FSDH Predicts Equities Rebound, Higher Bond Yields
FSDH Research says it expects the country’s equities market to perform better in the second quarter of this year following past trends cum historical data.
The market had recorded the second month-on-month decline in 2018 in March. The Nigerian Stock Exchange All-Share Index depreciated by 4.21 per cent (a loss of 4.13 per cent in dollars) to close at 41,504.51 points. Year-to-date, the ASI recorded a gain of 8.53 per cent. Similarly, the market capitalisation recorded a month-on-month loss of 3.58 per cent (a loss of 3.65 per cent in dollars) to close at N14.99Tn ($49.05Bn).
“We expect the equity market to appreciate in Q2 2018 based on historical performance,” the financial institution said in its monthly Economic and Financial Markets Outlook dubbed ‘Growth Prospect Improves but Uncertainties Remain’.
The following factors, FSDH noted, should drive the performance of the equity market: Investors taking positions in the market following the sell down in March; further drop in yields on Treasury Bills; stability in the Foreign Exchange market; and the release of corporate earnings and actions. It explained, “Investors may take strategic positions in stocks that have good fundamentals to take advantage of the expected appreciation in the market. Some stocks in the consumer good, building materials and banking sectors are attractive at current prices.”
The report highlighted that the Federal Open Market Committee of the United States Federal Reserve System raised its anchor interest rate, the Federal Funds Rate (Fed Rate), to 1.50 per cent – 1.75 per cent from 1.25 per cent – 1.50 per cent. The FOMC announced the decision to raise the Fed Rate after its meeting on March 21, 2018.
It explained, “The hike in the interest rate is in line with the expectation of FSDH Research. We expect that the FOMC will increase the Fed Rate to 2.25 per cent – 2.50 per cent by year end. The FOMC notes the strengthening outlook of the US economy, the declining employment rate and the need to sustain inflation rate at two per cent as the major reasons for the increase. FSDH Research notes that the yields on the FGN Bonds may move up gradually from the current level.
“In addition, subsequent external borrowing may attract higher interest rates as yields in the global market move up.” The prospect of economic growth improved following an expansion in the Purchasing Managers’ Index in March 2018 after recording two consecutive months of slowdown as contained in the latest PMI report that the Central Bank of Nigeria published for the month of March. The Composite Manufacturing Index increased from 56.3 points in February to 56.7 points in March.
The rise in the PMI indicates a strengthening of economic activities and positive outlook in the country. According to FSDH Research, there are still infrastructure problems and security challenges that require urgent attention in order to ensure sustainable growth in Nigeria.