By Nkiruka Nnorom
After recording a tumultuous year owing to various factors, particularly pre-election jitters in Nigeria and trade tension between US and China, the equities market is set to continue first quarter of 2019 in a similar vein, investment experts have said.
They, however, said that as in the general economy, confidence would return in the market starting from the second quarter depending on the outcome of two major events – change of guard at the Central Bank of Nigeria and February polls.
The Nigerian Stock Exchange, NSE, on its part, said that it expects prompt implementation of budget 2019 to jerk up activity in the stock market starting from second half, H1’19.
In 2018 the market fell by 17.8 percent and has continued the streak of sell-offs in the New Year, resulting in 3.56 percent decline in the All Share Index.
Similarly, N412 billion has been wiped off investors’ wealth, compounding their woes in the New Year.
Change of guard at CBN, Feb. election to determine market performance – United Capital
An investment banking firm, United Capital Plc, in its ‘2019 Nigeria Outlook’ report projected a subdued performance in the earlier part of the year (pre-election period) and depending on the outcome of the election and smoothness of transition period, a post-election equity recovery.
The firm also affirmed that recovery would depend on who takes on the affairs at the apex bank.
The report stated: “For equities, performance in 2019 will be anchored on the outcome of the general election on one hand and the change of guard at the apex bank on the other. Overall, we imagine a flattish performance in H1’19 and a quick rebound in H2’19, especially if the outcome of the election is seen to result into a smooth and peaceful transmission from May 29 onward.
“Against the backdrop of a better balance of risks going into 2019 and considering the extreme valuation differences between Nigeria (9.0x) and the rest of the world (EM: 11.6x, FM: 10.9x, and the world: 15.6x), we anticipate net capital inflow into Nigeria in 2019, especially after elections. Accordingly, our base case return for the market is projected at +9.4 percent.”
FPI outflow will push equities southward – FDC
Also, Financial Derivatives Company, FDC, Chief Executive, Bismarck Rewane, in a presentation at Lagos Business School December Breakfast meeting, themed “2019: A Year of Trepidation & Growing Uncertainties”, projected that a bearish market trend will persist in the first quarter (Q1’19) of the year as political fracas intensifies. He added that continuing Foreign Portfolio Investment, FPI, outflow will further push Nigerian Stock Exchange, NSE, ASI southward, while fund managers would remain cautious due to political uncertainty during the quarter. According to him, market index will reach a trough in Q2’19, but begin to pick up on the back of a violent free handover of power in the event of an upset for the ruling political party at the national level.
Farther down into Q3’19, Rewane opined that the market would begin a gradual restoration of investor confidence resulting in increasing market activities and FPI inflows. Again, earnings season would aid to drive valuation during the quarter, he said, projecting that the ASI would reach 35,000 points by the end of 2019.
Equities to continue down-trend without positive trigger – Cordros Capital
Cordros Capital in a report titled: “Will post-election period drive the needed renaissance?”, declared that without any meaningful positive trigger, investors may see the lukewarm market performance persist even after the general election.
“Undeniably, election-related risk-off sentiments will be stronger from January 2019. However, we believe that the external events and the domestic macro fundamental issues will remain the key drivers of market movement.
“It is therefore noteworthy that investors reassess the impression that local equities have been held down largely by election risk, thus implying imminent recovery post polls.”
Continuing, it said: “Barring less hawkish monetary policy rhetoric’s across developed economies, better global trade talks and improved economic landscape across emerging economies, most of which are unlikely in the near term, and from which NSE ASI will certainly benefit, post-election activities in the local market will follow the historical pattern, and more so, in the absence of market-friendly policy changes/announcements.”
Historically, they said that the performance of the local market in the last two election years saw sharp post-election gains, albeit short-lived.
They stated: “In 2015, the market was thrilled by the news of the victory of the opposition, with the index gaining 14%+ between April and May before crashing in subsequent months. In the same vein, Nigeria’s equities market warmly welcomed the election of President Jonathan in 2011 as NSE ASI returned 5.0% between April and May of that year, and went south thereafter.
“Clearly, on both occasions, the failure of the economic managers to meet market expectations tanked the post-election rallies. We suggest investors take a cue from the experiences when framing investment strategies ahead of the election,” they said.
Swift approval, implementation of 2019 budget to aid recovery – Stock Exchange
While reviewing stock market activities in 2018 and making prognosis for the new year, Oscar Onyema, Chief Executive, NSE, said that the volatility in the equities market would remain in the first half of the year, but expects that swift approval and implementation of the 2019 budget would aid market recovery post-election.
He stated: “We believe market sentiment in the first half of the year will be driven by uncertainty in oil prices as well as 2019 general elections. Accordingly, we anticipate volatility in equities market in H1’19 with enhanced stability post-election.
“We believe swift implementation of the 2019 budget may have a positive impact on companies’ earnings as well as consumer spending. Therefore, we anticipate a return of listings during the year with an uptick in market activity during the second half of 2019.”