(Greenwich Merchant Bank): In the build-up to the general election, the equity market maintained an upward trend as NGX-ASI gained by 7.22% Year to date to the election, (as of Feb 24, 2023).
The equity market sustained the tempo after the election. However, some negative sentiment trailed the gubernatorial election, thus the NGX-ASI lost by 1.5% in the election week. YTD gain has trimmed to 3.40% as at the close of trading on Thursday.
Apathy from foreign investors persisted all through the reporting period as domestic investors dominated trade in the market, accounting for 87.24% of total participation YTD 2023.
Business Drivers In Q2, 2023
FIXED INCOME MARKETS:
- The general elections in Nigeria have been concluded, with no major post-election violence. Thus, setting the pedestal for building confidence in the economy and the capital market.
- While this is expected to tame the rise in yields, the uncertainty around the policy direction of the incoming administration will keep yields elevated.
- Irrespective, the fiscal strain cannot disappear over the next few quarters. Besides, with the over N11trillion fiscal deficits in 2023 budget, the government will have to keep the average rate high to incentivize investors.
- Also, international competition for funds as benchmark rates increase will be a disincentive for yield reduction. Hence, we expect average yield in the fixed income market to increase in Q2, 2023.
EQUITIES MARKET:
- The anticipation of a market-oriented President is expected to further strengthen domestic investors’ sentiments and re-awake foreign investors’ confidence in the market in the long run.
- In addition to the N1.59 trillion maturities that hit the market in Q1, 2023 from treasury securities, it is anticipated that about N1.25 trillion would mature in Q2, 2023. Hence, the equity market is expected to benefit from this associated liquidity.
- However, for both the equity and fixed income markets, it is anticipated that any upturn in the election results by the courts will have a negative impact on both markets.
Recommendation:
FIXED INCOME MARKETS:
- Given the recent events in the global banking industry, this is a period to be conservative.
- It is expected that the market will record a net outflow in Q2, 2023 given that anticipated outflows will surpass the inflows, baring any unscheduled huge inflows.
- Hence, average interest rate is expected to increase in Q2, 2023 inline with the current market trends
- We should continue to exploit opportunities in viable Commercial Paper issuances, also take advantages of prospects in Placements.
- For the NTBills market, we should be active at the long end of the curve. Also, we are expected to be active at the next NTB auction coming up this week.
- Expectedly, NTBills market’s opportunities will continue to be about the liquidity game as witnessed in Q1, 2023. Hence, it is anticipated that we will ride on the buckets of gains in larger volume which the NTB instruments provide currently.
EQUITIES MARKET:
- We expect trading activities in Q2, 2023 to be bearish given the expected portfolio re-alignment from investors seeking Alpha returns. As such, investors’ sentiments anticipated towards more high yielding fixed income assets.
- Also, market friendly policies/directions of the incoming administration will further boost foreign investors’ confidence in the market.
- We expect corporates yet to publish their FY2022 financials to do so, corporate action announcement and dividend re- investment will be a positive catalyst for the market. Thus, market activities will be driven by block trades.
- Buy equities with sustainable business propositions driving the numbers and strong fundamentals. We recommend stocks in Telecoms, Banking, Oil & gas, Consumer goods, Industrial goods and Agriculture.
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.
