Analysts at Investment One Research have projected that the positive momentum recorded in the past three years on the NGX will be sustained in 2023, albeit at a moderate pace.
The analysts stated this in their 2023 microcosmic and financial market outlook report tagged ‘Unboxing the New Realities’.
Expected bullish sentiment: They noted that a major catalyzing factor is a bullish sentiment expected in Q1 to be buoyed by investors positioning ahead of 2022 full-year corporate disclosures and possible re-investment of dividends earned.
The analysts added that another eventful factor that should buoy sentiments in the market was Dangote Cement Plc’s share buyback of up to 1,687,355,925 (10%) of its issued shares which has been unanimously approved by the shareholders at the last Extra-ordinary General Meeting (EGM) held in December 2022.
Performance determinant: They explained that further into the year, the direction of market performance will be largely determined by the trio impact of fixed income yields in tandem with monetary policy, corporate actions, and election turnouts. They said:
“Ditto to our outlook of tepid movement in yields in the fixed income space and expectations of a less aggressive hawkish tone from the CBN, negative real returns should remain relatively high in the fixed income space giving room for alpha-seeking investors diverting more funds to equities as it remains a solid channel for positive real returns.
For Corporate earnings, we are cautiously optimistic about a positive earnings performance in 2023 given the negative impact of high inflation pressures, increased monetary policy tightening and FX instability.
Although we expect a broad-based resilient performance, we do not see a significantly upbeat performance as the aforementioned factors remain deterrents.”
The downside risks: The analysts noted that election jitters and heightened political risk in 2023 are key factors that will influence investors’ sentiments towards the equities market, particularly considering that it is an election that would herald a change of the presidential baton.
“Considering the “do or die” nature of election affairs in Nigeria and the instability that comes with policy enactments and reforms as well as the uncertainty of a peaceful post-election season, equity investors tend to take a standoffish position towards the market as they take a flight to safe havens.
“We highlight that the last three election years ended on a negative note for the market (2019: -14.60%, 2015: -17.36% and 2011: -16.31%) owing to the significant participation of foreign investors and the negative sentiments exhibited towards election seasons as propelled by the aforementioned factors.
“It is worthy of note that foreign investors’ participation in the local bourse was quite significant over these periods, printing at 49.00%, 54.00% and 66.00% for 2019, 2015, and 2011, respectively, while as of November 2022, foreign investors only constitute 17.00% of total market participation.
“For us, we think the change in structure with respect to investor participation will bode well for market performance, mitigating any significant potential downside risk from the electioneering process.
“Post-election, barring any heated tensions from the election with respect to who clinches the presidential seat, we expect to see a positive turnout in the bourse on the back of our opinion of the three major candidates being pro-market.”