LAGOS, JANUARY 16, 2017 – LAST year, the Nigerian Stock Exchange, NSE, index underperformed most of its peers in Africa. What are we likely to see this year
It is too early to tell. However, in my view, to the extent that we still have challenges in the currency control in the economy, we may continue to see slow activity in the equity market. To that extent, we may see another uninspiring performance from equities this year and obviously that goes to the fact that there are a lot of listed companies that depend on import for their input.
Also, last year, we were in recession from January to December and by the time results start coming out this year, I reckon that a lot of them will not be encouraging and that will certainly not encourage investors to bring money into the market.
Going to the issue of capital control, now to the extent that this capital control remains in place, we may not see the return of foreign portfolio managers that prior to 2015 provided the liquidity that buoyed the equity market. So, a combination of that and the fact that the performance that may be coming in will not be encouraging given the fact that we are in a recession, we may see an uninspiring performance from equities this year.
However, I must mention that there may be pockets of opportunities in individual stocks and individual companies where investors can make money.
Despite the picture you have just painted, we still saw a situation last year where the index went as low as -12 percent but was still able to recoup some of the losses at the tail end of the year. Do we expect the same scenario this year?
I believe that what we saw at the tail end of last year was simply bargain hunting. Given the fact that some equities were very cheap, they presented the liquidity and the right risk appetite, so investors took opportunity of the low prices to make some money. I believe that sometime this month or next, they will hit their benchmarks in terms of return and it is most likely you see another bear run on the back of profit taking.
You did say that there will be pockets of opportunities in some individual stocks. What sectors are we looking at?
Financial services, certainly. You know I mentioned United Capital and the likes of GT Bank and handful of insurance companies also that have performed very well. I will say financial services and consumer products also. By that, I mean Nestles and the rest of them and may be cement (industrial sector).
Talking about the consumer goods companies, are they not also being affected by the forex issue?
Yes, they are but for many of them, especially those that deal with essentials which is why I mentioned Nestle, their products are staples. So, regardless of what is going in the economy, what they might have recorded will be in volumes, but probably they must have compensated for the pricing perspective in terms of how they priced their products during last year.
Overall, they will still record profit. Mind you I am not saying that other companies will be posting losses, but profit may not be as high as expected. And also, we may also see where companies may try to improve on their dividend payout just to encourage shareholders’ participation in their stocks. That’s how I think some companies might want to balance out some losses investors might have recorded in the capital gain side in 2016.
VANGUARD
