Market Outlook 2016

The poor performance of the market was hinged on a number of issues which includes: the tapering of Quantitative Easing by the United States in 2014 which had a negative impact in 2014, the general slowdown in global economy which poses considerable headwinds for emerging economies like Nigeria, lower global oil prices that have weakened the revenue base of the Federal Government since late 2014, the devaluation and continuous depreciation of the naira most especially at the parallel market amidst the CBN efforts to conserve external reserves. Also, unimpressive earnings posted by some companies underscore the tough operating environment in the economy.

However, a change in market sentiment is anticipated in the medium to long term as the economy is set on a stronger growth momentum in 2016. Economic activities are anticipated to improve and corporate earnings and performances should mirror the economic outlook. The key drivers of this change in market sentiment and a boost in investor confidence that will lead to an upbeat in the performance of the market by the second quarter of 2016 includes the success of the President Buhari led Federal Government in articulating a Fiscal Plan that can revive the economy, investment in key infrastructures such as transport and power, support for Small and Medium scale Entrprises, domestic agriculture and agro-based industries, reduction in Government overhead, removal of unproductive spending such as subsidy and a stable exchange rate.

Some of the stocks still hold high value and good fundamentals and are expected to still give good returns to investors. However, investors can take advantage of the lowly priced consumer goods stocks as the fortune of these companies are expected to improve on the backdrop of the expansionary plans of the Government and in the long run, the improved enabling environment will trickle down into the earnings of these companies and increase the overall return for investors.

 

A good choice for investors in 2016 is a well diversified growth portfolio. The extended bear run in the market has left some fundamentally sound stocks trading at very low prices and most are below their intrinsic values. This leaves great opportunity in the medium to long term and largely favours a growth portfolio strategy. Savvy investors can therefore explore the benefits of the low prices of strong and fundamental stocks with good historical performance, sound management and dividend payment.