The Nigerian equities market broke-out from the 43,000point resistant level last witnessed in Jul-14 within the first two weeks of 2018. This prompted a few questions, such as: Is a further uptrend likely for Nigerian equities in 2018? If so, how high can the benchmark index climb? And, what are the fundamental factors that will drive this uptrend?
We are of the view that recent rally, as observed in the last three weeks, has been partly driven by bandwagon effect. Hence, a short-term correction is highly probable due to profit taking. Yet, we maintain that fundamental justifications for a sustained bull run in the Nigerian equities market are very compelling. These include improvement in global and domestic macroeconomic environment which should drive assumptions for cost of equity should lower as risk-free rate and equity risk premium moderate. An improving oil market outlook, stable currency market environment, lower interest rate expectation, and solid earnings outlook, all point to minimal negative volatility and robust return, especially in H1-18. The only downside risk is the on-set of uncertainties associated with a pre-election, especially in H2-18, as the build-up to be 2019 election takes center stage.
Overall, we expect the equities market to sustain uptrend in 2018 albeit, at a moderating pace.
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