Mr. Aigboje Higo, Chief Executive Officer, CEO, Capital Bancorp Plc, in this interview speaks on issues that will influence the Nigerian stock market, interest rate and the economy in general in 2018. Excerpts:
By Peter Egwuatu
HOW do you assess the performance of Nigerian stock market last year, and what is your expectation for this year?
The Nigerian stock market had an impressive showing in 2017 having closed the year with return of 42.30% making it the third best performing stock market behind Argentina which returned 77% and Turkey which returned 48%. We have projected a 25% returns for the Nigeria stock market for 2018 though downside risk to achieving this target remain visible.
The market gains in 2017 were driven by impressive returns in the Banking sector which returned 73.32%, the consumer goods sector which returned 36.97% and the industrial goods sector which returned 23.84% while other sectors of the market recorded gains except for the Alternative securities market (ASEM) which closed down by 8.60%.
Increased investor confidence
The trading aspect recorded significant recovery while the market witnessed increased issues compared to 2016 where there were no issues. The year 2018 is expected to witness a similar trend as economic indicators have improved and the world now projects increased investor confidence and GDP growth for Nigerian economy.
Going forward we expect to see more trading activities in the secondary market as listed companies will begin to trade at new highs never seen before even as their profitability soars on the back of a vibrant economy. The primary market is also expected to be active in the year with expectation of new listings, Mergers and acquisitions, Rights issue, listing by introduction etc, all expected to drive overall market activity and deepen the market in the process.
What is your take on the bullish run witnessed in the Nigerian stock market at the beginning of the year?
This year is different from previous years as we saw the market being bullish. In previous years the markets use to be bearish at the beginning of the year. It is normal since the economy has continued to maintain growth from recession. We still expect further bullish market if the economic activities continue to improve. The stock market does not work in isolation of the economy. Our market has been experiencing growth across the sub sectors- banking, cement, Fast Moving Consuming Goods, FMCG, insurance etc. So, we don’t see any bubble burst at the moment because the growth is balanced.
Don’t you think that speculators are the ones pushing the stock price upward, especially for those with no fundamentals?
There are speculations no doubt especially when you see some stocks’ prices rising without good fundamentals. We do advise people to be wary of those stocks. Anyway these are the risk that goes in the market. These speculators may gain or lose from these stocks. Everything will depend on the full year results that the market is expecting. If the result of these companies turns out to be good, then the price would be sustained but if the reverse becomes the case then you will see people losing money.
What really attracted the foreign investors into the Nigerian stock market?
Investment and confidence in shares significantly improved in 2017 given the improved investor sentiments towards the Nigerian economy. Significant improvement in corporate earnings for companies listed on the stock market drove investment back to the market even as foreign portfolio investors came back into the country on the back of a more stable and predictable Foreign Exchange, FX market. This drove the Nigerian stock market to close the year with a return of 42.30%, its first positive return since year 2014.
Do you see interest rate falling below 14 percent this year?
Having maintained the Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR) at 14% and 22.5% respectively while also retaining the asymmetric corridor of +200 bps above and -500 bps around the MPR for over a year, we expect a rate cut at the first meeting of the Monetary Policy Committee of the CBN in 2018, and we are of the opinion that the committee will cut the benchmark interest rate by 0.5 percent or 1.0 percent thereby taking the MPR to 13.5 percent or 13 percent.
The projected cut in rate is imminent owing to the CBN’s continuous slash in stop rates for treasury bills which once stood at a high of about 18.8 percent in May 2017 and closed the last auction date at 15.57 percent in November 2017. The continuous decline in inflation figures has also supported the banks’ target to reduce the interest burden on its debt obligation and also offer real return on its securities. In a bid to reduce the country’s domestic debt obligation the CBN repaid all the maturing treasury bills that matured in December 2017 and have signalled that it would continue to drop its stop rate going forward into year 2018 even as the CBN targets and inflation rate below 12 percent for 2018.
What are your expectations for Nigeria in terms of GDP growth for 2018 given the fact that the country would be entering into election period from the third quarter?
We also hope that appropriate policies: both monetary and fiscal policies will be put in place in 2018 to drive economic growth. We also hope that the Federal Government will rapidly pass the 2018 budget into law and execute the projects in desirable time to boost economic activities. We are of opinion that if the government rides on the current events which presently are in the favour of Nigeria, Nigeria will grow by an average of 2.2 percent in 2018, despite downside risk to this growth forecast. The projected GDP growth rate for 2018 should become a reality if government continues to boost its non-oil sector revenues and properly deal with issues relating to wasteful government spending and non-friendly business policies.