By Babajide Komolafe & Michael Eboh
The bullish run recorded in the equities segment of the Nigerian capital market is expected to continue this week, due to excitement generated by the passage of the Asset Management Company of Nigeria (AMCON) bill by the National Assembly.
Last week, a bullish trend was recorded in the capital market, as the value of listed equities on the Nigerian Stock Exchange (NSE) appreciated by N254.01 billion.
The market capitalisation, representing equitiesâ€™ value, rose by 3.97 per cent to close the week at N6.652 trillion from N6.398 trillion at which it opened.
The All-share index gained 1,050.16 basis points to close at 27,503.36 points from 26,453.20 points at which it opened the week.
The improvement, in spite of the closure of the market for two days â€” Monday and Thursday, to mark Workersâ€™ Day and the demise of late President Umaru Musa Yarâ€™Adua respectively, was occasioned by gains on the prices of majority of the listed companies.
Specifically, 76 companies recorded share price gains, compared to 33 companies with share price losses.
With the passage of the AMCON bill, the rebound recorded in the capital market since the beginning of 2010, is expected to continue apace, as the issue of banksâ€™ debts associated with margin lending, put at about N1.6 trillion, is expected to be addressed.
The senators, during the session leading to the passage of the bill noted that the AMCON is very crucial to the banking sector and has the objectives of reducing the burden of the Central Bank of Nigeria (CBN) on banksâ€™ loans, to strengthen the banking sector, to give synergy to the entire financial institutions, to improve liquidity of the banks, to provide vehicle of acquisition of shares of banks, to maximise returns on asset disposal and to encourage investment in the capital market.
According to the CBN, which is the sponsor of the bill, AMCON is the principal vehicle for resolution of the asset quality problems that have risked the banking system in the last two years and it provides an alternative to the liquidation of distressed banks.
It noted that in addition to purchasing non-performing loans from the banks, AMCON is a vehicle for recapitalising these institutions, while it also holds the promise of reducing the debt overhang on capital market operators, thus giving the much needed stimulus to the capital market.
Another factor that is expected to drive activities in the market this week, is the financial statements of quoted companies and banks. More of the results are expected to be released this week, after a number of banks and companies released disappointing year-end financial statements last week.
With the results that are being declared, investors are beginning to come to terms with the realities of the effect of the capital market crisis witnessed between 2007 and 2009, on banks and quoted companies.
With the huge depreciation in the value of shares on the Nigerian Stock Exchange (NSE) and the huge provisioning for debts made by banks in the wake of the intervention of the CBN in the banking sector, hope seems to be in sight for investors in the market, especially with the rebound in the market since the beginning of 2010.
Relative stability due to cautious trading
The relative stability that prevailed in the secondary market for FGN bonds last week will persist this week hence little or no movement in prices and yield.
Last week, though the bonds secondary market experienced pockets of activity with prices inching up slightly. The market was generally calm as investors adopted cautious approach, or a â€œlets see what will happenâ€ attitude,Â as a bond dealer puts it. Factors responsible for this include the uncertainty about the amount of statutory allocation to be released this month, and the resumption of treasury sales by the CBN.
The result was a significant decline recorded in trading in the Over-the-Counter (OTC) market for Federal Government of Nigeria (FGN) bonds, last week, as a turnover of 163.34 million units valued at N208.370 billion was recorded in 1,642 deals, dropping by 39.47 per cent from the previous weekâ€™s turnover of 269.85 million units valued at N324.84 billion in 3,229 deals.
The 6th FGN Bond 2029 Series 3 enjoyed the most patronage in the sector, accounting for 20.39 per cent of the sectorâ€™s turnover, with 33.3 million units valued at N51.483 billion in 126 deals. It was followed by the 5th FGN Bond 2013 Series 1, trading 24.1 million units valued at N27.57 billion in 241 deals.
Of the 38 FGN bonds available, 18 enjoyed investorsâ€™ patronage in the week under review, compared with 24 in the preceding week.
The lull recorded in the
Memorandum Quotations segment of the Nigerian Stock Exchange (NSE), comprising mutual funds, is expected to continue this week, as investors shift their focus away from the sector to investing in stocks following stability in stocksâ€™ prices and the continuous upward movement recorded in the equities segment of the market.
Last week, of the 26 mutual funds in the sector, four appreciated, six recorded price loss, while 16 were unmoved.
FOREIGN EXCHANGE Naira to depreciate further
The naira will further depreciateÂ this week owing to increasing unsatisfied demand in the foreign exchange market. Last week, at the official market, theÂ Naira continued its free fall against the dollar,Â depreciatingÂ by 20 kobo to close at N148.81 per dollar against N148.61 per dollar the previous week .
The 20 kobo depreciation of last week was despite 10 per cent decline in foreign exchange demand at the official Wholesale Dutch Auction System (WDAS). Demand dropped to $681 million from $785 million the previous week. The amount sold by the Central Bank of Nigeria (CBN) also fell by 10 per cent to $450 million from $500 million in the previous week, leaving the market with $231 million unsatisfied demand.
This would be the third consecutive week that the nairaÂ has depreciated against the dollar, largely due to CBN not supply enough foreign exchange to meet all demand.
In specifics, the naira depreciated against the dollar in the official segment and in the interbank segment. In the official market the naira lost 22 kobo to the dollar as the official exchange rate rose to N148.61 from N148.43 per dollar in the previous week. The drop in exchange rate was occasioned by 28 per cent rise in demand which rose to $758 million from $590 million in the previous week.
The Central Bank of Nigeria (CBN) however only sold $500 million. At the interbank market despite foreign exchange supply of about $470 million from three oil firms, the naira still depreciated by 51 kobo as the interbank exchange rate rose to N150.85 from N150.34.
Uncertainty due to likelyÂ policy changes
The outlook for the money market this week is uncertain due to likely policy changes that might arise from the Monetary Policy Committee (MPC) of the apex bank holding tomorrow and Wednesday. For the first three days of the week, cost of funds are expected to remain stable at current low levels. But this might change should the MPC announce contractionary policy measures to arrest the huge excess liquidity in the market. Already, the apex bank has been mopping up liquidity through the sale of open market operations (OMO) treasury bills, a factor responsible for the steady decline in the excess liquidity to N308.7 billion last week from a peak ofÂ over N600 billion in March.
Cost of funds however remain stable with interest rate on colateralised lending (OBB) and Overnight lendingÂ stable at 1.05 per centÂ and 1.2 per centÂ respectively.