ARM: Positive H1’24 earnings, corporate actions may enhance equities

In the second half of this year, analysts at ARM Securities are anticipating positive earnings results and corporate actions to enhance equity performance amidst the Central Bank of Nigeria's (CBN) hawkish stance on short-term fixed income yields. Calista Chileke, Investment Research Analyst at ARM Securities, highlighted the potential impact of the CBN's next moves on the equities market outlook. The market is closely monitoring the Monetary Policy Committee (MPC) meeting scheduled for next week, with expectations leaning towards a conservative hike to signal the CBN's continued hawkish stance. While the strategy has attracted foreign portfolio investments (FPIs), inflation remains a concern. Although there has been a slight slowdown in month-to-month inflation, the recent report shows an increase in June 2024. Analysts believe Nigeria's inflation is two-sided, driven by both demand and supply factors. The CBN's focus on hiking interest rates to curb inflation may have limitations as supply-side issues like insecurity and high transportation costs persist. The MPC may opt for a conservative approach or maintain rates to avoid stunting economic growth. Any further rate hikes could impact the equities market by driving up fixed income yields, prompting investors to shift focus. In addition, market sentiment may be influenced by the CBN's interventions in the FX market. Despite efforts to stabilize the Naira, high demand for the dollar persists during the summer period. CBN's injection of funds aims to support the exchange rate and alleviate FX losses in sectors like consumer goods. Any improvement in the Naira's value could impact equities market sentiment. Investors have shown interest in sectors like banking, oil and gas, and industrials. The banking sector, in particular, has attracted attention due to recapitalization exercises and strong fundamentals post-rights issues. Telecom stocks, led by MTN, have also garnered investor confidence. Key indicators like earnings per share and dividend yield are crucial for investor decisions. While the consumer goods sector faces FX challenges, potential Naira appreciation in the second half may not fully offset profitability concerns. ARM Securities remains cautious about the sector's outlook. Overall, market performance hinges on factors like corporate actions, earnings results, and CBN's monetary policy decisions, shaping investor sentiment and equity performance.