Nigerian equities may witness a moderation in their bullish rally to close the year with average return of 19.1 per cent.
In its review of the first half and outlook for the second half, Afrinvest Securities stated that there could be a moderation of returns in the second half given the macroeconomic outlook.
However, equities had posted 21.3 per cent return in the first half, outperforming Afrinvest’s bull case projection of 13.7 per cent for the period.
“If you ask us, this was driven by impressive full year 2021 corporate earnings, dividend payments, market stimulating corporate actions, and robust system liquidity,” Afrinvest stated on the performance of the market in the first half.
Analysts noted that although yield reversal in the fixed income market and the CBN hawkish switch of 150 basis points increase in MPR to 13.0 per cent dented the broad-base market rally from 2021, the resilience of major companies such as MTN Nigeria; which rose by 16.8 per cent, Airtel Africa; which jumped by 81.4 per cent, Dangote Cement; which rose by seven per cent and Seplat Energy; which doubled by 100 per cent supported the equities return over the first half period.
In the fixed-income market, analysts maintained bearish outlook although they lowered expectations of upticks in yields to reflect the prevailing market dynamics.
Afrinvest had posited at the start of year that the fixed-income market would toll a bearish path.
“Our prognosis was premised on liquidity environment, demand-supply dynamics, regulatory actions macro-economic trajectory, and pre-election risk perception. Although our full-year outlook was bearish, we anticipated a bullish outcome in first half 2022 where the significant maturities for the year would crystallise-62 per cent across the board. True to our prognosis, the FGN bonds yield moderated 32 basis points to 11.5 per cent in the eventful half-year where strong bullish momentum till mid-March gave way to a bearish run up to early May, and an eventual sideways movement till June,” Afrinvest stated.
Also, in their preview, analysts at Cordros Securities said the overall economic outlook remained tough.
“Domestic economic activities appear to be decoupling from the global economy even as the heightened uncertainties regarding the Russia-Ukraine conflict and low demand from China introduce new shocks to global growth outcomes amid the ‘great policy unwind’.
“The government’s sustained fiat-led interventions and a recovery in household consumption partly supported the real sector’s resilient growth in first quarter 2022, despite elevated inflationary pressures. However, the macroeconomic narrative isn’t wholly positive, which puts the Nigerian investment landscape in the same position. This, may likened to driving in torrential rain, racing fast to reach a destination – as the brake lights flash and exits back up, it is impossible to know whether to stay the course, change lanes, or pull over and wait it out.
“Looking ahead, we firmly believe that domestic output will expand faster than population growth in the absence of any significant shock to the economy. Importantly, we see the non-oil sector remaining the overall growth engine, just as we expect sustained contraction in the oil sector.’’
“Notwithstanding, we expect headline inflation to sustain its upward pressure given higher gas and other energy prices, elevated global food prices and the spillover effect of higher transport costs amid pre-existing structural constraints. Moreover, we expect the foreign exchange liquidity conditions to remain pressured as foreign portfolio inflows remain low and accretion to the foreign exchange reserves from crude oil receipts remain weak. Hence, we reiterate that without further devaluation of the local currency at the Investor and Exporters Window and improved foreign exchange flexibility, the CBN can comfortably sustain itself as the significant foreign exchange supplier to the various foreign exchange markets.
“On monetary policy, despite the 150 basis points increase in the Monetary Policy Rate (MPR), we expect the Monetary Policy Committee (MPC) of the CBN to remain under pressure to further increase the key policy rate in second half 2022. The primary factors responsible for this prognosis are hinged on a more aggressive path for interest rates in advanced economies and the unrelenting inflationary pressures in the domestic economy.
“On fiscal policy, we envisage that the government’s fiscal stance will align with historical trends where it meets its expenditure target while retained revenue performance remains sub-optimal. However, we are optimistic that higher corporate income tax (CIT) and value-added tax (VAT) collections will support non-oil revenue, even though this is unlikely to sufficient to salvage the overall revenue picture. Overall, we expect a record fiscal deficit in 2022E, pointing towards elevated borrowing in the domestic debt market” Cordros stated.