8 May 2017

Nigeria: Equities Market Recovery Prospects Brighten

The prospects for the recovery of the equities market in 2017 brightened last week as the year to date decline of the Nigerian Stock Exchange (NSE) All-Share Index (NSE ASI) improved to 2.38 per cent last week following renewed demand for stocks spurred by impressive first quarter results.

Specifically, the NSE ASI, which is the benchmark gauge for the market performance, climbed to 26,235.63. Market analysts believe the improving market sentiments have further raised the hopes that the market would recover this year after declining for three consecutive years.

The market depreciated by 16.14 per cent in 2014, 6.17 per cent in 2015 and 6.17 per cent in 2016. According to analysts at FSDH Research, the major factors responsible for the poor performance of the equity market in the last three years are: weak macroeconomic performance, inconsistent policies, weak corporate earnings and portfolio realignment from equities to fixed income securities.

"Looking at the strong growth in the unaudited results that quoted companies released for the period January - March 2017 and the improvement in the macroeconomic environment, we believe the equity market is ready for a recovery in 2017," they declared.

The analysts explained that the increase in the supply of foreign exchange to meet the input requirements of manufacturing companies should increase their production activities and revenue in the current financial year.

They said data from the National Pension Commission (PenCom) on the allocation of the Pension Fund Assets as at February 2017 showed that the weight of the pension fund assets on domestic equity dropped consistently from 2014 to 2017, noting, however, that there are indications that there is room for pension fund assets to allocate more funds to equities.

FSDH added that the value of equity transactions from foreign and domestic investors declined between 2014 and 2016, explaining that although the relative size of foreign investors' participation in the equity market declined between 2014 and 2016, the share of foreign investors' participation was higher than domestic investors' participation between 2014 and 2015.

"The stability in the macroeconomic environment and the strong earnings of quoted companies should attract the needed liquidity into the market. Consequently, the equity market should record a strong recovery in the year 2017," they stated.

The market has recorded growth in March and April, a development that is line with bullish sentiments of analysts at Cordros Capital Limited.

The market closed the month of April with a growth of 0.9 per cent, up from 0.74 per cent growth recorded in March.

Cordros Capital had said the better-than-expected Q1 results would bolster the market to sustain positive growth in April.

"We expect the current improvement - albeit modest - in the macroeconomic environment, especially the currency space, will further stoke investor appetite, particularly in the event of no negative surprise(s). Better-than-expected first quarter results (we expect a few top names to announce results before the end of the month) may act as catalyst," they said.

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