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Capital Market: Eventful Despite Headwinds



Nigeria’s capital market keyed into the rapid recovery process that saw major equity benchmarks across the world head towards closing in the green. Recovery in the broader economy and the domestic equities market tell stories of impressive performance of the capital market in Africa’s largest economy.  OLUSHOLA BELLO, writes.

After posting yearly negative return from 2014 to 2016, Nigeria’s equities market rebounded strongly in 2017, with the All Share Index having a year-to-date growth of 43.34 per cent.

The Nigerian Stock Exchange (NSE) All-Share Index (NSE ASI), which is the benchmark gauge to measure the performance of the equities market, recorded a cumulative fall of 39.61 per cent between 2014 and 2016. Specifically, the market fell 16.14 per cent in 2014, 17.3 per cent in 2015 and 6.17 per cent in 2016.

The decline for three consecutive years led to exit of many investors who divested to fixed income securities, whose returns are relatively stable and less risky. However, investors who remained in the equities market in anticipation of the return of the bulls are now counting their gains in 2017.

With only three trading days left in 2017 (at the time of this report), the NSE ASI has recorded a growth of 43.34 per cent, rising from 26,874.62 to open trading in the beginning of the year to close at 38,522.14 on December 22, 2017. The market capitalisation of equities appreciated by N4.453 trillion from N9.256 trillion to N13.709 trillion.

Performance across sectors was broadly impressive with 59 stocks posting price appreciations while 26 stocks recorded price declines. Dangote Sugar topped the gainers list with a year-to-date growth of 221 per cent. International Breweries followed with a growth of 192 per cent, while others are Fidson, Fidelity Bank, Dangote Flour, and May and Baker with a year-to-date growth of 189 per cent, 183.3 per cent, 182.6 per cent and 180.9 per cent.

On the other side, Morison led the decliner chat with a year-to-date loss of 68 per cent, respectively. Jaiz Bank followed with a decline of 50 per cent, while Forte Oil, UPL, Mobil and MRS declined by 49 per cent, 46 per cent, 39 per cent and 36 per cent in that order.

Banking stocks were top on investors’ list, with the sector’s index advancing 72.69 per cent, followed by the NSE pension index with a gain of 70.15, while NSE premium index gained 56.43 per cent.

NSE 30 index appreciated by 46.54 per cent, NSE Main Board index up by 41.13 per cent, NSE Lotus II index gained 37.61. Consumer goods rose by 35.82 per cent, industrial goods up by 25.45 per cent, insurance gained 9.99 per cent and oil and gas went up by 1.04 per cent.

Factors that shaped market in 2017

The domestic bourse growth was driven primarily by a mix of positive economic and corporate news. Three major factors spurred positive sentiments on the local bourse, the introduction of the Importers and Exporters’ Window in mid-April which helped stabilize volatility and liquidity in the FX market, pulling back foreign investors who have been waiting on the sideline, improved macro fundamentals as Nigeria exit recession, boost to external reserves, brokered peace with militants amid oil price rally and improvement in ease of doing business and strong corporate earnings results.

Macro-economic improvement

On the economy front, investors found respite in the less-apprehensive macro space, with risky assets benefitting from a confluence of positive events. This includes the introduction of the Economic Recovery & Growth Plan, ERGP, by the Ministry of Budget and National Planning. Others are the sustained moderation in inflation rate, steady accretion of the foreign reserves, and stable exchange rate of the naira. The Monetary Policy Committee, MPC, decision to keep the benchmark rate at 14 per cent for a long while, helped in the predictability of developments.

The National Assembly’s approval and eventual successful issuance of $500 million Eurobond at favourable rates, was a plus. In the second quarter of 2017, Nigeria’s economy returned to positive growth as real gross domestic product (GDP) increased by 0.55 per cent after five consecutive quarters of negative grow. On corporate earnings, stock prices rose further, stoking appetite in the year, following better-than-expected quarterly earnings, which particularly bolstered demand.

Multi-fund structure by PENCOM

Still on the positive, the report from Pension Commission (PENCOM), the apex pension regulator, approved the implementation of the multi-fund structure on April 18, 2017, with the potential to significantly increase local pension funds exposure to equities by pension fund administrators, PFAs, for retired savings accounts, RSA,  funds, contributed immensely to sustaining equities rally during the year. The impact of this on pension fund managers’ exposure to risky asset will be positive for dealers who are already taking advantage of cheap valuation in local proprietary positions.

A boost from Forex Window

The Central Bank of Nigeria, CBN, remained committed to achieving forex stability, especially in the volatile parallel market, by establishing the Investors’ and Exporters’ Forex (I&E FX) window in April, wherein the naira has traded relatively freely since the window was opened for eligible transactions that include loan repayments, interest payments, capital repatriation, and remittances.

New listings, issues

The increased attempt by quoted companies to raise fresh funds through rights issue is an attestation that the primary segment of the Nigerian capital market has begun to pick up. The NSE listed fresh shares worth N870.38 billion, $300 million diaspora Bond and $3 billion Euro Bond during the year.

Capital market operators say that the strong activities recorded in the primary market is an indication that the investing public is coming back to the market, largely due to reforms in the secondary market and improvement in the macro-economic, which has attracted both foreign and local investors to the market.

According to them, if the trend is sustained, the multinationals and small-scale businesses that are not listed may approach the stock market for listing, further contributing to market growth.

Year 2017 has seen an average Foreign Portfolio Investment (FPI) per month of N85 billion as against N43 billion recorded in 2016. August, March and June recorded the most impressive inflows at N208, N132 and N101 billions respectively, with the lowest been N22.4 billion in April. Also, the value of foreign portfolio participation in equity trading in the NSE hit N851 billion as at October, 2017, representing a 60.8 per cent higher than N517.55 billion recorded for the full year ended December, 2016.

Low Points

While the recovery of the market in 2017 would have ignited wild celebration among all stakeholders, allegations of breach of corporate governance issues against the management of Oando Plc and of financial impropriety against the director-general of Securities and Exchange Commission, SEC, Mounir Gwarzo became a sore thumbs. The SEC in October, placed a technical suspension on the shares of Oando Plc and directed a forensic audit in the operations of the oil firm. The matters are ongoing.





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