Opportunities in a Bear Market - FSDH

Proshare

Monday, August 27, 2018 10:37AM /FSDH Research 

FSDH Research believes there are investment opportunities in the Nigerian equity market for long-term investors despite its year till date weak performance so far in 2018. Year-to-date (YTD), The Nigerian Stock Exchange All Share Index (NSE ASI) depreciated by 7.78% (a loss of 6.69% in US Dollar) to close at 35,266.29 points. 

The weak performance of the equity market so far in 2018 can be attributed to two main factors: firstly, the pullback of some foreign investors from the market due to uncertainty ahead of next year’s general elections and secondly, the rising global yields which are leading to reallocation of portfolio funds away from the equity market. Meanwhile, the equity market is already showing signs of oversold position. This means that a reversal in the market is imminent. 

The Relative Strength Index (RSI) on the equity market is showing signs of oversold position. The expectation of higher crude oil prices on the international market in the short-term and crude oil production in Nigeria are positive drivers of the equity market. The average price of Bonny Light crude oil so far in 2018 is higher than the 2018 Budget benchmark of US$51/b. 

According to data from Thomson Reuters, the Bonny Light crude oil price increased by 5.56% to US$71.20/b as at 17 August 2018, compared with the end-December figure. The average price of Bonny Light during this same period was US$72.46/b. The oil price, at around US$70/b, should increase crude oil revenue for Nigeria, and this should continue to support a stable exchange rate in the short term. Consequently, the exchange rate risk is reduced to a large extent. 

The dividend yield in the market has increased due to the low prices. These low prices are attractive for investors wanting to take positions in the market on a long-term basis. During the holding period of stocks, investors will earn attractive dividend yield, bonus (where declared) and have the opportunity to receive the benefits of capital appreciation.

 

Proshare Nigeria Pvt. Ltd.

 

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