Where to invest in 2016 as economic uncertainties continue to grow

Proshare

Friday, December 25, 2015 3.38 PM / TheAnalyst

 

In our opinion, equities market had technically moved closer to a point where everybody had or have almost exhausted their supplies as ASI is firming up above 26,000bpts, which further points to likely reversal in trends despite sustained broad weakness in economic fundamentals- though, there are strong indications that adverse effect of falling fundamentals may hit market harder in the coming year 2016. Nevertheless, the tone of economic policy as capped in proposed budget for 2016 fiscal year may spring up surprises in key sub-sectors.

 

As Santa Claus rally begins to gain momentum on the Nigerian bourse, we consider it very important to present more insight into trends and prospects across board as bears had put investors into cautious mode for long- This write-up is expected to guide you towards informed decision and intelligent investing ahead 2016

From trading pattern in the recent months, we have highlighted high level of investors’ apathy and sideline-trading postures, particularly in the last 6months, which had contributed immensely to unimpressive performance recorded so far in the year 2015.

However, we are of opinion that market had technically moved closer to a point where everybody had already exhausted their supplies, which further points to likely reversal in trends despite sustained falling fundamentals across aboard, which was driven by high interest rates and unfavourably FX rates, particularly in Banking and Consumer Goods sub-sectors. Consequently, this has led to unimpressive Profit-lines, considerable decline in revenue base in the current year.

From all indications, the adverse effect of weak fundamentals may hit market harder in the coming year 2016. Dividend payout ratio may shrink across board significantly- this may push companies to consider unimpressive bonus reward for the financial year 2015.

Nevertheless, taking clues from the proposed budget for year 2016 that is characterised with heavy spending and tax concessions policy towards key economic sectors to drive diversification of economy. Agriculture and Mineral Resources sectors of the economy have been singled-out to benefit tremendously from this policy- this in our opinion would have rub-off effect on fundamentals of some quoted firms as business environment poised for positive change.
 

Government has displayed significant commitment towards infrastructural upgrade and bridging the infrastructural deficits across nation by committing huge capital expenditure towards road networks, housing and power generation.  
 

 

In view of the tone of economic policy as capped in proposed budget for 2016 fiscal year here are key sub-sectors of the economy that may spring up some surprises as their business fundamentals may receive unprecedented boost. Agriculture (OKOMUOIL, PRESCO and FTNCOCOA), Mortgage (ASOSAVINGS, RESORTSAL), Cement (DANGCEM, ASHAKACEM, WAPCO, CCNN), Energy (FO, OandoTRANSCORP), Building, Construction/Real Estate (JBERGER, COSTAIN),Mining& Natural Resources (MULTIVERSE).

On the other hand, as uncertainty continues to grow in the face of possibility of economic recession in near term, we expect corporate firms to spend more on Insurance as a way of reducing their exposures and increase cover for earning assets- we encourage investors to buy into leading insurance stocks with healthy operating efficiency as we foresee moderate growth in this sub-sector.

Nevertheless, in the light of increased possibility of reversal in global oil prices from new low, coupled with tax concessions and low interest rate environment, we anticipate an improved business environment and a better management of foreign exchange, which may translate to improved economic fundamentals by quarter two in 2016.

On this note, we are of the opinion that investors may also consider blue chips and big capped stocks, particularly in Banking, Consumer Goods and Industrial Goods sub-sectors, which have shed weight considerably due to broad sell activities witnessed across sectors during the year 2015- these classes of assets tend to benefit tremendously as economy begin to improve.

 

 

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