By Babajide Komolafe & Michael Eboh
EQUITIES:Market fluctuation to persist The fluctuation of shares prices onÂ the Nigerian Stock Exchange (NSE) is expected to continue this week, as apprehension continue to trail activities in the global financial landscape.
A bearish trend was recorded last week, as investments on the NSE, represented by the market capitalisation and All-share index went down by N7.23 billion and 29.78 points respectively.
In particular, the capitalisation dropped by 0.11 per cent in the week under review to N6.361 trillion from N6.369 trillion at which it opened the week, while the index dropped by the same margin to close at 26,153.43 points from 26,183.21 points at which it opened.
Activities on the NSE opened the week on a bullish note, before giving way to the bears for the rest of the week, butÂ it recorded significant improvement on Friday.
The fluctuating trend in the capital market was occasionedÂ by increased activity in the fixed income market, following the recent bond issuance of the Federal Government through the Debt Management Office (DMO) and the Central Bank of Nigeriaâ€™s (CBN) Open Market Operation.Activities is expected to be driven this week by renewed confidence in the Nigerian capital market, following stability enjoyed in the last couple of months.
Also with the approval of Alternative Investment Securities Market/Private Placement Exchange (AIM/Pripex) by the Securities and Exchange Commission (SEC), it is expected that a significant improvement will be recorded in the capital market in the next couple of days, especially as the NSE warms up to commence the listing of shares of companies that undertook private placement exercises before the meltdown in the market.
The NSE had announced it would soon delist 11 of the remaining 16 companies listed on the Second-Tier segment of the market. It noted that its decision to delist the companies is as a result of their failure to file in their returns to the authorities in the capital market, as required by law and also for failing to fulfill their obligations to shareholders and the capital market authorities within the last three years.
The NSE also said that it has commenced the process of scrapping the second tier market, which would be replaced by the Alternative Securities Market /Private Placement Exchange. It noted that with the scrapping of the Second-Tier market, it would commence the listing of shares of companies that conducted private placements exercise from July 1, 2010.
Another factor that will drive activity in the capital market this week is the crisis in the global financial markets which have assumedÂ a worrisome dimension over the last couple of days.
The crisis in the Eurozone assumedÂ another dimension last weekÂ as fears over the recurrence of Greeceâ€™s situation in another European country â€” Hungary, raised concerns in the international financial landscape.
The new government of Hungary has repeatedly warned in the past few weeks that the 2010 deficit could be much higher than the target of 3.8 percent of GDP agreed with the EU and IMF. It blamed the countryâ€™s situations on certain misdeeds of the previous administration.
The situation was worsened when on Thursday, a senior government official was cited as saying that it had found public finances in a much worse shape than previously expected and there was only a slim chance of avoiding a Greek_style scenario.
This has caused significant shocks across the major economy globally, with major international currencies and market recorded significant declines in their value.
Experts predict that within the next couple of days, hedge fund and private equity fund, will begin the movement of their funds from these troubled economies to safe haven, and Nigeria, according to the experts is regarded a safe berth for investment.
Also, the review of the Investment and Securities Act and the soon-to-be introduced Code of Governance for regulatory authorities, is expected to send positive signals to both local and foreign investors, as it will bring about an increase in the confidence level in the market.
Market activity to slow down
Activities in the secondary market for FGN bonds is expected to slow down this week is expected in the bond market this week, especially with plans by the CBN to issue some money market instruments to mop up the excess liquidity in the system.
The CBN and DMO had last week, announced their preparedness to mop up about N65 billion, ($436.9 million) from the financial system this week through the issuance of 91_day, 182_day treasury bills and 364_day bonds.
The CBN said it would issue N5 billion in 91_day Treasury bill, N30 billion in 182_day Treasury bill, and N30 billion in 364_day bond.
This may be as a result to check rising inflation rates through the reduction of excess liquidity in the system.
In the secondary marketÂ for Federal Government of Nigeria (FGN) bonds, a turnover of 173.5 million units valued at N198.66 billion in 1,779 deals was recorded this week, in contrast to a total of 163.1 million units valued at N178,214.1 million exchanged in 1,263 deals in the previous week.
The 6th FGN Bond 2029 Series 5 was the most patronised last week, with a turnover of 29.2 million units valued at N30.37 billion in 273 deals.
This was followed by the 6th FGN Bond 2019 Series 4 with the exchange of 21.8 million units valued at N22.95 billion in 210 deals.
Of the 39 FGN Bonds available, 20 were traded during the week, compared with 19 in the preceding week.
The slight improvement recorded in the prices of mutual funds listed on the Memorandum Quotation segment of the NSE is expected to continue this week, especially as collective investment schemes continue to enjoy increased patronage by investors.
last week, of the 26 mutual funds listed in the sector, six enjoyed improvements in the prices, four recorded declines, while 16 closed flat.
Naira to appreciate further
The naira would further appreciate this week following sharp decline in foreign exchange demand last week which buoyedÂ itâ€™s fortunes in the interbank and official market last week.
At the official market last week, the naira appreciated by three kobo as the official exchange rate dropped slightly to N148.75 per dollar from N148.78Â the previous week. The appreciation was occasioned by 59 per cent fall in demand at the Wholesale Dutch Auction System (WDAS)Â session conducted by the Central Bank of Nigeria (CBN).
Though the apex bank offers to sell $500 million, demand fell to $304.8 million from $743.031 million. Thus the second week of decline in foreign exchange demands at the official market. The amountÂ sold by the apex bank also dropped by the same margin and by same amount.
Also reflecting the lackluster demand in the market, the interbank foreign exchange rate fell by five kobo to N151.2 per dollar from N151.7 per dollar the previous week.
The implication is excess of supply over demand in the market which is attributable to increase foreign exchange inflow from autonomous sources. This, combined with calls for appreciation of the naira to checkmate inflationary threat by Standard Chartered Bank Economist, Mrs. Razia Khan, is expected to lead toÂ further appreciation of the naira in the current month.
Cost of funds to remain at current levels
With the interbank market still awashed about N398.25 billion excess liquidity, interbank interest rate will remain stable this week.
Last week an additional inflow of N115 billion from the excess crude fund enhanced market liquidity hence interest ratesÂ for some lending moderated down while others remain stable.
For example while interest rates for Collateralised lending or Open Buy Back (OBB), and Overnight stablised atÂ 1.1% and 1.15% respectively, interest rate on Call and Seven Days Lending dropped to 1.166 and 2.088 per cent from 1.275 and 2.5 per cent respectively.