FX stability, lower rates seen boosts corporate profits, stocks in 2018


LAGOS – Nigerian stocks are expected to keep rising in 2018, fuelled by hopes that lower interest rates and a stable currency will help corporate profits, but traders say gains might be short-lived.

The all-share index crossed 38,000 points on Friday, with stocks climbing 42 percent for 2017 – its biggest gain since 2013. Traders foresee another 10 percent rise next year, to as high as 42,000 points.

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Stocks gained 0.66 percent on Friday, the second day of gains this week, as investors took positions in banking and consumer goods companies.

“Stocks could go up to 42,000 points next year. We still see interest in stocks which we think will continue into the first quarter,” a stockbroker at Chapel Hill Denham told Reuters.

But the rally will depend on the strength of 2017 earnings reported in the first quarter, the broker said. Weaker-than-expected profits might curtail the rally, and the run-up to 2019 elections may create uncertainty as well.

Foreign investors returned to Nigerian assets after the central bank in April lifted currency controls in a bid to attract inflows and support the naira. The currency moves helped propel stocks and increased its dollar reserves.

The gains have also drawn locals back to the market as Nigeria climbed out a recession this year, helped by a rise in oil prices and production.

Meanwhile, the government has paid off 198 billion naira worth of treasury bills this month instead of rolling them over, to lower what it pays to borrow. That fuelled speculation about the outlook for official interest rates.

The central bank kept rates at 14 percent for more than a year to battle inflation and support the naira. Analysts now expect rates to fall by 100 basis points next year, which could lead locals to switch to equities from bonds.

Banking stocks have outperformed this year, rising 72 percent. Consumer goods shares rose 35 percent. Analysts expect mid-tier lenders such as Fidelity Bank, FCMB and Diamond Bank, to lead the market next year.

Pension fund manager Adeniyi Falade, who has around 200 billion naira under management, said he saw value in mid-tier lenders and plans to rotate funds out of money market to equities next year.

“We anticipate further gains for the Nigerian bourse amidst a positive outlook for FX earnings … which would buoy company earnings … as well as our expectation of lower interest rates in 2018,” analysts at Vetiva Capital said.