Economy: High yields bond to cast shadow on equities market – Analyst

By Ihesiulo Grace

17 January 2017

Business

Equities market performance in 2017 would be dictated in the first half (H1) of the year by economic direction of the nation as well as the bond market.

The readjustment to stability and growth expected in second half of 2017 would, however, be determined by stability driven by expected readjustment by the Central Bank of Nigeria (CBN) on monetary and fiscal policies.

Investmentone research titled ‘Nigeria’s macro and market 2017 outlook’ made available to Daily Times Nigeria expressed concern that the weak economic outlook and high -yields in the fixed income space will continue to cast a shadow on equities’ performance in H1 2017.

Though the Investment research company noted that growth drives such as a boost in crude oil prices, foreign exchange inflow from borrowings and expected early passage of the budget would impact positively on the equities market, yet, corporate earnings would continue to diminish, reflecting the fragile macro environment.

The multiplier effect of the weak operating environment in 2017 first half, noted the analysts, would translate to subdued All Share Index (ASI) in the Q2 accounting period.

“Beyond H1 2017, we expect some stability supported by our expectation that the apex bank may be compelled to adopt a more accommodative stance and a shift in the FX regime” InvestmentOne noted.

The company while stressing that challenge facing the consumer goods sector pacing into the Q2, fingered few two stocks, NB and Nestle as resilient to the sector’s headwinds over medium term basis, fingered cement companies and the banking subsector as the expected driver of the market.

According to the report, the prospect for recovery in economic output remains dim given the combination of unresolved crisis in the Niger Delta, a challenging business environment, pressured consumer wallet, inconsistencies in policies and weakened investors’ confidence.

These factors would determine the market direction in the first half of the year as well as the second half. H1 2017 economic output, the report pointed would reflective foreign exchange shortages and weak investors’ confidence, irrespective of the potential for early passage of the budget and improvement in government spending.

“We expect oil sector output to remain sub-optimal asgovernment grapples with security challenges in the oil -rich region. However, government revenue may be supported by rising crude oil prices, borrowings and blockage of revenue leakages”
Increased revenue , noted the report, will support government’s increased spending through capital projects expected to spur activities in the construction and real estate sectors having recorded declines in the past six quarters.

Projecting 2 per cent growth in economic output in 2017, in line with Moody’s earlier forecast of growth by 2.5 per cent, InvestmentOne noted that the manufacturing and trade sector activities are likely to remain uninspiring, dragged by poor access to FX, while the economy would sustain continued improvement in resilient sectors like Agriculture and ICT hence demand for local agricultural output and government efforts at diversifying the economy further serve as tonic.