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EQUITIES :Rise in market indices to persist

By Babajide Komolafe & Michael Eboh

The upward trend in the equities segment of the Nigerian capital market is expected to continue this week, as more corporate results  are expected this week.

Last week, The market capitalisation and All-share index, representing value of listed equities, both appreciated by 1.04 per cent.

The capitalisation  opened the week at N6.699 trillion closed at N6.769 trillion while the index garnered 288.6 basis points to close at 27.988.71 points from 27,700.11 points.

The persistent growth of the stock in recent times was acknowledged by the the Monetray Policy Committee (MPC) of the Central Bank of Nigeria (CBN) in its assessment of the economy in the first quarter. The Committee stated, “Compared to the last quarter of 2009, the Nigerian capital market is showing signs of recovery. The All_Share Index (ASI) increased by 30.7 per cent from 20,827.17 as at end_December 2009 to 27,216.03 on 7th April, 2010.

Market Capitalization (MC) also increased, by 32.1 per cent, from N4.98 trillion at end_December 2009 to N6.58 trillion on 7th April 2010. The number of deals, volume and value of shares traded increased by 115.6, 134.6 and 326.1 per cent, respectively, during the review period. The increase in ASI and MC was partly due to share price increases in the Banking, Food & Beverage and Oil/Gas sectors.

The Committee welcomed the improvements in the stock market, and noted further prospects for continuing recovery with the passage of the Asset Management Corporation Bill. It, however, emphasized that the recovery of the capital market does not necessarily translate to economic recovery as the reforms initiated in the other sectors of the economy needed to be carried through in order to grow the economy.”

The market is expected to be driven by increased investors’ patronage spurred by the attractive results of quoted companies being released on the floor. Investors are expected to take position in certain stocks with the expectation of attractive returns on their investments.

Last week a number of attractive financial results were declared on the sidelines of trading activity. OandoPlc, in its audited result for the year ended December 31, 2009 announced a turnover of N336.86 billion as against N339.42 billion in 2008. Its profit after tax stood at N10.01 billion compared with N8.34 billion in 2008.

The company  recommended a dividend of N3.00 per share and bonus of one ordinary share for every two ordinary shares held by its shareholders.
Julius Berger Nigeria Plc’s audited result for the year ended, December 31, 2009 shows a turnover of N150.36 billion as against N114.03 billion in 2008, its profit after tax stood at N3.3 billion compared with N2.51 billion in 2008.

The Company  recommended a dividend of N2.40 per share for its shareholders. Japaul Oil & Maritime Services Plc also proposed a dividend of N0.08 per share for its shareholders in its 2009 financial year. According to its audited result for the year ended December 31, 2009, its turnover rose to N4.66 billion as against N3.97 billion in 2008, while its profit after tax stood at N730.9 million compared with N681.42 million in 2008.

However, profit-taking is expected to bring about a slowdown in the upward trend, as investors cash in on the significant upward price movement on quoted stocks to make gains.

BONDS
Bond prices to rise further
The renewed upward trend of bond prices in the secondary market or Over-the-Counter (OTC) market for Federal Government of Nigeria (FGN) bonds will persist this week due to short supply a result of postponement of the monthly auction for April and liquidity position of the market.. Last week the market experienced sudden shortfall in supply occasioned by two weeks of increased selling pressures. As result bond prices rose to close the week higher than the previous week.

A  turnover of 277.4 million units valued at N343.61 billion was recorded in 2,625 deals, in contrast to the previous week’s turnover of 256.01 million units valued at N313.85 billion exchanged in 2,311 deals.

The 6th FGN Bond 2029 Series 5, recorded the highest patronage, with a turnover of 48.1 million units valued at N72.91 billion in 303 deals, its was followed by the 6th FGN Bond 2019 Series 4, with a traded volume of 34.3 million units valued at N37.28 billion in 275 deals. Of the 38 FGN bonds available, only 23 were traded in the week under review.

Mutual Funds
Mutual Funds listed on the Memorandum Quotation segment of the Nigerian Stock Exchange (NSE) are expected to record significant improvement in their prices this week.
This upward trend is expected to be spurred by the bullish trend in the capital market, which have seen the prices of quoted stocks hit new year-highs.
Of the 26 mutual funds listed on the NSE. eight recorded upward price movement, one recorded decline in its price, while 17 remained unmoved.

FOREIGN EXCHANGE
Naira to depreciate further this week
The marginal depreciation of the naira last week will persist this week. Following indications from the Central Bank of Nigeria (CBN) that it would only meet genuine foreign exchange demand, the market might experience increased un-met demand which would occasion further depreciation of the naira but marginally.

Last week the naira depreciate by 10 kobo as the official exchange rate closed at N148.35 per dollar up from N148.25 the previous week. The depreciation was driven by sharp increase in foreign exchange demand in the two WDAS sessions held during the week. On Monday depreciated by five kobo following 34 per cent upsurge in demand at the WDAS session. Demand rose to $282 million from $209 million the previous week. The official exchange rate rose to N148.3 from N148.25 per dollar.

On Wednesday the naira further depreciated by five kobo due  to nine per cent upsurge in demand. demand rose to $307.67 million from $282.61 million on Monday. The amount sold by the CBN however dropped marginally  to $250 million from $256.6 million.  Consequently, the official exchange rate rose to N148.35 per dollar from N148.3 per dollar on Monday. The demand pressure in the official market was further indicated in the highest bid rate which rose to N148.59 per dollar from N148.55 per dollar.

Total foreign exchange demand at the two WDAS rose by 38 per cent to $590.28 million from $367.6 million. Total amount sold also rose by 37 per cent to $506.6 million from $367.6 million.

However at the interbank foreign exchange market the naira gained seven kobo as the interbank rate dropped to N150.34 on Wednesday from N150.41 the previous week. The marginal appreciation of the naira at the interbank market despite the demand pressure at the official market was due to foreign exchange sales by oil firms which boosted foreign exchange supply during the week.

MONEY MARKET
Cost of funds to remain low
Cost of funds in the interbank money market will remain low this week due to persistence of excess liquidity. Despite outflow through foreign exchange funding and treasury bills purchases which occasioned slight increase in cost of funds during the week, interbank market remained relatively stable at the end of the week compared with the previous week.

The Financial Market Dealers Association (FMDA) reported that, “The interbank Naira market opened the week with liquidity balance in excess of N456.63bn to sustain rates at a weekly average of 1.21% for Calls and 2.46% for 7days money. Rates rose marginally in the second business day due to provisioning for foreign exchange transactions. It inched up on Wednesday due to provisioning for Treasury bills auction and moderated downward on Thursday as a result of the inflow of N49.14bn from matured bills.

Further analysis showed that rate opened the week marginally lower across all tenors on Monday on account of market liquidity position worth =N=456.63bn, and later moderated slightly upwards during the week on account of withdrawals from the banking system via Foreign exchange funding, Treasury bills subscription worth =N=79.70bn leaving the liquidity position Activities in the interbank market were still low due to the liquidity position of the market and the reluctance of banks to lend to the real sector.

This position was further amplified by MPC communiqué that “financial condition especially for business and firms, are likely to remain weak in the near term as financial institutions continue to maintain a cautious approach to credit extension.”


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