By Peter Egwuatu
There are indications that the stock market will maintain upward trend in the financial year 2010 ifÂ the rising investorsâ€™ confidence and earnings from the quoted companies are sustained coupled with theÂ recently passed bill by the National Assembly for the establishment of Assets Management Company (AMC) when it takes off and buy out the toxic assets of the rescued banks.
The National Assembly recently passed the contentious bill for the establishment of the AMC. The AMC is expected to relieve the trouble banks by buying their toxic assets otherwise known as bad loans with a view to clean up their balance sheet and put them in a competitive and profitable situation.
The stock market is expected to pick up in the second quarter of the year given the fact that the first quarter which was expected to record a bearish trend has continued to be on the upbeat with equity market capitalisation recording a growth of 28.9 per cent to close at N6.341 trillion by April 1, 2010 from N4.92 trillion recorded on January 1, 2010.
A cursory review of the outlook of the stock market in the first quarter showed an unprecedented growth since the market crashed in 2008 with equity market capitalisation rising by over NI.4 trillion from a beginning of nearly N5 trillion.
The statistics obtained from the Nigerian Stock Exchange (NSE) showed that during the first quarter of the year, 216 listed equities accounted for N5.44 trillion or 72.7% of total market capitalization, up by 9 per cent from the N5 trillion recorded in December 2009.
Director General of the NSE, Professor Ndi Okereke Onyiuke has explained that the current upward movement in equity prices in our market suggests strongly that the market has seen the bottom of the decline of the last several months.
According to her, AThe total market capitalisation, which opened the year at N7.03 trillion, stood at N7.72 trillion by March 10, 2010, indicating a growth by 9.8 per cent . Significantly, the equity market capitalization, which stood at N5 trillion in December 2009, now stands at N5.64 trillion, indicating a growth by 12.8 per cent.
The year to date appreciation in the ASI (as at March 10, 2010) was 11.9 per cent, while the NSE 30 Index recorded 13.2 per cent. An analysis of the sectoral indices showed that the NSE Food/Beverage Index was the best performing sector with 22.24 per cent appreciation, followed by the NSE Banking index with 14.3 per centÂ appreciation, while the NSE Oil and Gas index recorded 5.56 per cent appreciation year to date. However, the Insurance index fell by 25.9 per cent.â€
Turnover during the first two months of the year was 16.14 billion shares valued at N100.8 billion exchanged in 429,306 deals. In the comparable period during 2009, the market recorded turnover of 11.23 billion shares worth N66.8 billion exchanged by investors in 289,389 deals.
Commenting on the future outlook of the stock market, Onyiuke emphasized that the stock market look promising, adding â€œinternal and external factors will continue to drive the market in the desired direction.
The NSE DG said, â€œThe flight by local investors from equity markets into domestic safe havens such as government debt has significantly reduced. The coming on stream of the proposed AMC is expected to further boost investor confidence in the near future.
According to her, â€œSome of our erstwhile foreign investors are returning; while new investors are continually seeking opportunities and market information. Despite the global recession, our market remains attractive to foreign investors and portfolio managers at current low pricing of our equities and the high yield achievable on our bonds.
Available statistics show purchases (inflow) by foreign investors during 2009 to be in excess of N204.235 billion, representing 29.8% of the aggregate turnover. This is an increase when compared with the N153.457 billion recorded in 2008. Concurrently, total sales (outflow) during the year were in excess of N185.2 billion, culminating in a net inflow of N19.035 billion, a reversal of the net outflow of N480.5 billion in 2008â€
She stated that the market will attract a re entry of spectators, adding that the spectators usually
align themselves with activities in the money markets. â€œConsequently their funds are usually short term as they bring the volatility that help to create new prices every dayâ€ she added.
A further breakdown of the market showed that during the first month of the year, the market recorded a turnover of 8.63 billion shares valued at N48.65 billion in 302,901 deals in contrast to a total of 7.6 billion shares valued at N47.6 billion exchanged during December 2009 in 119,979 deals. Consequently, trading volume and value increased by 14% and 2%, respectively. These had dropped by 18.9% and 15.2%, respectively in December 2009.
There were no transactions through the stock market on the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors. In the comparable period in 2009, the market recorded turnover of 4.8 billion shares worth N29.8 billion exchanged by investors in 138,700 deals.
The Banking sub sector was the most active in the first quarter (measured by turnover volume) with traded volume of 4.53 billion shares valued at N32.61 billion exchanged in 70,354 deals while the Insurance sub sector was second with traded volume of 1.2 billion shares valued at N1.3 billion exchanged in 8,115 deals. The Second Tier Securities Market came third with transaction volume of 394.1 million valued at N202.6 million traded in 164 deals while the Food, Beverages & Tobacco sub sector was fourth with transaction volume of 381.9 million shares valued at N4.6 billion traded in 13,786 deals while the Conglomerates sub sector was fifth with transaction volume of 258.9 million shares valued at N1.73 billion traded in 4,881 deals.
In the second quarter, stock market indicators recorded mixed performance during February 2010. Transactions in the market were influenced by profit taking/loss cutting by investors. Consequently, the market recorded a turnover of 7.86 billion shares valued at N54.1billion in 133,112 deals in contrast to a total of 8.63 billion shares valued at N48.65 billion exchanged during January in 302,901 deals. While trading value increased by 11.1%, trading volume dropped by 9%. These had rose by 2% and 14%, respectively in January. Transactions during the month included 3000 units of Lagos State Fixed Rate Redeemable Bond worth N3.25 million traded in 2 deals.
There were no transactions through the stock market on the Federal Government Development Stocks and Industrial Loans/Preference Stocks sectors. Total turnover during the first two months of the year was 16.14 billion shares valued at N100.8 billion exchanged in 429,306 deals.
In the comparable period during 2009, the market recorded turnover of 11.232 billion shares worth N66.8 billion exchanged by investors in 289,389 deals. The Banking sub sector was the most active (measured by turnover volume) with traded volume of 4.03 billion shares valued at N32.9 billion exchanged in 70,307 deals while the Insurance sub sector was second with traded volume of 1.2 billion shares valued at N1.2 billion exchanged in 10,069 deals.
The Information and Communication Technology sub sector was third with transaction volume of 735.15 million valued at N2.43 billion traded in 1,197 deals while the Food, Beverages & Tobacco sub sector was fourth with transaction volume of 291 million shares valued at N4.81 billion traded in 12,434 deals.
The Mortgage Companies sub sector was fifth with transaction volume of 237 million shares valued at N159.2 million traded in 1,413 deals. Consequently, the five sub sectors accounted for 6.5 billion shares valued at N41.5 billion exchanged by investors in 95,420 trades.