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Stock analysts favour bearish scenario in H2

Stock market loses steam as fund managers mull sales

The Nigerian stock markets will continue to remain under pressure as a result of the nation’s looming pre-election instability, a development which has now prompted more analysts to pitch for the bear case situation in this second-half (H2).

The local equities market was able to halt record downtrend on Thursday August 2 as the benchmark Index (NSEASI) inched up by 0.21percent following gains in 23 stocks led by Total Nigeria Plc as against 16 losers led by Nigerian Breweries. The stock market year-to-date (YtD) returns remain negative at 4.06percent.

“We do not expect imminent bounce back in the equities market in H2’18 as a result of looming pre-election instability,” said research analysts at Lagos-based investment house, CardinalStone.

The analysts noted in their latest report “Nigeria Outlook – Navigating the Tide” that despite the improving macroeconomic sentiments currently playing out in the country, “we expect activities in the equities market to remain lethargic for the most of second-half (H2) 2018, largely due to a spillover from the current widespread bearish sentiments being experienced across emerging and frontier markets, and partly due to investors’ jitters on the back of upcoming 2019 presidential elections”.

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 “Historically, statistics show that the period preceding the elections in Nigeria experiences the highest exit of foreign investors from the market and thus, we do not see a deviation from this trend with the upcoming elections. The exit of investors from the market towards the end of H1 has dampened the mood of the market and at such we expect sentiments to remain depressed in H2 despite the country’s present positive macroeconomic buffers,” Cardinal Stone analysts said in the report released on Thursday August 2, 2018.

As at close of trading on Thursday August 2, the Nigerian Stock Exchange (NSE) All Share Index (ASI) appreciated by 0.21percent from 36,612.83 points to 36,688.91 points; while the Market Capitalization which closed the preceding trading day at N13.263 trillion increased by N128billion to N13,391trillion. In 3,293 deals, stock dealers exchanged 320.452million units valued at N3.532billion.

Though more first-half (H1) financials are berthing at the Lagos Bourse, prompting investors to hunt for bargains, but other analysts who still believe the Nigerian equity market will be substantially weaker in H2 as investors phantom the latest developments in the political arena include those at United Capital Plc.

In their equity market outlook for H2’18, the analysts at United Capital revised their base case equities return projection to 4.6percent.

They maintain their bearish case scenario at a negative of 8.5percent, “on the assumption that uncertainties surrounding the build-up to the 2019 election and dynamics in the global space, may be overwhelming;” while also revising their bull case scenario to 12.4percent, “if investor reprice political risk in the Nigerian market appropriately and global trade tension cools off.”

“In our ‘Nigeria Outlook 2018 Report’, we projected a base case return of 12.4percent if expansion in the global and domestic economy is sustained and monetary policy as well as corporate earnings improve”, United Capital analysts stated.

“However, looking back at the H1-18, we observe that though macro factors have aligned with our base case expectations, dynamics in the global space is changing due to heightened trade tensions and aggressive policy stance by the US Fed. Also, political risk in the local economy is on the rise ahead of the 2019 election. Hence, the interplay of rising geopolitical uncertainties and improving macro fundamentals is ticking our projection away from the base in favour of the bear case,” the Lagos-based analysts further stated.