Going by analysts’ perception, in 2014, the Nigerian stock market looks good to attract more investible funds, particularly with the great improvement the market recorded in the immediate past year.
With a weak open in 2014, questions now revolve round what the year holds for equities and players in this market, despite that the market closed in the positive territory for the week ended January 3, 2014.
While some schools of thought within the market anticipate mixed investor sentiments as recent rallies in the market create opportunities for profit-taking, others believe that expectation of 2013 improved scorecards, improved investor sentiments and liquidity across the globe will continue to attract local and foreign investors to the Nigerian equities markets, as the search for higher returns.
There are already indications that dividend expectation by investors will help to absorb impact of sell pressure, as first full trading week in 2014 commences. Nigerian equity market had last year rallied by 47.2 percent, the best performance since 2008. The market dwarfed its regional peers like Kenya (which grew by 42%) and South Africa equity market (which recorded a decline of 7%).
According to Charlie Robertson, an economist at Renaissance Capital, “We see good reason to favour Nigeria in the coming quarter, but we continue to be cautious on the second half.”
On why investors must look at Nigeria, he adds: “Because from May 2014, it will be 20 percent of the MSCI frontier index (the key benchmark for equity investors in frontier markets) – today it is 14 percent of that benchmark.
“From February 2014, we should see that Nigeria is the biggest economy in Africa at over $400 billion; it has one of the best reform teams in any country globally; electricity reform is working; growth of 7 percent a year since 2000 means Nigeria’s GDP is on course to be bigger than 2012 Japan by 2050, at over $5 trillion in today’s money by 2050; we like Nigeria for the first quarter of 2014.”
Access Bank analysts note that the continued expansion in market dept may be due to positive expectation on year-end 2013 financial performance of blue-chip companies projects that the positive run that characterised the market in recent weeks will persist. They premise their views on increasing demand for equities helped largely by growing optimism for full year 2013 financial scorecards.
“We remain upbeat on equities, with a positive outlook for the year. We expect relatively benign macro-economic outlook, increased investor confidence, system liquidity and the search of foreign investors for growth in emerging markets to support the bullish trend in the Nigerian market,” say UBA Capital analysts.
They add: “Interestingly, while the Financial Services sector under performed the broad market in 2013, we are “overweight” on the sector in 2014, as we expect value names in the basket to lead gains in the year.”
In the course of the week, analysts at MorganCapital Securities say they expect some mild profit- taking, adding that “the year-end dividend expectation will ensure that the effect of the moderate sell pressure is curtailed. Investors focus will still remain on stock with rich dividend pay-out history.”
They also urge investors to continue to invest based on the principles of sound fundamentals at good entry prices, “bearing in mind that in a bear market, stocks with good fundamentals have the capacity to retain value, and even when their prices crash, they are the quickest off-the-mark in price appreciation when the market sentiment becomes bullish.”
By: Iheanyi Nwachukwu
