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EQUITIES: Fluctuation of indices to persist

By Babajide Komolafe and Michael Eboh

Fluctuation of indices to persist
The fluctuating trend in the market is expected to continue this week. However, the declining trend recorded in the most part of last week is expected to ease during week as companies  post impressive financials.

The declining trend in the Nigerian Stock Exchange (NSE) continued last week, as the value of listed equities dropped by N14.71 billion.

The dip in market value of listed equities was occasioned by losses on the prices of majority of the blue chip companies, forcing down the market capitalisation and All-share index by 0.27 per cent each.

The capitalisation which opened the week at N5.535 trillion closed at N5.521 trillion, while the index shed 61.09 basis points to close at 22,923.91 points from 22,985 points at which it opened the week.

Activity in the market is likely to be driven this week, by interests in the shares of Honeywell Flour Mills Plc, University Press Plc and a host of other companies with impressive financial forecasts.

Honeywell Flour Mills Plc, in its unaudited result for the third quarter ended, December 31, 2009, recorded a turnover of N26.19 billion as against N21.060 billion in the comparable period of 2008, while its Profit after tax stood at N870.5 million compared with N213.9 million in 2008.

However, equity trading appreciated by 16 per cent in the week under review, as a turnover of 1.74 billion shares valued at N14.5 billion was recorded in 34,014 deals, in contrast to the previous week’s turnover of 1.5 billion shares valued at N9.83 billion in 27,756 deals.

The effort of the NSE to address the issue of bulk trading, making it easier for stockbrokers to make bulk trade without spending the whole day putting in their orders on the trading engine, is expected to bring about an increase in activity in the market and a surge in share value.
This is because a number of orders and deals will, henceforth, be executed with minimal time and effort.

Another factor, that is likely to buoy transaction in the market, is the consideration of the proposed Asset Management Company’s (AMC) bill by the National Assembly. This is expected to rekindle investors’ interest in the market.
The AMC, according to its promoters will help return liquidity in the market, as it is expected to buy off bad debts of banks, majority of which is a fallout of margin lending activities of the bank.

Also, operators are optimistic that with the resolution of the margin lending issue and the introduction of new rules for margin trading by the Central Bank of Nigeria (CBN), activity is expected to resume in that regard with banks granting loans to stockbrokers to trade in shares on the secondary segment of the capital market.

BONDS

Uncertainty envelopes bond market
The outlook for the bonds market this week is uncertain following the sudden bearish performance of bond prices at the close of business last week.

Prices of bonds in the over-the -counter market suddenly nosedived at the close of the week on Friday, halting the many weeks rising prices. In the Over-the-Counter bond market for Federal Government’s bond, a turnover of 531.23 million units of FGN bonds valued at N640.309 billion was recorded in 6,087 deals, in contrast to the previous week’s turnover of 308.04 million units valued at N378.244 billion exchanged in 4,297 deals.

The 6th FGN Bond 2029 Series 3 recorded the highest patronage in the sector, with investors exchanging 73.0 million units valued at N107.78 billion in 556 deals.

This was followed by the 6th FGN Bond 2019 Series 4 with a traded volume of 59.6 million units valued at N62.14 billion in 534 deals.

Of the 38 FGN Bond available, 22 enjoyed investors’ patronage compared with 19 in the preceding week.
Meanwhile the Federal Government is expected to  issue this month N70 billion bonds with various maturity dates.

The Federal Government, through the Debt Management Office (DMO) will be issuing N20 billion three-year bond, N20 billion 10-year bond and N30 billion 30-year bond. The offer is expected to open March 24, 2009, making it the last of N220 billion bond issued by the Federal Government in the first quarter of 2010.

Mutual Funds

Mutual funds listed on the Memorandum Quotation sector of the Nigerian Stock Exchange (NSE) are expected to perform better this week.
Activity in the sector is expected to pick up as investors take position ahead of the close of the first quarter and the anticipated release of the budget.

FOREIGN EXCHANGE

Naira to enjoy relative stability
The Naira should enjoy relative stability after sustained appreciation against the dollar last week. Foreign exchange inflow from oil firms buoyed the occasioned 25 per cent drop in foreign exchange demand at the official market.

Consequently the official exchange rate dropped by 30 kobo to N148.31 per dollar from N148.61 the previous week. The improved foreign exchange inflow also positively  impacted the interbank foreign exchange market with the exchange rate dropping to N150.25 per dollar from N150.44 from the previous week.

The improved forreign exchange inflow is expected expect to continue in the coming weeks hence further reduction in  foreign exchange demand in the various segment of the marker. Foreign exchange dealers expressed optimism that the Naira would enjoy relative stability this week, saying the possibility of significant movement in exchange rate is very low.
MONEY MARKET
Cost of funds to further decline
The reduction of the interest rate on the Standing Deposit Facility (SDF) of the Central Bank of Nigeria (CBN) last week will continue to influence downward trend in  interbank interest rate this week. The apex bank reduced the SDF rate to 1.0 per cent from 2.0 per cent and this occasioned interbank rates to fall by two third. Call money dropped to 1.225 from 2.225 per cent while Seven days money dropped to 2.625 from 4.04 per cent. Collateralised lending dropped to 1.06 from 2.116 per cent.


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