The bulls are expected to extend the Nigerian Exchange Limited (NGX) rally, especially this week, as investors race to increase their portfolio rebalancing.
Analysts believe that improved macroeconomic sentiment, driven by faster-than-expected GDP growth, a downward trend in inflation and early signs of currency stability, has set the stage for renewed investor confidence in equities.
As investors position further in stocks that have the potential for interim dividend payment ahead of releases of H1 scorecards, market watchers’ optimism has increased as some stocks offer attractive entry prices.
The market opened this week on a positive note, rising by 0.31 percent, consolidating its gain of N377 billion last week despite mixed sessions of positive and negative closes.
The market closed last week with a year-to-date (YtD) return of 17.55 percent, driven majorly by consumer goods, banking, and insurance stocks.
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Analysts’ views
Vetiva research analysts said in their July 4 note that they expect back-and-forth to continue as portfolio rebalancing likely plays a key role in shaping the market’s next move.
Meristem research analysts said, “We expect the local bourse to continue its upward trajectory this week, buoyed by continued interest in fundamentally sound tickers as investors position ahead of H1:2025 earnings releases. In addition, attractive entry prices and ongoing portfolio rebalancing are expected to contribute to this positive momentum.”
They noted that the corporate action of GTCO’s listing on the London Stock Exchange is expected to further boost investor confidence towards banking tickers.
“While we acknowledge the chance of occasional profit-taking, particularly in consumer goods stocks that have seen significant price increases recently, we believe this will be offset by continued interest in undervalued stocks that possess strong fundamentals and growth potential. Overall, we expect the equities market to end the week in the green zone,” Meristem research analysts said.
According to United Capital Research analysts, “The equities market might continue in its upward trend leading to a slight gain in the ASI. This is hinged on the market benefiting from the excess liquidity in the financial system. Similarly, investors might start positioning for the second-quarter (Q2) earning season, favouring corporates with FX gains, cost control, clear growth trajectory, and those with potential for quality interim dividend payment.”
They added, “On the flip side, a potential OMO auction might reduce the inflow of funds into the equities market as elevated yields keep investors anchored to the fixed income market instruments. Similarly, positive sentiments will be moderated by elevated inflation, heightened interest rate, weak Naira and general uncertainty in the global and domestic macroeconomic space. We expect retail investors to continue to take profit from the previous week’s gains, tactically slowing the upward movement of the equities market. We advise investors to cherry pick fundamentally sound stocks with potential for interim dividend payment,” they said in their recent weekly view.
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H2 outlook
In their recent mid-year outlook entitled, ‘Charting the Sustainability Path,’ CardinalStone Research analysts noted that increasing Foreign Portfolio Investors’ participation in Nigerian stocks is buoyed by greater FX clarity and improved capital repatriation mechanisms.
“We maintain our reliance on the Grinold-Kroner model to estimate the equity returns for 2025. The model states that the expected return of a stock is its dividend yield, plus the inflation rate, plus the real earnings growth rate, minus the change in stock outstanding, plus changes in the P/E ratio.
“Below are the key assumptions for our analysis: Current dividend yield as provided by Bloomberg; expected inflation and real earnings growth rate as provided by the IMF; for Nigeria, expected inflation and real earnings growth are based on in-house forecasts; we assume no changes in shares outstanding; for changes in PE, we assume reversion to the historical level (5-year average) will occur over the next 5 years at the rate of 20percent per annum.
“Following adjustments to the model, we have updated our expectation for the 2025 equities return of the Nigerian market to 32.2 percent (versus 40.4percent, previously). On a risk-adjusted basis, the market should return 14.5 percent or an expected return per risk of 1.82x in 2025,” they noted.
