Analysts upbeat on stock, fixed income markets outlook for H2’24

Phillip Isakpa In London, UK

Analysts at Lead Capital are upbeat about the outlook for the capital and fixed income markets for the second half of the year.

In a note sent to Business a.m. titled “Nigeria in the First Half of 2024 and Outlook for the Second Half of the Year”, analysts at Lead Capital say they expect “significant primary market activity” and that company-specific momentum will be part of the market outlook for H2 2024, adding that they expect yields in the fixed income market to remain attractive in the coming months. 

The analysts say they anticipate that the start of recapitalisation in the banking sector will cause the primary market in equities to take centre stage and ramp up activities in this half of the year. 

“Significant increases in capital-raising activities are anticipated as a result of the Central Bank of Nigeria’s (CBN) mandate for banks to recapitalise as well as increased capital raises from businesses in industries like brewing,” they added in their note. 

Providing details on their outlook, the analysts noted that growing investor trust in listed companies led the Nigerian Exchange to end the first half of 2024 on a high note, acknowledging that it was a noteworthy accomplishment for NGX in spite of persistent economic hardships such as high inflation, depreciating currency, and security issues.

In particular, they observed that evident shifts in consumer behaviour resulted from this optimism with the All-Share Index closing at 100,057.49 index points as at 28 June.

“The NGX All-Share Index’s year-to-date (YTD) return is 33.81%, indicating robust performance in spite of recent unfavourable tendencies. But in the first two quarters of 2024, the stock market performed somewhat differently. An amazing 39.84% return was seen in the first quarter, fueled by robust corporate earnings, encouraging dividend announcements, and advantageous government policies. In contrast, returns decreased in the second quarter, reaching -5.11% as of June 25,” the Lead Capital analysts noted.

According to Lead Capital, the increased interest rate environment, which has pushed investors toward fixed income instruments and negatively impacted market performance, has been widely blamed for this collapse.

They added that notable expectations for interim dividends and possible stability in the fixed-income market as a result of decreasing inflation rates are also included. 

“Additionally, we observe that there is a remote possibility of exchange rate stability, which can have a favourable effect on the capital market by drawing in international portfolio investors,” the analysts further wrote.

Providing details on their fixed income outlook, Lead Capital analysts said they expect investors to remain tentative as headline inflation tested above 33 percent in May, adding that the rise in inflation and the expectation that prices will be higher in the medium term has prompted a 750 basis points increase in MPR which has then led to an uptick in the fixed income market.

“Retail investors are expected to shift their attention to the fixed income space for safety and lower volatility. The uptick is expected to continue as long as the MPC of the CBN remains hawkish in their monetary policy approach,” they observed.

They said that with with fiscal deficit project to be lower than in 2023, N7.83 trillion projected in new borrowings out of which 77 percent is supposed to come from domestic sources, it means that the CBN seems prepared to push up government’s borrowing costs in favour of the inflow of “Hot Money” that high interest rates would generate.

“ We therefore expect yields in the fixed income market to remain attractive in the coming months. We also see investment opportunities in the Eurobond segment as current reforms will have a positive impact on Nigeria’s ratings,” the analysts said.