Investment analysts at FSDH Merchant Bank have restated that the nation’s equities market has positive outlook in 2018 despite the bear run that has reduced the year-to-date(YTD) growth of the market to 11.8 per cent.
Having recovered from a three-year decline to record a growth of 42.3 per cent last year, the market sustained the rally in the first month of 2018 with YTD hitting 17 per cent. But profit taking has led to a bear run in the past days, reducing the YTD to 11.8 per cent as at Monday.
Despite the negative sentiments, FSDH has restated that the market has positive outlook. In their special report titled: Economic and Financial Markets Outlook (2018 – 2022): Strong Growth Prospect with Downside Risks,” analysts at FSDH said the outlook of the equities market remains positive in 2018 as they expect the macroeconomic environment in Nigeria to strengthen further.
“Thus we forecast a growth of 27.43 per cent in 2018, lower than the growth of 42.3 per cent recorded in 2017. We expect a strong rally in the equity market in the first half of the year 2018. We see investment opportunities in the Banking, Building Materials and Consumer Goods sectors of the market,” they said.
They listed factors that will drive the market in 2018 to include: increase in crude oil price at the international market and increase in local production; the expected drop in the yields on fixed income securities leading to portfolio realignment towards the equity market; improvements in the external position of the country through increase in external trades and capital inflows; increase in the external reserves providing further stability exchange market; improved corporate earnings and actions and increased participation of the foreign portfolio investors.
The analysts added that the banking sector would remain top performer in 2018 to improve on its performance in 2017.
The NSE Banking Index recorded the highest appreciation in 2017, growing by 73.3, a development, they linked to the improvements in the price of crude oil and production that had a positive impact on the loans extended to the oil and gas sector.
“The stability in the foreign exchange also had a positive impact on the operations of the companies in the sector. Analysts and investors see this positive developments for growth in future earnings and corporate actions. FSDH Research expects the continued improvement in the macroeconomic environment to boost the performance of the banking sector in 2018. We see investment opportunities for the tier two banks in the sector,” they said.
Looking at consumer goods sector, they the improvements in consumer purchasing power and the stability in the foreign exchange market in 2017had positive impacts on the consumer goods sector.
“Despite the increased supply and stability in the foreign exchange market, companies continue to substitute imported inputs for local inputs where available. FSDH Research expects that as consumer purchasing power grows, the consumer goods sector will grow in 2018. FSDH Research expects the improvements in the macroeconomic environment and the growth in the equity markets to have positive impacts for consumers and firms income in 2018.