Stock investors are increasingly looking out for a much lower return in the second half of the year (H2) following a painful first-half (H1) when early year gains were wiped-off.
Many stock buyers were bullish at the start of this year with a record-high gain of 15.95percent in January 2018, the highest monthly gain since May 2009 when it recorded 39.09percent gain.
Given analysts near-term negative outlook for equities, they encourage investor to build strategic exposure to equities by taking risks only where long-term opportunities exist.
“Looking into H2, we forecast minus 2 percent return for the market, equating approximately 2 percent loss for the year,”said Christian Orajekwe-led team of analysts at Lagos-based Cordros Securities.
Their outlook for H2 is underpinned by external risks, the absence of near term catalysts, and a traditional bearish second half. “We now look for much lower return for the year,” Cordros Securities analysts said in their recent outlook.
In the first-half of 2018, Nigerian economy saw some important wins such as high oil prices which helped maintain foreign exchange (FX) stability and supported Federal Government spend. Also, inflation declined significantly in the first six months which triggered yield moderation in the fixed income market.
Coming off an impressive 2017 where the Nigerian Stock Exchange (NSE) All-Share Index (ASI) booked a 42percent gain, many market watchers had expected 2018 to follow a similar trend notwithstanding weaker positive path.
Their views were predicated on positive oil price outlook and the anticipated domestic economic recovery, both of which were expected to buoy company earnings and support market sentiment.
The overall narrative of the year has however been an underwhelming one, best represented by a bear run in the equity market that wiped 14percent off the market between February and May, almost eroding a 16percent surge in January.
The All Share Index (ASI) inched up by only 0.09percent in H1 to 38, 278.55points. Equities market year-to-date (YtD) returns stood negative at 1.61percent as at Friday July 6, 2018 even as value of listed equities stood at N13.629trillion.
The value of listed Nigerian equities which opened the year 2018 at N13.609trillion rose to N16.019trillion last Friday. As at January end, it stood at N15.896 trillion.
Though, stable and recovering macro environment, and earnings support bullish outlook, but analysts insist they are still faced with some downside risks.
“We encourage investment with a long term view as we believe sell-offs over H2 will enhance the attractiveness of equities, and will expand opportunities for new highs in 2019, amidst continued favourable currency conditions, supportive macro environment, and improving earnings”, Cordros analysts added.
“The equity market has been hit by pre-election jitters, with foreign investors moving to the sidelines, and is expected to perform tepidly in second-half (H2) 2018. Comparable multiples with peers suggest the Nigerian equity market remains undervalued and we maintain a strongly positive post-election outlook on Nigerian equities”, said the Olalekan Olabode-led team at Vetiva Research.
Overall, Vetiva analysts anticipate a bearish market in this second half of the year, but highlight the underlying attractiveness of the market especially in light of soft gains seen this year. They are unconvinced that expected modest earnings growth would be able to sufficiently support demand in H2’18 and are cautious on the impact of new Pension Fund Administrators (PFA) multi-fund rules “given the rolling implementation deadline and concerns shown by the PFA crowd.”
“And although we are still relatively positive about the macro economy and corporate earnings, our H2’18 outlook is tilted bearish on the back of sustained tepid risk appetite ahead of the 2019 polls. Though we foresee a smoother and more peaceful campaign and electoral process, our conservative view is that foreign capital may sit on the sidelines – and enjoy rising yields in the global economy as well as stable political environment in other emerging markets – with domestic investors following suit”, Vetiva analysts said.
