Analysts highlight scenarios for 2019 performance, as equities market ends week in green
A GROWING CONSENSUS for a post election rally at the equities market has led some analyst to highlight scenarios through research based methods on possible outcomes for equity investment this year.
Three major possible outcomes that could play out irrespective of the winner of the 2019 presidential elections were highlighted by analysts at Afrinvest in their recently released report “On the Precipice”
“Although we are positive on equities market performance post-elections, our expectation hinges on possible scenarios amidst the various risk factors envisaged for equity investing in 2019,” the authors noted.
A description of the scenarios by the research based firm potrayed the first case scenario as the pessimistic case with a probability of 40.0 percent.
“This envisions a less likely post-election violence characterised by slower than expected pace of economic growth in addition to negative signals in monetary policy management and increased pace of policy normalisation, especially from the Bank of England (BoE),” the report stated, adding that the scenario is estimat- ed to necessitate at least 20.0 percent decline in market EPS and force P/E as low as 6.7x; hence, crystallising in 33.4 percent decline in the broader index by year end.”
The second case scenario is the base case. According to the research firm, in the event that status quo is maintained in major policy disposition with successful and violence-free elections, irrespective of the winner, this will result in a base case.
“Our scenario also envisages that the country maintains slow but steady economic growth path with fiscal and monetary policy conditions subsisting while current pace of global policy normalisation remains. In our analysis, this scenario would result in a 6.8 percent EPS growth with higher market P/E (11.4x) resulting in 42.0 percent market return. We believe the possibility of this occurrence is most plausible at 50.0 percent.
In the third optimistic case, the firm noted that this is the least likely scenario with a probability of 10.0 percent, given the current realities.
“We believe a change in monetary and fiscal policy to drive investments would improve macroeconomic fundamentals. This scenario would be most bullish for equities if combined with liberalisation of downstream oil and gas sector, new big listings on the NSE (including MTN) and weaker than expected global growth that could reverse the current course of policy normalisation.
This we estimate would result in 15.0 percent growth in EPS with estimated market P/E at 15.2x and market return of 117.7%. We opine that some of the expected drivers of market performance in 2018 still hold true, although we do not expect the impact to be seen until after the elections.”
Against this backdrop, the firm forecasts market performance to strengthen in 2019 and highlights some key themes that are anticipated to shape the market, such as post-election stability leading to return of foreign investors, new listings given the sustained drive to increase product offerings in the market by regulators, coupled with the expected improvement in sentiment, corporates’ earnings performance, and sustained improvement in macroeconomic indicators including oil prices, external reserves and FX liquidity as these will remain major considerations for investors in 2019 with their outlook remaining largely positive which should support market activity.
Meanwhile the equities market recorded an all green week posting an overall growth in All Share Index (ASI) of 3.94 percent weekon-week. This reduced yearto-date losses to 1.2 percent while market capitalisation added over N400bn in the course of the week to close at N11.562 trillion.
The week’s gains were driven as a result of buying sentiments across Dangote Cement which rose 10.11 percent last week, Nestle’s 3.94 percent week on week growth and Nigerian Breweries 3.85 percent growth.
On sectoral breakdown, all sector indices closed positive – save for the Banking index that lost 1.04 percent. The industrial index led sectoral gainers with an appreciation of 12.71 percent, it was followed closely by the insurance (+5.51%), Consumer Goods (+2.72%), and Oil & Gas (+0.59%) indices respectively.
In spite of this week’s rally, our view continues to favour cautious trading pattern in the equities market amidst brewing political jitters ahead 2019 elections, and the absence of a positive market trigger,” analysts at Cordros capital said.
They however noted that positive macroeconomic fundamentals are seen to drive recovery in the long term.