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Stock market makes history with N16.15tr capitalisation

Investors gain N2.6 trn in 3 weeks
Tier-2 & 3 banks lead top gainers

By Peter Egwuatu & Nkiruka Nnorom

THE total value of shares on the Nigeria Stock Exchange, NSE, rose to N16.15 trillion last week, the highest in the 57 years of the Exchange, with  investors gaining N2.6 trillion in a  three-week  boom dominated curiously by lowly priced Tier-2 and Tier-3 banks.

The historic performance of the market is driven majorly by dollar inflows from foreign investors taking advantage of the Investors and Exporters (I&E) foreign exchange window, which has attracted N3.3 billion since the beginning of the year, as well as   the relative cheapness of shares on the Exchange occasioned by devaluation of the Naira.

In addition to this is the declining interest rate on fixed income instruments, which prompted domestic investors to move their money away from treasury bills, bonds, and bank deposits, and into the stock market.

Nigerian Stock Exchange

Led by Skye Bank and Diamond Bank, banking stocks on the NSE were the investors’ bride as the banking index at 30.22 per cent Year-to-Date (YtD) outperformed the All Share Index, ASI which recorded a new high at 45.092.83 points.

The top five gainers that rose significantly, YtD in percentage term include: Skye Bank Plc (158 %), Diamond Bank Plc (138%), FCMB Plc (135.85), Wema Bank Plc (125 %) and Unity Bank Plc (111.3 %). Meyer Plc, Dangote Sugar, Flour Mills Nigeria Plc, A.G Leventis and Glazosmithkline Consumer Nigeria Plc suffered the worst losses in the losers’ table.

Capital market operators and stakeholders attributed the upsurge in the price of the lowly price stocks especially in the banking sector to investors taking position ahead of the release of the 2017 financial year results of the companies as they believe that the prices of these stocks have been undervalued.

They also averred that the improvement of the economy from recession to growth as well as  changes in the monetary policy with regard to the creation of the Investors and Exporters foreign exchange, FX Window among other factors have all  impacted on the market leading to improved confidence by both foreign and local investors.

Analysis of the market indicators

The All Share Index  YtD increased by 17.91 percent to 45,092.83 points from 38,243.19 points it opened at the beginning of the year. The NSE 30 index grew by 18.09 percent  YtD to 2,062.61 points from 1,746.68 points; Banking Index grew by 30.22 percent to close at 619.14 points from 475.44 points; Consumer Goods Index  was up by 5.76 points to close at 1,032.29 points from 976.10 points;  Industrial Index went up by 18.17 percent to close at 2,334.50 points from 1,975.59 points;  Insurance Index rose by 15.74 percent to close at 161.31 points; while the  Oil & Gas index grew by 10.60 percent to close at 365.75 from 330.69 points.

Financial Vanguard review of the stock market performance YtD shows that Skye Bank led the cream of gainers in percentage term rising by 158 percent or 79 kobo per share to close at N1.29 per share from 50 kobo per share. Trailing behind Skye Bank on the gainers’ chart was Diamond Bank which rose by 138 percent or N2.08 per share to close at N3.57 per share from N1.50 per share. FCMB followed rising by 135.8 percent or N2.01 per share to close at N3.49 per share. Wema Bank followed as it appreciated by 125 percent to close at N1.17 per share while  Unity Bank gained 111.3 percent or 59 kobo to close at N1.12 per share.

Conversely, Meyer Plc led the losers’ chart declining by 8.6 percent or 6kobo per share to close at 64 kobo per share from 70 kobo per share. It was followed by Dangote Sugar Plc which fell by 8.5 percent or N1.85 per share to close at N20  per share from N21.85 per share. Flour Mills dropped by 5.9 percent  or N1.88 per share to close at N30  per share from N31.88 per share. AG Leventis also fell  by 5.74 percent or 4 kobo per share to close at 66 kobo per share from 70 kobo per share and Glazosmitkline  depreciated by 5.4 percent or N1.20 per share to close at N20.90 per share.

Operators and stakeholders reactions

The Chief Executive Officer, NSE,  Oscar Onyema, said: “We have a few theories, which obviously can be challenged. The first one is that we think that the fact that the market is the best performing in the world and this was widely publicised by the CNN and some other news media made people understand that they have missed out. When you do your fundamental analysis, you find out that when we had the down cycle in 2014, we were at about $84 billion US dollar in market capitalisation for equities. Even, with this N15 trillion that we have, if you do the maths, we just passed half of that in dollar terms because of the devaluation we had. So, people realised that the market is still cheap and so they wanted to take position given the fact that we have already taken devaluation.

“Also, most of the activities we have seen are also driven by foreign investors because of the improvement in the  Investor and Exporter, (I&E)  forex window. Yes, they have tested this window. When they came in 2017, they were really trickling in. They did a pull out to see if CBN would allow them take their money and CBN did allow them take their money. So, now, they feel more confident to bring in the bid money.

“Actually, the big money did not switch the dial immediately that window was established because first of all, their risk manager has to tell them that it is okay to start investing in Nigeria again. And most of them said that they actually have Nigerian fatigue given all the challenges we have had. So, it is now that those processes are opening up and they are able to begin to take position in the market.

“There are many other reasons. Confidence is improving; people are also thinking that fiscal policies will also kick in at some point to drive a second round of growth with the release of capital vote to drive infrastructure spending. Obviously, there is also a downside risk, especially as we go into the political cycle. We think that at the end of the day,  the performance of the companies themselves would be what will drive the market capitalisation.”

Commenting as well, analysts at Financial Derivative Company, FDC in their Bi-Monthly Update, said that the sustained rally can be attributed to investors’ bargain hunting of undervalued stocks, as portfolio managers rebalance respective portfolios.

FDC added that: “The bull run of the NSE market can be attributed to investors’ renewed interest in equities, as the declining interest rate environment has made government securities unattractive to most investors.

Going forward, FDC said: “We expect the bullish market sentiment to continue as investors cherry-pick stocks with strong fundamentals, in anticipation of an impressive full-year 2017 earnings report and robust dividend policies. This is coupled with the anticipated decline in MPR in Q1’18, which will have a significant effect on the bourse, affirming a declining interest rate environment. However, a possible reversal in the rising trend of crude oil prices will pose a major threat to this rally, due to the positive correlation between crude oil prices and Nigeria’s stock market performance.

Speaking as well, Managing Director, Capital Bancorp Plc, Aigboje Higo, said: “If you notice, the companies that their prices are going up, they are companies that have recovered from the tough times of 2016 and early part of 2017. The banks are doing well.  Even Nestle Nigeria Plc, Unilever Nigeria Plc, PZ Cusson Nigeria Plc, they are all bouncing back and doing well.

“The economy is moving in the right direction. Oil price is up, close to $70 per barrel; that’s good for the economy; it is good for our reserves. We were able to supply foreign exchange, FX, to people that have the need to use them. Foreign portfolio investors are back to the economy; inflation has dropped for 11 months in a row and that is good for the economy. Interest rate is coming down.”

The spokesperson for Independent Shareholders Association of Nigeria, ISAN, Mr. Moses Igbrude, said: “The rally or the upward movement of prices in the market is an indication that investors have started positioning in anticipation of expected companies’ end of year results. The rise in the price of crude oil has also brought financial stability and confidence into the system making portfolio investors return to the market.  The sustainability of the rally will depend on the outcome of the actual results that will be posted by companies and the political environment as we approach elections period. The rally is mostly in the banking sector: FBN Holdings Plc, GTBank, Zenith Bank and others. I just hope that the rally last.

Managing Director/Chief Executive Officer, APT Securities & Funds Limited, Mallam Kasimu Kurfi, said: “One of the reasons why we continue to see market rally is due to the fact that most stock prices are low; as most of them trade below Price Earnings, PE ratio of 10, which makes them cheaper than most of the frontier markets, which trade on PE ratio of 14. Another reason is the fall of interest rate in the money market as most of the banks are willing to give interest rate ranging from 10 percent to 12 percent for deposit, below the inflation rate of 15.67 percent. Also, the rise in crude oil prices has impacted on our foreign exchange, which in turn led to increase in our foreign reserves that have helped to stabilise exchange rate that attracts foreign investors to invest in the market. Also, the expected good performance of most of the companies hoping to declare good results for the year ended 2017 is another major factor attracting both local and foreign investors.

Former National Publicity Secretary, Nigerian Shareholders Solidarity Association, Alhaji Gbadebo Olatokunbo, said; “Our stock market is doing well because the economy is out of recession and before then many companies had put on their thinking-caps on the way forward and a lot of brainstorming had taken place.

“On sustainability of the rally, the very big advantage  of the recession we had was that it made the companies took serious inward looking visions that led to many home-made projections that will soon launch us into industrial revolution, which would increase our local productions in many areas that were taken for granted before the recession.

Since, several of our companies have taken position on the way forward just before the end of recession and the execution of some of those visions is what have been reflecting at the capital market and it would be improving as time goes on, because more companies will now have the confidence to come forward to raise the necessary capital for the projects. So, I see the sustainability of the rally except we begin to see deviation from government’s plan in improving the economy.

“The sector that have contributed or benefitted much in this rally is of course the banking industry, which comes first, because of their position in our economy.  But, it will soon move to the manufacturers, mostly producers of daily needs e.g. foods; this is due to increase in agricultural-production and to the new orientation and love for home-made goods etc.”

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