Revised interest rates, sustained profitability to drive equities in 2018
Barring unintended consequences of key policy decisions that may destabilise the gains of the nation’s capital market, analysts have expressed optimism that the likely downward review of interest rates in Q2 2018 and sustained return on investments by listed equities may improve performance of equities on the nation’s bourse.
According to them, it is expected that economic growth will be stronger in 2018 and this is expected to impact positively on the stock market.
Analysts explained that the 2017 growth trend was driven by improved macro-economic outlook and the enhanced investor sentiments, driven by the policy reforms such as the creation of the Investors and Exporters window and increased dollar liquidity.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, however noted that the impending general elections mean that some foreign portfolio investors may unwind their positions on the Nigerian Stock Exchange (NSE) in late 2018 and return after the elections.
He added that such investment decision could lead to a drop in share prices and slowdown in the performance of capital market.
An Investment Analyst from Afrinvest, Omotola Abimbola, corroborated the view saying that policy induced volatility due to the fast approaching election cycle may make policy makers focus more on winning primaries, adding that commodity prices may also hamper activities on the NSE.
He stated that an enabling environment is needed to attract more capital into the system, stressing that yields in the fixed income market will moderate.
A Stockbroker with Sofunix Investment, Sola Oni, said the 2018 outlook for the Nigerian Stock Exchange (NSE), is promising.
According to him, the 43 per cent growth recorded at the end of 2017 transactions is a combination of investors’ confidence and market resilience.
He said that investment in the fixed income segment may witness tremendous patronage considering the increased participation recorded in the sector in 2017.
“We expect the Federal Government to utilize the market to fund infrastructure projects as it is a win -win affairs for the market and the government.
“However, our forecast is anchored on a mix of factors, including strong market fundamentals as equity prices on the market are still grossly undervalued relative to their intrinsic values, ability of the NSE to leverage on its on-going demutualization Programme to change market structure and reinforce investor confidence, ability of the Central Bank of Nigeria (NSE) to sustain management of forex in stabilizing economic activities.’’
The former President of Chartered Institute of Stockbrokers, Ariyo Orishekun said the key issues that can sustain current market trajectory are continued stability in foreign exchange and downward review of the interest rate.
According to him, the improved performance witnessed in the domestic bourse in 2017 was due to the introduction of the importers and exporters’ window in mid-April, which helped, to stabilise volatility and liquidity in the FX market, pulling back foreign investors who have been waiting on the sideline.
Beyond recovery indicators and assurance by economic managers, members of the Organised Private Sector (OPS) have urged the Federal Government to adopt measures that will result in economic recovery and creation of needed jobs this year.
With unemployment rate at an all-time high of 18.8% in the third quarter of 2017, amid projections that the rate might be worse in the fourth quarter, the OPS noted that many employers including the public sector found it difficult to pay workers as and when due in 2017, necessitating the need for measures that will impact on citizens’ welfare, especially lower food prices, reduced cost of healthcare, improved transportation system,1 constant power supply and security of lives and property.