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Investors’ woes worsen as market loses N1.7 trn in 10 days

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By Peter Egwuatu

The declining fortunes of investors in the Nigerian stock market is indicated by a debilitating loss of N1.764 trillion  in ten trading days, as the stock market maintained its free falll last week in response to further decline in crude oil price to below $30 per barrel, and the  historic depreciation of the naira to N300 per dollar in the parallel market. Meanwhile, analysts have predicted further fall this week given the persistent weakness in price of crude oil.

stock echangeThe market capitalisation which represents the total value of stocks traded on the Nigerian Stock Exchange, NSE opened this year at 9.850 trillion to close last Friday at N8.086 trillion. A cursory review of the Nigerian stock market performance for last week showed that investors lost over N1.208 trillion in five trading days, as market capitalisation which opened the week under review at N9.295 trillion closed last Friday at N8.086 trillion.

Similarly, another stock market performance indicator, the NSE All  Share Index , ASI which opened the year at 28,642.25 points closed last Friday at  23,514.04 points, indicating a decline of 17.9 per cent of 5,128.21 points . Meanwhile, transactions on the NSE last week showed that a turnover of 1.459 billion shares worth N14.165 billion in 15,164 deals were traded by investors on the floor of the exchange in contrast to a total of 899.604 million shares valued at N7.669 billion that exchanged hands penultimate week in 14,164 deals.

The Financial Services Industry (measured by volume) led the activity chart with 1.287 billion shares valued at N8.953 billion traded in 10,020 deals; thus contributing 88.17 per cent  and 63.20 per cent to the total equity turnover volume and value respectively. The Consumer Goods Industry followed with 59.832 million shares worth N3.072 billion in 2,165 deals. The third place was occupied by the Conglomerates Industry with a turnover of 56.606 million shares worth N152.949 million in 695 deals.   Trading in the Top Three Equities namely – Guaranty Trust Bank Plc, Zenith International Bank Plc and FBN Holdings Plc.(measured by  volume) accounted for  693.443  million   shares worth  N7.719 billion in 5,960 deals, contributing 47.51 per cent  and 54.49 per cent to the total equity turnover volume and value respectively.

Exchange Traded Products, ETPs

Also traded during the week  under review were a total of 3,650 units of Exchange Traded Products (ETPs) valued at N1.641 million executed in 40 deals, compared with a total of 12,016 units valued at N2.050 million transacted last week in 25 deals.

BONDS

A total of 275 units of Federal Government Bonds valued at N317,435.84 were traded in 3 deals. However, there was no transaction recorded on bonds penultimate week.

Summary of price changes

Seven (7) equities appreciated in price during the week, lower than seventeen (17) equities of the penultimate week. Fifty-six (56) equities depreciated in price, higher than fifty (50) equities of the penultimate   week, while one hundred and twenty-seven (127) equities remained unchanged, higher than one hundred and twenty-three (123) equities recorded in the penultimate week.

Top Price Gainers

Ashaka Cement Plc 10,42 per cent to close N26.50 per share ; Custodian and Allied Plc 4.68 per cent to close at N4.25 per share; Honeywell Flour Mill Plc 4.05 per cent to close at N1.80 per share; A.G Leventis Nigeria Plc 3.39 per cent to close at N0.61 per share; MCNCHOLS Plc 1.75 per cent to close at N1.16 per share; Learn Africa Plc 1.22 per cent to close at N0.83; Totalfinaelf Nigeria Plc 1.01 per cent to close at N150.00 per share.

Top Price Losers

Oando Plc declined  31.03 per cent to close at N3.80 ; Unity Bank Plc declined 27 .06 per cent  to close at N0.62; Zenith International Bank Plc declined 26.82 per cent to close at N9.44; Transnational Corporation of Nigeria Plc declined by 26.32 per cent to close at 98 kobo; Guaranty Trust Bank declined  25.31 per cent to close at N13.37; FCMB Group Plc declined 21.33 per cent to close at N1.18; FBN Holdings Plc declined 20.35 per cent to close atN3.60 per share; UACN Property declined by 19.17 per cent to close at N4.85, Cadbury Nigeria Plc decline 18.40 per cent to close at N13.30; Access Bank of Nigeria Plc declined 18.04 per cent to close at N3.77 per share.

Meanwhile, capital market operators believe that the CBN’s state-of-the-economy address which came with the Bureau De Changes, BDCs forex ban is having immediate negative effects on the economy, causing investors to withdraw from the NSE to safer securities on the continent. Justifying the ban the CBN governor, Mr. Godwin Emefiele, had said “This fall in oil prices also implies that the CBN’s monthly foreign  earnings has fallen from as high as US$3.2 billion to current levels of as low as US$1 billion.

“Yet, the demand for foreign exchange by mostly domestic importers has risen significantly. For example, the last we had oil prices at about US$50 per barrel for an extended period of time was in 2005. “At that time, our average import bill was N148.3 billion per month. In stark contrast, our average import bill for the first nine months of 2015 is N917.6 billion per month, even though oil prices are now less than US$35 per barrel.

“The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of Foreign Exchange Reserves stood at about US$37.3 billion but has declined to around US$28.0 billion as of today.  With the current economic realities in the country, the NSE, with the aim of hitting N200 trillion market cap by 2019, may well be moving away from its target.”

In reaction to the persistent decline in stock market performance this year, Chief Executive Office of the NSE, Mr. Oscar Onyema has advised investors to invest through portfolio approach in the market. According to him “The current state of the market creates both challenges and opportunities for investors. We believe that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market. As such, we want to ensure that the NSE provides a repertoire of products that will allow investors to create well diversified portfolios of uncorrelated asset classes.”

The NSE boss stated that the negative performance of the stock market is a reflection of the domestic economy and to some extent, international economic performance. He assured investors not to panic, saying once there is recovery in economy the stock market will equally bounce back. “It would have been more worrisome if the economy is going down and the stock market is going up. But what is currently happening is a reflection of the heath of the nation’s economy,” he said.

Looking ahead, Onyema said while we anticipate 2016 to be a challenging year for the market and the domestic economy, “We intend to continue our collaborative efforts with the new administration and other private sector players to create a framework for financing the nation’s infrastructure and capital requirements. Additionally, we plan to work with the FGN to ensure that the appropriate messaging is conveyed to the investor community.” The NSE boss said the exchange will in 2016 focus on executing its strategy in order to continue to provide a credible platform for financing the economy.

“To this end, we intend to intensify engagement efforts with the Federal Government of Nigeria. We have also prioritized three initiatives(demutualize the NSE, monetize market services suite, establish derivatives initiatives for 2016 aimed at achieving the Exchange’s three  strategic objectives of increasing the number of new listings across five  asset classes; increasing order flow in the five asset classes; and operating a fair and orderly market based on just and equitable principles” Onyema noted.

Global stock markets

Oil prices slipped back below $30 on Friday, keeping alive worries about global growth that again hammered commodity currencies and left investors braced for a third straight week of losses on world stock markets. The pan-European FTSEEurofirst 300 hit a new 13-month low, while Asian shares skidded to 3-1/2 year lows. That did not bode well for the U.S. stock market open, with futures trading almost 2 per cent lower.

Oil prices, which posted their first significant gains for 2016 on Thursday, hit 12-year lows as the prospect of additional Iranian supply put the market under renewed pressure. Brent crude fell 3.5 percent to $29.82, while U.S. crude slid almost five percent to $29.70. Both were heading for a weekly loss of more than 10 percent following a similar tumble last week.

The collapse in oil prices has spooked financial markets and battered an array of assets from commodity,  currencies to mining stocks as investors fret about the health of the global economy. A slowdown in China, long the world’s main growth engine, and volatility in its markets had made for a shaky start to 2016. “There’s an awful lot of uncertainty out there and oil prices continue to decline below that key $30 a barrel mark,” said Michael Hewson, chief market analyst at CMC Markets. “The big question is where oil will bottom out and until we have some clarity on this, markets are going to remain exceedingly feral” Hewson added.

Stakeholders’ reactions

Mr. Oderinde Taiwo, Chairman, Proactive Shareholders Association of Nigeria, PROSAN said “ I believed the current position of the Central Bank of Nigeria on the value of the naira is also contributing to worsening the situation at the capital market. The fall in the price of oil is also not helping matter. Our market is dominated by foreign investors so we should expect the flow of selloffs.”

The Managing Director of Highcap Securities Limited, Mr. David Adnori, said “ For investors, especially foreign investors, the stability of the currency is essential for assurance of healthy returns on investment. So, the market will continue to experience decline

A report by Financial Derivatives Company Limited (FDC), stated, “We expect the stock market’s plunge to continue just as international investors await new price bottoms. There will be more bargain hunting but the market will recover later in the year when economic activities improve.”

Analysts Comment

Vetiva Capital Management stated “Nigerian equities continued to feel the pinch of low oil prices at week close with the NSE ASI completing week-long losses to close 13% down Week on Week, w/w. Amid the intensified selloffs last week, the NSE announced that the Index Circuit Breakers Rule which halts trading in the event of extraordinary market volatility becomes effective from today (Friday). Meanwhile, the Asian and European markets traded mostly in the red, pressured by new lows in oil price and below-expectation economic data from China. Stocks across key sectors remained under pressure with the Financial Services sector (-585bps) maintaining the lead amongst losers.

We expect losses to filter into the next trading session given the persistent weakness in oil price.   Head, Research & Investment Advisory at Sterling Capital, Mr. Sewa Wusu, said “the challenge for most foreign portfolio investors is the issue of forex liquidity or if you like, currency risk in terms of availability and ease of convertibility should the need for exit from the market arises.

“The situation is even made worse by the decline in oil prices at the international markets. The issue of currency risk has actually affected virtually all Naira denominated assets held by foreign portfolio investors. The Nigerian stock market has been ravished by the rout of bearish modulation. Aside, from this, the performances of most of the quoted companies have not also been very impressive due to low margins in terms of earnings capacity, made worse by huge finance cost to service their obligations at the expense of declaring impressive dividends to shareholders.”

According to Wusu, another formidable reason is the issue of weak macroeconomic environment and lack of clarity on economic policy from government to provide a guide for Commenting on the remedy, he said “ I think the recent monetary action taken by the CBN to cut interest rates and other monetary easing actions should theoretically induce investment switch into the equities markets. However, most investors are not too clear on the direction of the economy. But, I think the government has recently said it will spend about N8 trillion in 2016 budget.

Clearly, this is enough forward guidance for risk tolerant investors to begin to take position in the market at the current attractive valuations. On the fiscal side, the government will spend more and monetary policy is now expansionary in terms of liquidity to pursue growth objective in the economy. “These are the nuggets that would stimulate activities in all the critical sectors of the economy. Government will spend on infrastructures – roads, housing, transportation etc. Thus, companies in the cement, building and constructions like Dangote Cement, Lafarge, Julius Berger etc, will benefit immensely.

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