Nigeria ‘market-pessimism’ which had lingered for months took a different turn in Q2-17, as a series of positive headlines and policy pronouncements threw a curve-ball at the market and drove the All Share Index (ASI) from a low of 24,581.9 points on 6th of March 2017 to a high of 37,525.38, according to analysts at United Capital in their Nigeria Outlook H2-2017entitled After The Rain
The bourse’s year-to-date (YTD) returns equally looked northward, currently standing at 39.63 percent as at August 7, 2017.
While the strong rally witnessed in Q2-17 may have been driven by several factors, including the fragile peace in the Niger-Delta, a sudden increase in the gross external reserves, the comeback of the Forcados export terminal and brighter prospect of the economy getting out of the trough, the introduction of the Investors and Exporters FX window by the CBN had the most remarkable impact on the market.
The analysts noted that the Nigerian equities are no longer under siege of FX liquidity crisis, galloping inflation and crude oil production distortion in the previous year, and that domestic crude oil output level has stabilized on the back of the peace deal in the Niger-Delta region even as external reserves settled above $30.0 billion.
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They specifically see flashes of economic recovery on the horizon, adding that foreign portfolio investors (FPIs) are no longer on the sidelines as business and investor confidence continues to strengthen.
“Being the barometer of the economy, the equities market soared 29.8% in Q2-17 relative to -5.1% in Q1 -17,” they noted, suggesting further uptrend in the market.
“With all variables unchanged, the all-share index may be heading for a medium-term resistance level of 42,000pts after breaking through the short-term 30000pts line in H1-17, they averred, adding that a further uptrend in H2-17 would be majorly driven by far-reaching fundamental factors such as policy consistency & sustainability as well as macro economic recovery & stability, which triggered market optimism in Q2-17 amid impressive corporate earnings.
Full year corporate earnings are also expected to follow the recovery story, as investors will be on the lookout for stronger corporate earnings performances driven by improved top and bottom line numbers.
Improved liquidity in the FX market is also expected douse pressures on input costs, which is seen to ease marginally by FY-17 and may bolster economic activities, including consumer spending amid expansionary budget.
To this end As such, players in the consumer and industrial goods sectors would see an uptick in performance and post stronger revenue numbers.
“Although the appetite for loan book expansion remains soft for the banks, interest income will come in higher amid huge deployment of funds into high-yielding government securities,” they equally noted.
The end-year outlook is also favourable for oil & gas, and agriculture sectors stock, which are expected stay buoyant with upstream players like SEPLAT and OANDO anticipated to deliver better performance on the back of reopening of the Forcados export terminal, improved output level as well stability in the Niger -Delta.
However, downside risks to the outlook include oil prices shocks, FX pressures, and capital flow reversals.