- ***Index recoups year-to-date losses, improves to -6.8%
- ***Portfolio realignment, oil price rebound major growth drivers, say stockbrokers
By Nkiruka Nnorom
INVESTORS on the Nigerian Stock Exchange, NSE, have gained N468 billion in three weeks, as the positive run in the stock market continued last week. This sharply contracts the N660 billion loss suffered by investors last month on the NSE. Data from the NSE showed that market capitalisation, which represents total value of all listed equities rose from N8.721 trillion three weeks ago (November 25), to close at N9.189 on Friday.
Also, the All Share Index, ASI, improved by the same margin to settle at 26,707.10 points from 25,740.83 points within the same period.
These effectively trimmed the year-to-date loss in the stock market to -6.8 per cent compared to -11.55 per cent recorded three weeks ago.
Capital market operators attributed these positive development to portfolio realignment by bargain hunters who are investing in cheap stocks and those who are taking position to benefit from companies that usually declared dividend early in the year.
Moreover, they stated that the surge recently seen in oil prices as a result of the decision by member countries of Organisation of Petroleum Exporting Countries, OPEC, to peg output, is also impacting the market in the right direction. They noted that this positive sentiment might continue into next year, especially with the 2017 expansionary budget presented by President Muhammadu Buhari last week.
On week-to-week basis, the ASI and market capitalisation rose by 3.44 per cent driven by interest in oil and gas company, Seplat Development Company Plc, which rose by 20.6 per cent, Guaranty Trust Bank Plc that returned 9.3 per cent and Dangote Cement Plc, which rose by 6.3 per cent as oil prices rallied above $50.00/b during the week.
Activity level also improved as average volume and value traded rose 131.4 per cent and 47.9 per cent to 414.1 million units and N3.1 billion.
According to the NSE, a turnover of 639.439 million shares worth N6.455 billion in 11,799 deals were traded this week by investors on the floor of the Exchange in contrast to a total of 823.547 million shares valued at N5.444 billion that exchanged hands last week in 11,634 deals.
The Financial Services Industry (measured by volume) led the activity chart with 491.758 million shares valued at N2.211 billion traded in 6,241 deals; thus contributing 76.90% and 34.25% to the total equity turnover volume and value respectively. The Conglomerates Industry followed with 64.507 million shares worth N58.500 million in 681 deals. The third place was occupied by the Consumer Goods Industry with a turnover of 54.901 million shares worth N3.307 billion in 2,386 deals.
Similar to the previous week, performance across sectors was mixed with the oil and gas index appreciating the most, recording 7.4 per cent increase on account of renewed buy sentiment in Seplat (+20.6 per cent) and Forte Oil Plc (+9.4 per cent).
The banking index trailed by 6.3 per cent, driven by gains in Ecobank Transnational Incorporated, ETI Plc that recorded +21.1 per cent return and GTB, (+9.3 per cent). Similarly, the industrial goods sector added 3.5 per cent as a result of upsurge in Dangote Cement (+6.3 per cent) and Cement Company of Northern Nigeria, CCNN (+5.0 per cent).
On the flip side, declines in Nigerian Breweries Plc, which fell by 2.1 per cent and Unilever Nigeria Plc that declined by 12.1 per cent dragged the consumer goods sector down by 1.7 per cent, while the insurance sector dipped by 0.5 per cent against the backdrop of losses in Mansard Insurance, 4.1 per cent and Wapic insurance which dropped by 2.0 per cent.
Reacting, Alhaji Ola Yussuff, Managing Director/CEO, Trust Yield Securities, explained that the market is not one directional but cyclical.
He noted that one of the reasons why the market plummeted earlier in the year was because the country was not selling enough oil. “When the market went down, one of the reasons was that Nigeria was not selling enough oil. The price of oil was going down and Nigeria was not selling enough; now when it started going up, most of the oil stocks started going up. If oil price was at N35 and it now moved up to over N50, that has changed the invoicing of some of the oil marketers, and if that has changed their invoicing, it also changed the invoicing of the banks that were financing them.
“Most of the banks that we noted earlier that were in trouble was because of their exposure to oil and gas. So, if there is improvement in oil and gas or prospect of improvement, then there will be prospect of improvement in banking and that is what we have been seeing.
So, most of the companies in oil and gas and banking sectors have reacted positively to the development by OPEC to peg the production output, therefore prices are going up. This has enabled the market to recoup some of losses recorded earlier in the year,” Yussuff said.
“We are also going to the end of the year, so bargain hunters are taking position to close the year. Don’t also forget that after the closure of the year, then dividend payment for next begins. People are looking at companies that are doing well and others that normally pay dividend at the beginning of the year; so investors are taking position to benefit,” he added.
On his part, Mr. David Adonri, Managing Director/CEO, Highcap Securities, also agreed with him, saying that the capital market moves in the same direction with crude oil price. “As crude oil price increases, demand for stocks increase. Flexible exchange rate has also enhanced the fortunes of banking stocks,” he said.
According to Mr. Emeka Mmadubuike, Managing Director, Compass Securities, who is also the Chairman, Association of Stockbroking Houses of Nigeria, ASHON, investors are looking at the intrinsic value of most of the stocks that have bottomed out. He added that as the year comes to an end, people tend to balance their portfolio, which could also lead to positive price movement.
Adding his voice, Mr. Tola Odukoya, a research analyst, said: “What has happened earlier in the year was that everybody observed that the economy was going into recession and as a result of that, there was a lot of apprehension, especially with respect to the stock market. As a result of that, many of the listed companies were affected by the contraction in economic outlook (banks, manufacturers, insurance etc).
“So, I think that was what led to the huge negative returns few months back because Nigeria was formally declared to be in a recession from negative GDP growth in the second quarter of the year.”
“The improvement you are seeing now is the fact that in that panic that occurred earlier this year, stocks were under-priced, valuations were too low. Now, the reality has dawned on so many investors and they are looking to come back into the market albeit with trepidation as it were.
Also, remember, we have pension funds and whether they like it or not, they have some equity buckets to fill in terms of their regulatory requirements.
“There are some stocks that investors take a long term view of. For example. you take a three year or five year view of a particular company or sector, it could be a bank, a blue-chip or a multinational. So, I think that is the respite we see in the last few weeks versus what we saw earlier in the year when it was clear that we were in a recession and everybody panicked and withheld their investment from the stock market,” Odukoya said.