of investors’ investment gained N257 billion or 1.9 percent increase to close at N13.866 trillion from N13.609 trillion at the beginning of the year.


The 0.09 percent YtD marginal returns and 1.9 percent gains by investors in the stock market was in sharp contraction to  Gross Domestic product, GDP growth of 1.95 percent in Q1’18, and the 376 basis point decline in headline inflation   to 11.61 percent in May from 15.37 percent in December 2017. The perfomance of the stock market in H1’18 was also at variance with the Purchasing Managers Index (PMI) reading of over 55 percent since the beginning of the year, with improvement to 57.3 in June  percent from 56.5 percent in May.

The tepid performance of the stock market, according to market analysts and stakeholders  was due to pre election jittery, slow pace of recovery in the economy, delay in passage of 2018 budget and insecurity in some parts of the country, which has constrained business operation in those areas and contraction in yield from federal government debt instruments, which affected income from banks.

They further projected that the nation’s stock market may continue to record slow growth as general election gets closer, while foreign investors who had moved to the sidelines may take investment position towards the end of the year.

Further review of the market showed that other YtD indices such as NSE   Consumer Goods Index, NSE Oil & Gas Index, NSE 30 Index, NSE 30 Index and NSE ASEM Index declined by   -4.96 percent, -2.26 percent,, -0.44 percent, and -12.67 percent,   respectively, while NSE Banking Index, NSE Insurance Index and NSE Industrial Index recorded modest gains of 0.13 percent, 7.97 percent,, and 1.68 percent, respectively.

Top gainers and Losers

Meanwhile, Cement Company of Northern Nigeria, CCNN Plc led the top five stocks  in terms of price gains in the H1’18 rising by 152 percent, or N14.50 per share to close at N24 per share. Operators  attributed the upsurge in the share price of CCNN to the proposed merger between the company and Kalambaina Cement Company Limited, a wholly owned subsidiary of BUA Cement Company Limited,  which they expect will improve its market share and profitability in the nearest future. Trailing behind CCNN is NEM Insurance Plc which rose by 92.8 percent, or N1.54 per share. Unity Bank Plc followed with  83 percent, gain or 44 kobo per share, Learn Africa Plc rose by 79.5 percent, or 70 kobo per share, while Ikeja Hotel Plc inched up by 75.8 percent, or N1.35 per share.

Conversely, African Alliance Insurance Plc, FTN Cocoa Processors Plc and Multi Trex Integrated Foods Plc topped  the price losers’ chart droppiny by -60 percent, respectively to close at 20 kobo per share.

Niger Insurance trailed behind dropping by -48 percent,   to close at 26 kobo per share from 50k it opened during the year, while UACN Property Plc dropped by 88 kobo per share to close at N1.91 from N2.79 per share it opened during the year.

Analysts comment

Review the performance  of the market  vis-à-vis the economy, analysts at Vetiva Capital Management Limited,   said:   “ The Nigerian economy did not fare as well as expected in the first half of 2018 (Q1’18 GDP growth: 2.0 percent, Year on Year , y/y   versus Vetiva and Consensus forecasts of 3.4 percent, y/y and 2.6 percent, y/y, respectively). Weakness in the services sector was unsurprising in light of still-weak consumer wallets, but the slowdown in agriculture was a real concern – particularly as it may be reflecting the negative impact of escalating violence in the Middle Belt region.

“Admittedly, there were some important wins in the first half of the year; high oil prices maintained foreign exchange stability and supported FG revenues whilst inflation declined significantly in the first six months – assisted by a high H1’17 base, triggering yield moderation in the fixed income market. However, the overall narrative of the year has been an underwhelming one, best represented by a bear run in the equity market that wiped 14 percent, off the  market between February and May, almost eroding a 16 percent, surge in January.”

Commenting on the outlook for H2’18, Vetiva stated: “Dimmer  outlook for rest of 2018. Many of our 2018 forecasts have been downgraded though remain above 2017 estimates. 2018 GDP growth is projected at 1.9 percent, y/y (previous: 2.4 percent, y/y), compared to 0.9 percent, y/y in 2017.We expect to see some policy support from the recently passed 2018 Budget (20th of June), though the imminent 2019 elections may complicate its effect. Indeed, we expect elections to dominate near-term activities, with election spending boosting the economy through government and consumer spending, but also inducing greater inflationary pressure. The latter effect underpins our view that monetary policy status quo will persist until the elections. Impending elections are also likely to induce greater economic uncertainty and distract policy and governance at the tail-end of the year, neither of which is positive for confidence or investment. Comparable multiples with peers suggest the Nigerian equity market remains undervalued and we maintain a strongly positive post-election outlook on Nigerian equities.”

In his own reaction, Bunmi Asaolu, Head, Equities Market at FBNQuest Capital said: “Our view is that the macro outlook is still supportive, with oil prices remaining firm, and that this should offset potential uncertainty stemming from political risk going into H2’18. Although we do not expect consensus earnings estimates to see significant upwards revisions through the rest of the year, valuations are yet to fully capture earnings outlook expectations, especially among the tier 1 banks. As such, we expect the index to recover lost ground, with a minimum of 10 percent, gain by the end of the year.”

Commenting as well, analysts at Cordros Capital, a Lagos based investment firm said: “The Federal Government, through the Debt Management Office (DMO), announced it intends to raise up to $2.8 billion (N899billion) in Eurobonds, as part of its plan to finance the 2018 budget, with objectives of extending the tenor of the nation’s debt stock and lowering the cost of debt. The issuance will move the government closer to achieving its target debt portfolio mix of 60:40 percent. We however highlight the increased exposure to foreign exchange risk, and the potentially higher debt service costs in the event of negative external shocks to the economy.

“In the absence of near-term one-off positive catalysts (save for likely better-than-expected Q2 earnings results), we posit a cautious approach towards risky assets in the short-to-medium term, despite supportive macroeconomic fundamentals. That said, we continue to see value in taking long term position in fundamentally sound stocks, particularly those with consistent dividend paying history.”

Analyst at Capital Bancorp Plc, Mr. Victor Chiazor said: “The market has so far not been as impressive as most analysts would have expected it to be, given the momentum the market witnessed at the early part of the year especially with major economic Indices supporting our growth expectations.

“However major events have unfolded which have impacted and slowed down activities in the market. The U.S. rate hike, possibility of lower oil prices given OPEC’s decision to raise oil production as well as the   election cycle which comes with its own uncertainties have dampened market performance as investors are not as bullish as they were at the beginning of the year.

Commenting on the outlook for H2’18, he said: “The remaining half of the year will be shaped by further developments in these areas as well as company performance. The high capped stocks like Nigerian Breweries, Zenith Bank,WAPCO   etc. have been the stocks that have dragged the market down as the likes of CCNN have returned 147 percent YTD while NEM Insurance and a few other stocks have also returned above 50 percent, year to date. Going forward, if there would be any major bullish run in the market,   we believe the listed companies will have to significantly impress the market with their earnings while we hope that other economic factors and indices remain favourable for the rest of the year”

Shareholders React

Speaking to  Financial Vanguard, Mr. Moses Igbrude, spokesperson for Independent Shareholders Association of Nigeria, ISAN said “The signing of the budget into law and its effective implementation is expected  to stimulate the economy and manifest positively on the capital market. But from what we have seen   so far within the first  half year of 2018 is not encouraging as prices has been coming down even when companies are paying good dividends . It’s not reflecting in the market and is due partly to insecurity and instability in the political arena. As we approach elections most investors are cautious in investing in the capital market and this is seriously affecting the market. It’s like the market will remain like this until the elections are over.     I am encouraging us the local investors to take advantage of low prices to take strategic position in the capital market because Nigeria will survive the elections and prices will go up.”

In his reaction as well, Chairman Proactive Shareholders Association of Nigeria, PROSAN, Mr. OderindeTaiwo said: “We hope that most of the listed companies have good fundamentals, but the economy is not favourable for them to exploit. I think the forth coming election has put uncertainty on the part of foreign investors that are already on the sidelines. I encourage the local investors to take position now as the election will come and end and the economy will start running again. We had expected the market to grow beyond what we are seeing given government’s commitment to boosting the economy. The government should intensify effort to curb the incessant killing especially in northern part of the county that is sending wrong signals to serious investors.”

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