By Babajide Komolafe & Michael Eboh
Market indices to continue upward trend The upward trend in the equity market is expected to continue this week, as investors continue to be attracted to the capital market following unattractive returns in the fixed income market.
Last week, a significant improvement was recorded in activities in the Nigerian Stock Exchange (NSE), as investment value on the NSE appreciated by N358.07 billion.
This was reflected by an 5.65 per cent increase inÂ the market capitalisation and All-share indexÂ The capitalisation rose to N6.699 trillion from N6.341 trillion at which it opened, while the index garnered 1,480.37 basis points to close the week at 27,700.11 points from 26,219.74 points at which it commenced the weekâ€™s trading.
Activity in the capital market is expected to enjoy significant improvement in the coming days and this will be spurred by developments in the economy.
With the final composition of the Executive Council of the Federation and with the minsters assigned their various portfolios, the economy is expected to record significant activity, aided by the passage of the 2010 budget.
Another factor that will drive activity in the capital market is the much awaited release of the financial statements of banks and other quoted companies.
A number of corporate resultsÂ were announced in the market last week, beginning with GTBank Plc which announced a dividend of N0.75 per share and a bonus of one ordinary share for every four ordinary shares held by its shareholders.
In its audited results for the year ended, December 31, 2010, it posted gross earnings of N162.55 billion as against N100.61 billion during the 10 months ending, December 31, 2008, while its profit after tax stood at N23.69 billion compared to N28.32 billion in 2008.
Mobil Oil Nigeria Plc followed with the announcement of a dividends of N7 per share for its shareholders in its 2009 financial year. However, some results wereÂ disappointing results from Costain (West Africa) Plc, which announcedÂ a disappointing 83.97 per cent drop in its profit after tax for the third quarter ended, December 31, 2009 financial performance.
The company posted a turnover of N5.81 billion, rising by 34.70 per cent from N4.31 billion recorded in the comparable period for 2008, while its profit before tax dipped by 84.45 per cent to N47.07 million compared to a profit before tax of N302.73 million recorded in 2008.
Its profit after tax stood at N46.13 million compared to N287.87 million recorded in 2008.
The company had posted a loss after tax of N615.12 million in its year ended, March 31, 2009 financial statements, compared to a profit after tax of N353.22 million in 2008. Starcomms Plc, in its audited result for the year ended, 31st December 2009, posted a turnover of N34.3 billion as against N34.5 billion in 2008, while it recorded a loss after tax of N7.79 billion compared with a loss of N8.01 billion in 2008.
Uncertainty as caution rules activities
The FGN bond market might experience decline in prices this week following the volatility and cautious mood of investors last week.
The Financial Market Dealers Association (FMDA) in its report for last week noted that, â€œTrading activities in the Two Way Quote market for the FGN Bond in the week was not too cheerful as market operators were careful in giving prices due to high volatility recorded across the maturities. We might see prices of bonds dipping further next week if current trend of exiting positions continues.
The bond market has continued to enjoy patronage of investors, leading to a significant improvement in the prices of bonds.
According to experts, the current patronage enjoyed by the bond market, is as a result of excess liquidity in the economy, brought about by the excess crude disbursements, Central Bank of Nigeriaâ€™s (CBN) injection of N620 billion as bail out fund for the eight troubled banks and banks low interest rates.
The experts noted that currently, interest rates are lower than inflation rate, and this is affecting the returns on investment in the bond market.
Mr. Akinsowon Dawodu, President, Financial Market Dealers Association, noted that the present situation is an aberration is expected to be corrected in the present quarter.
He said, â€œTo guarantee real returns, nominal yield should be higher than inflation rate. The current situation is an anomaly with investor earning a negative real return on their investment. A similar scenario existed post consolidation in early 2006.â€
In the Over-the-Counter market for Federal Government of Nigeria (FGN) bonds, a turnover of 256.01 million units worth N313.852 billion in 2,311 deals was recorded this week, in contrast to the previous weekâ€™s turnover of 502.05 million units valued at N632.95 billion exchanged in 5,208 deals.
Mutual funds, listed on the Memorandum Quotations sector of the NSE, are expected to perform better this week. This will be spurred by the upward movement in the prices of listed equities and the recent release of results.
FOREIGN EXCHANGE MARKET
Naira stability to persist with minor gains The stability of the Naira in recent times will persist this week with slight appreciation. Last week the naira appreciated by five kobo in response to fall in demand at the foreign exchange auction conducted by the CBN. From $312.4 million in the previous week, demand dropped to N209.8 million hence the official exchange rate dropped to N148.25 per dollar from N148.30 per dollar the previous week.
The naira was fairly stable at the interbank market with the interbank rate closing at N150.16 up from N150.1125 per dollar the previous week. The naira remained stable at the bureax de change segment with exchange rate stable at N152 per dollar.
According to Mr. Akinsowon Dawodu, President of Financial Market Dealers Association of Nigeria (FMDA), the stability of the naira in the first quarter of the year will persist through the year. Speaking as guest speaker at the Bi_monthly Public Discourse of Financial Correspondents of Nigeria (FICAN), Akinsowon noted that given the level of reserves, crude oil prices and other factors the naira will remain stable in 2010 except for some sudden occurrence of any disruption in the economy.
Similarly the Central Bank of Nigeria (CBN) last week assured that it has sufficient resources to meet foreign exchangeÂ demand in the economy.
The apex bank in an advertorial issued on Tuesday,Â in response to a media report (not Vanguard) on anxiety over increased demand for foreign exchange,Â said, â€œFor the avoidance of doubt, the CBN has sufficient foreign exchange reserve to meet the demand at the foreign exchange market and, indeed, has been doing so, except in a few cases where such demands have been adjudged to be speculativeâ€.
Making reference to data on weekly foreign exchange auctions in the official market, the apex ban said, â€œThere is, therefore, no justification whatsoever to raise any alarm where none exists. CBN has US$40.48 billion in foreign exchange reserves as at April 1, 2010, which is sufficient to finance 17 months of import, far in excess of the internationally_accepted three (3) months requirement.â€
Interbank interest rate to remain at current levels
Interbank money market will remain at current levels given the far possibility of drastic reduction in the over N500 billion excess liquidity in the market. Last week, despite N77 billion withdrawal by the Nigeria National Petroleum Corporation (NNPC), which caused slight upward movement in cost of funds during the week, interbank interest rate remainedÂ stable. Interest rate on Call lending closed at 1.15 down from 1.175 per cent the previous week. Seven Days and 30 Days lending rates closed at 2.42 and 5.033 per cent as against 2.333 and 5.1667 per cent.