After an impressive outing in the first half (H1) of the year which placed the Nigerian stock market as Africa’s best, many analysts are optimistic that this second half (H2) will still offer equities investors some level of positive returns.
As at July 22, the NGX ASI grew by 34.50 percent year-to-date (YtD) as against 33.81 percent in the first half of 2024. Likewise, the All-Share Index has surpassed the 100,000 psychological mark (100,568.63 points as at July 22) from the 74,773 points it started at the beginning of the year.
Looking at the views of Praise Ihansekhien-led team of investment research analysts at Meristem, they expect mixed trading to persist in the equities market for the rest of the year, even as they predict an overall positive outlook for 2024.
Their positive outlook for equities in this H2 of 2024 is hinged on factors including corporate actions and performance and improved forex liquidity, which they said could bolster investor sentiment towards equities assets.
“We expect the All-Share Index to settle at 107,526.98 points, implying a return of +43.80 percent by 2024FY from the close of 30th December 2024,” analysts at Meristem said.
They are of the belief that investors will in this second half still observe macros, foreign investors will maintain liquidity, adding that corporate performance will see a mixed tale. In addition to their expectation of more corporate actions, equity funding and new listings, they also anticipate a growing interest in the equities market, “although a full-scale shift is unlikely given the still-attractive and elevated yields”.
In the first half of 2024, Nigerian Bourse outperformed Casablanca Stock Exchange (+9.99percent), Namibian Stock Exchange (+10.06 percent), Tunis Stock Exchange – (+11.15 percent), and The Egyptian Exchange – (+11.54 percent). Nigeria’s equities market achieved the feat in H1 as some resilient investors moved in to hunt for value on Custom Street despite the increased yield in fixed income (FI) space made equities less attractive.
“During the second half of the year, mixed sentiment is expected to persist as bears and bulls continue their tug-of-war for market control. While June’s positive indicators may have boosted optimism for a more resilient H2:2024, several factors will likely keep the market in a state of equilibrium, with both positive and negative influences holding significant weight.
“Although broad-based positivity on the exchange may be elusive, we anticipate improved sentiment and activity levels, with investors becoming less cautious. The following factors will likely serve as catalysts for market direction, with both drivers and drags explored,” Meristem analysts added.
They noted in their half-year outlook titled Patchy Progress on A Toilsome Trail that the Nigerian stock market began the year strong, “with significant gains in January, but the momentum reversed in the following months as the CBN’s hawkish stance and disappointing corporate earnings eroded investor confidence, leading to a largely bearish first half”.
“For the remainder of the year, we anticipate a continuation of sideways trading activities in the equities market. Nevertheless, we predict an overall positive outlook for the Nigerian equities market in 2024 as corporate actions & performances and enhanced liquidity in the foreign exchange market boost investor sentiment, impact activity levels and drive growth in the local bourse,” Meristem analysts added.
According to Ifeanyi Ubah-led team of research analysts at Lagos-based Comercio Partners, “There would be more activities in the equity space, as banks given the ongoing recapitalisation would raise more capital to meet the benchmark”.
They noted in their recently released macroeconomic outlook that, “The first half of 2024 was a whirlwind for the Nigeria Exchange Group (NGX), with macroeconomic shifts and policy changes stirring up the market. The banking sector stole the show, grappling with its recapitalisation saga, which drove much of the market’s ups and downs”.
“As we move into the latter part of the year, the potential public listing/dual listing of Dangote Refinery on the NGX could be a game-changer. This major industrial project could significantly boost the total market capitalisation, attracting more investors and enhancing the overall perception of the Nigerian stock market, potentially pushing it back towards the 100,000 mark.
“Also, earnings of firms across the board will be daunted by the spillover of the exchange rate volatility and pressures from the macroeconomic environment impacting their books,” Comercio Partners analysts added.
Read also: Foreign inflows into Nigerian stock market hit 15-year low
In their mid-year outlook, CardinalStone research analysts said “our H2’24 sectoral allocation under equity is largely in favour of upstream oil and gas. Within the sector, we retain a strong BUY recommendation on SEPLAT, a stock whose tactical and fundamental cases are supported by the imminent completion of the MPNU deal. The deal is expected to drive surges in the company’s liquids and gas production as well as expand contingent reserves.
“Similarly, the view on elevated interest rates for 2024 supports our sanguine view on sectors with positive interest rate exposure, such as banking. Interestingly, despite a relatively favourable macro backdrop, the sector has experienced material selloffs on account of overreaction to the new guideline on bank recapitalisation.
“We assess that this overreaction has opened strong potential mean total returns on coverage banks over the next 12 months after accounting for the impact of recapitalisation,” thy further said in the mid-year outlook titled “at the precipice of a strategic shift”.
“In addition, the macros favour stocks with a mix of favourable net FX exposures, lesser leverage, and robust cash positions. We also recognise that a favourable mix may not encompass the trio factors as the impact of two of the three may often be strong enough to drive fundamental outperformance. In this bucket, we see fitting stocks such as Okomuoil, Transcorp, UACN, and Unilever,” CardinalStone research analysts further noted.
Also looking at United Capital research analysts half year economic outlook report, they noted that the performance of the NGX-ASI is expected to improve in H2’2024. They also expect that the inverse relationship between the fixed-income market and the NGX ASI will fuel bearish sentiments at intervals in H2’2024.
“In H2-2024, we expect a blend of the expected high base effect in Q3-2024, the potential moderation of interest rates, corporate actions and monetary policy ease in advanced economies to motivate bullish strides at different intervals. The liquidity of the financial system will also play a positive role,” United Capital research analysts further said.
“After breaking through the historic resistance of 66,121.93 points, the NGX-ASI remains poised for greater heights in 2024, riding on the improved economic outlook for the Nigerian economy, and resilient financial performance of listed corporates,” they noted in the report titled “Balancing Act: Nigeria’s Path to Economic Stability”.
