Rising business profits, consumer income seen boosting equity markets in 2018
by BALA AUGIE
January 9, 2018 | 12:52 am| | | Start Conversation
There are indications that the equity market could get a boost in 2018 from expectations of higher business profit and consumer income growth as Nigeria existed a recession last year.
The impact of the expected growth in the business profit and consumer income is positive to the financial market, according to analysts at FSDH Merchant Bank Limited.
“We expect it to drive equity market investments and position corporates to access long-term capital needed for expansion,” said analysts at FSDH.
Stocks are already up 4.2 percent year to date.
The introduction of the Investors’ and Exporters’ (I &E) window by the central bank and the subsequent liberalization of the foreign exchange market paved the way for increased dollar supply that eased the pains of manufacturers like Nestle.
For the Banks they have felt the positive impact of the above monetary policy as the cumulative net income of 14 biggest lenders that have released third quarter results spiked by 18 percent to N503.72 billion from N427.21 billion as September 2016.
Non-interest income increased by 12 percent to N738.45 billion in September 2017 from N661.38 billion the previous year.
Indeed, improved liquidity strengthened business activities last year as the Nigerian Stock Exchange (NSE) emerged as the world third best performing stock market for 2017.
This follows two consecutive years of underperformance (2016: -6.9%; 2015: -19.9%) as Africa’s largest economy grappled with a sharp drop in oil price and severe dollar shortage while militant attacks in the oil-producing Niger Delta deal a great blow external reserve.
The latest Purchasing Managers’ Index (PMI) report that the CBN published for the month of December 2017 shows improved business activities in both the manufacturing and non-manufacturing sectors.
At 59.3 and 62.1 points, the Composite Manufacturing PMI and Composite Non-manufacturing PMI respectively attained the highest levels since January 2015.
“I think it is in line with our expectation because we have seen some improvement in the economy,” said Tajudeen Ibrahim head of research at Chapel Hill Denham Limited.
Analysts at FSDH merchant Bank are of the view that improvements in the business expectations should drive business expansion and drive employment of labour saying that it will in turn increase the consumers’ purchasing power.
An uptick in consumer spending could result in increased demand for consumer goods products hence underpinning the revenue and profit of these firms and stocks in the sector.
According to a recent data by the National Bureau of Statistics (NBS) National Disposal Income spiked by 17.87 percent to N28.86 trillion in September 2016 as against N23.70 trillion as at September 2015.
Compensation to Employees surged by 27.66 percent to N7.66 trillion in September 2016 from N6.0 trillion as at September 2015, according to the statistics body.
However, the number of people without a job in Africa’s largest economy and oil producer is astronomically high.
But analysts are of the view that lower employment rates will occur when the country sees increased infrastructure projects.
Unemployment rate increased to 18.8 percent in the third quarter of 2017 from 14.2 percent in December 2016, according to NBS.
“As we are getting closer to elections we will see investment in Infrastructure by government and that would create jobs for the unskilled and casual workers,” said Johnson Chukwu, managing director and CEO of Cowry Assets Management Limited.
Analysts at FSDH Merchant Bank based their analysis on the recent data from the Central Bank of Nigeria (CBN) on the business and a consumer expectation confirms this position.
The surveys that the CBN conducted in December 2017 show that the expectations of firms and consumers about the next 12 months improved from previous months, according to analysts at FSDH.
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