Equity Market will Record Modest Recovery in 2019– FSDH
FSDH Research in its report on ‘Equity market outlook’ it stated says it expects the Nigerian equity market to close the year 2019 in positive territory.
It stated “The equity market depreciated by 17.81 per cent in 2018, after an appreciation of 42.30 per cent recorded in 2017. Although a number of factors may limit the growth of the equity market in 2019, we believe it will record a modest recovery.”
In the report, it said the election activities that would dominate the first quarter of the year might deter investors throughout the first quarter of 2019. However, it added that informed investors usually made money from the equity market when other investors were cautious.
It stated “Therefore, we expect some strategic positioning in the equity market in Q1 2019 ahead of a recovery in Q2 2019.”
It noted that developments within the global crude oil market might determine the direction of the equity market.
The report said, “FSDH Research observes that the price of crude oil and the Nigerian equity market tend to move in a similar direction. The global consensus forecast on the average crude oil price in 2019 is between $60/b – $70/b.
“The current price at $55/b (Brent crude) is below this forecast for the year 2019. The trade war between the United States and China, if not averted, may also have negative impacts on the equity market. The widely-anticipated increase in interest rates in major central banks around the world may reduce global liquidity and flow of liquidity into the equity market. Therefore, it may limit the growth of the market.”
Apart from uncertainties surrounding the election in Nigeria, the report said the exchange and interest rates were other factors that investors should monitor closely.
While it expects a depreciation in the value of the naira against the dollar by about 6.67 per cent toward 390/$ in 2019, it states that a significant depreciation may have a negative impact on the equity market.
It stated, “As previously noted in our research report entitled ‘Key events in 2019 – Implication for investment and business’, FSDH Research expects interest rate and yields on fixed income securities to increase in 2019.
“An increase in the yields on fixed income securities, considered by many investors to be low-risk investments, may depress the equity market as investors realign their portfolios in favour of such fixed income securities. There may be a few activities in the primary market segment of the equity market in 2019 as investors lean towards fixed income securities to secure high yields.
“The performance of companies listed on the Nigerian Stock Exchange (NSE) will either woo investors to the market or discourage investors.”
The FSDH Research’s analysis showed that the earnings performance of the quoted companies might show improvements in 2019 compared with 2018 if appropriate policies were implemented to address the risk factors in the economy.
“While we note that Nigeria has recorded some improvements in the transportation and power sectors, more policies are required to unleash the full potential of the economy.”
Nigeria, it stated, needed specific and workable policies in the real estate sector, judicial system and at the seaports in order to attract and grow investments in the country.
It added, “FSDH Research recommends value-investing strategies for stock investment in 2019. Investors should select companies in good business with sound fundamentals, whose share prices are trading below their fair values.
“They should buy and hold stocks and ignore market volatility associated with overreaction in the market. We believe the following sector of the NSE should record fairly strong growth in 2019: Consumer goods, industrial goods, financial services (banking, while we expect strategic acquisition in the insurance sub-sector) and oil and gas.
The report added “The following are our top stocks to watch: Flour Mills of Nigeria, Nestlé Nigeria, Dangote Sugar, Zenith Bank, GT Bank, FBN Holdings, Transcorp, Dangote Cement, Seplat and Total Nigeria.”