FINANCIAL ANALYSTS PREDICT STOCK MARKET PULLBACK IN H2 2024

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Olori Uwem

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Mar 18, 2024
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FINANCIAL ANALYSTS PREDICT STOCK MARKET PULLBACK IN H2 2024

Financial analysts from Arthur Steven Asset Management Limited (ASAM) have forecasted a potential pullback in the stock market during the second half of 2024, following its peak in the first half of the year. This was discussed during ASAM’s Quarterly Webinar on 'The Economy & Capital Market Outlook for Second Half 2024'.

Professor Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria (ACMAN), highlighted that the stock market, having reached its peak in Q1 2024, is likely to undergo a correction in H2 2024.

KEY FACTORS INFLUENCING THE MARKET

MONETARY POLICY:
Uwaleke emphasized that the Central Bank of Nigeria’s (CBN) monetary policy will significantly impact the stock market. He noted that aggressive tightening measures, leading to higher interest rates, will make fixed-income securities more attractive but will reduce credit availability to the real sectors of the economy. The effects of these policy rate hikes are expected to be fully felt in H2 2024.

INFLATION:
Uwaleke pointed out that inflation is likely to remain elevated due to the removal of fuel subsidies and the devaluation of the naira. Although the National Bureau of Statistics (NBS) predicts inflation to moderate to below 30% in 2024, it will still exceed the CBN’s target band of 21.4%. Persistent inflationary pressures will increase production costs, erode profitability, and dampen investor confidence.

GDP GROWTH:
The International Monetary Fund (IMF) has reduced Nigeria’s GDP growth forecast to 2.9% for 2023 and 3.1% for 2024, while the Federal Government projects a growth rate of 3.76% for 2024. High interest rates, exchange rates, and energy costs are expected to hinder GDP growth, especially in the manufacturing and agriculture sectors. Uwaleke suggested that companies in these sectors might see depreciation in their share prices in H2 2024 due to the challenging business environment.

POTENTIAL POSITIVE INFLUENCES:
Professor Uwaleke mentioned the potential listing of Dangote refinery as a significant market influencer if it occurs in H2 2024. He also noted that the positive impact of the Presidential Committee on Fiscal Policy and tax reforms, along with the Presidential Economic Coordination Council, is expected to materialize in 2025.

INVESTMENT RECOMMENDATIONS:
Mr. Olatunde Amolegbe, Managing Director of ASAM and former President of the Chartered Institute of Stockbrokers (CIS), advised investors to consider allocating more to risky assets, particularly banking stocks and companies with positive earnings and forex earnings. He highlighted that adjustments in the Monetary Policy Rate (MPR) to combat inflation have increased participation in the fixed income market, indirectly impacting the equities market.