Following the negative outing of Nigeria’s stock market in 2019, market outlook this year, particularly for equities, now dangles both optimism and pessimism before the investors, should experts’ views be taken hook, line and sinker.
The market opened 2019 with market capitalisation of N11.720 trillion and closed the year at N12.958 trillion, while the All Share Index (ASI) opened at 31,430.50 points but dived to 26,842.07 points at the year end, culminating into a -14.6 per cent loss..
Although the market has started the year strong with investors gaining over N320 billion currently, there are fears that the year will see a challenging investment landscape due to unfriendly reforms, lingering global trade protectionism as well as weak fundamentals while others have pointed out that local demand for high-quality dividend-paying stocks and increased system liquidity could affect the market positively.
Analysts at Cordros Securities have posited a muted stock market performance for the year, a replay of the 2014-2016 period, during which the market declined for three consecutive years, losing a cumulative 39.7 per cent.
In its outlook for the market, entitled “ Nigeria in 2020 : At the Cliff’s Edge”, they noted that the country is entering a more challenging investment landscape in 2020, adding that the combination of a lack of market-friendly reforms locally, weak sovereign fiscal position, lingering global trade protectionism and weak global growth should result in somewhat turbulent domestic capital markets.
The report explained that Nigeria’s annual GDP growth was driven by strengthening momentum in the oil segment of the economy, which expanded at the fastest pace in six-quarters.
According to the report, fragilities lingered as inflation began to reverse its 2019 gains, climbing to a 17-month high in October due to the impact of the Federal Government’s land borders closure which took a toll on food prices, resulting in weak consumer purchasing power and decline in real wage growth in the absence of the implementation of the new national minimum wage.
They said: “The Nigerian economic recovery story looks somewhat precarious; we are early in the cycle as GDP growth continues to dawdle, inflation remains upwardly sticky, and above monetary targets, the pressure on the consumer wallet has been sustained, and corporate earnings continue to shrink. In our view, the macro story for 2020 will be a challenging one, weighed on by elevated unemployment, insecurity challenges, power shortages, low crude prices, and a more subdued global economic backdrop.
Additionally, more upbeat private consumption,which should be supported by the “full” rollout of the minimum wage hike, is likely to be dampened by the inflationary impact of the government’s unorthodox protectionist policies at the borders, as well as electricity price hikes scheduled for mid-year. As such, we do not believe the economic backdrop provides asupportive environment for corporate fundamentals, as evidenced by revenue,earnings and cash flow declines across a myriad of industries”.
Speaking further, they noted that the market return might record -1.7 per cent in the base case scenario, -19.8 per cent in the bear case scenario and +23.7 per cent in the bull case scenario.
“Clearly fundamentals are not strong enough to drive a natural correction in the equities market, however, recent policy directives from the CBN might offer some respite to the domestic bourse”, they added.
Looking at the market from its own prism, United Capital Plc notes that the latest Nigeria’s economic outlook has projected that the equities market would likely return at +5.3 per cent, driven by local demand for high-quality dividend-paying stocks and increased system liquidity.
The report, released by United Capital Plc, tagged: “A Different Playing Field,’’ noted that Nigeria’s continued auction of high yield Open Market Operation (OMO) bills to Foreign Portfolio Investors (FPIs) may keep foreign interest in local equity market tepid.
This, the report says, is amid fears of a Naira devaluation and confidence deficit in the economy.
“FPIs are likely to continue their flight to safety by swapping/selling equities for low-risk OMO bills. Our outlook for stocks in 2020 is anchored on developments in the domestic and global economy with monetary policy as the biggest factor to watch.
From all indications, the only justification for an uptick in the equities market is the lower yield environment, supported by increased local currency liquidity. However, this will not be enough to trigger a major rally in the absence of the demand from FPIs,” it adds. Afrinvest, on its part, believe investors’ sentiment would remain tepid for the year.
In its market report dated January 2, 2020, its analysts at said: “As bargain hunting opportunities avail, we expect investors to buy into market bellwethers and stocks with strong fundamentals. However, we believe investors’ sentiment would remain tepid given that economic catalyst required to boost performance remains absent”.