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Afrinvest forecasts Nigerian equity market recovery after general election

Ike Chioke, Group Managing Director, Afrinvest
Ike Chioke, Group Managing Director, Afrinvest

Nigerian Stock Exchange would recovery after the February  general election, Afrinvest (West Africa) Limited, has projected.

The investment firm believes some of the factors that will shape the market rebound include Post-election stability resulting in the return of foreign investors, new listings on the Nigerian Stock Exchange (NSE), Corporate Earnings Performance and Sustained improvement in Macro-economic indicators.

Disclosing this at the unveiling of the ‘Nigerian Economy and Financial Markets 2018 Review and 2019 Outlook Report’, in Lagos last week, Deputy Managing Director of Afrinvest (West Africa), Mr. Victor Ndukauba, said the firm expects the Equities market to remain unflavoured by investors until after the general election when the effect of negative sentiment will dissipate.

Ndukauba, who was flanked at the presentation by top management of Afrinvest (/West Africa) Limited, including its Group Managing Director, Ike Chioke, stated that the firm modelled the Equities market return scenarios around expectations on domestic monetary and fiscal policy, possible election outcomes, momentum of economic growth, dynamics of fund flow and outlook on global growth with possible effect on policy normalisation.

He said although the company is positive on Equities market performance post-election, its expectation hinges on possible scenarios amidst the various risk factors envisaged for equity investing in the year.

Ndukauba revealed the company conceptualised three major possible outcomes that could play out in the general election irrespective of the winner. They are the ‘Pessimistic Case,’ the ‘Base Case’ and the ‘Optimistic Case’.

“Consequently, our forecast market return for 2019 on the three scenarios are Bear: -33.4 per cent, Base: +42.0 per cent and Bull: +117.7 per cent”, he stated.

According to him, the firm’s ‘Pessimistic Case’ with a probability of 40.0 per cent 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 the pace of policy normalisation, especially from the Bank of England (BoE).

He said: “We estimated that this scenario would necessitate at least 20.0 per cent decline in market EPS and force P/E as low as 6.7x; hence, crystallising in 33.4 per cent decline in the broader index by year end.”

“Our ‘Base Case’ assumes that the 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 a slow but steady economic growth path with fiscal and monetary policy conditions subsisting while the current pace of global policy normalisation remains.

“In our analysis, this scenario would result in a 6.8 per cent EPS growth with higher market P/E (11.4x) resulting in 42.0 per cent market return. We believe the possibility of this occurrence is most plausible at 50.0 per cent.

“In our ‘Optimistic Case’, which we assess as the least likely scenario in our view with a probability of 10.0 per cent, given the current realities, we assume 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 per cent growth in EPS with estimated market P/E at 15.2x and market return of 117.7 per cent.”