Analysts Foresee Moderate Rebound, Say Equities Now Attractive

Analysts at Cordros Capital Limited (CCL), an investment banking firm, have stated that Nigerian equities are largely attractive, just as they foresee a moderate rebound in 2016.

Having dipped by 17 per cent in 2015, the market has so declined 17.95 per cent this year, while some individual stocks had dipped by over 50 per cent in the past year.

In their 2016 outlook for the equities market, analysts at CCL said: “From a valuation perspective, Nigerian equities are largely attractive (even from conservative earnings perspective) and an argument in favour of a market rebound in 2016, on the back of this alone, is strong. The likelihood of a rebound can also be considered from the possibility of the uncertainty caused by the transition to a new government ending with 2015.”

According to them, clarity on the macro front is buttressed by the fact that the economic desires of the current administration have pretty much been spelt out in both the budget and the decisions of the monetary policy authorities.

“On politics, election and its associated disruptions are not envisaged in the year, and it is also good news (especially for the Fast Moving Consumer Goods concerns) that the military has strengthened opposition against insurgents in the North,” they said.

However, the analysts said they envisage sell-offs in the first half and buy-backs in the second half.

“On average, the Nigerian Stock Exchange All-Share Index (ASI) would trail end-2015 levels by between 10- 15 per cent. Although we do not completely subscribe to generally shared allusion that there is a direct relationship between the equities market and the movement of crude oil price (with reference to years 1999, 2000, 2001, 2009, 2011 and post 2015 elections), we suspect that a sustained depression in the price of the commodity is capable of influencing continued skepticism among the investing public. More than the price of oil, we should expect investors (the foreign index trackers especially) to be largely driven by the outcome of government economic policies and decisions,” they said.

According to them, critical areas of interest will be  monetary policy - exchange and interest rates,  economic growth recovery – non-oil sector especially, and  private sector performance.

“On economic growth, whilst reiterating our constructive position on the long term fundamentals of Nigeria, we see recovery being quite modest this year. There will definitely be gains for the economy should the government succeed in expanding spending (though subject meeting targets on oil and independent revenues), but the “magnitude and time” may not sway investors. On monetary policy, there doesn’t seem to be an end-in-sight to the ongoing patriotic style of exchange rate management. Thus, until the CBN heeds to the recommendations of the foreign institutional investors (by relaxing restriction on the currency or outright devaluation), lazy inflow of United States dollar (down 32 per cent in 2015) into the market will linger,” they said.