Mallam Garba Kurfi is the Managing Director and Chief Executive Officer of APT Securities. In this interview, he said that foreign investors who were selling off their stake from the equities market prior to the presidential election on February 23, due to election jitters have started coming back to the market. He also called for reconstitution of the Board of the Securities and Exchange Commission. Excerpts:
By Nkiruka Nnorom
BEFORE the presidential election, we saw foreign investors withdrawing their money from the stock market. With the election concluded, do you see their participation improving in the near-term?
Most of the foreign investors take their time to analyse the market. So, I see them coming back because if you look at the FDMQ OTC Securities Exchange where they normally transfer their foreign exchange (forex), if you look at the transactions recorded in the month of February and early March, it shows that there is more inflow into the country, meaning that foreign investors have started coming back.
If you also see the volume in the stock market, you can see that our market transaction has improved because average turnover has risen up to N6 billion on daily basis. That shows that there is inflow.
Volume of transaction
What we usually trade is between N2 billion to N3 billion in turnover, but when you see average turnover at the end of the week, it is now between N5 billion and N6 billion and that shows that foreign investors are likely coming back to the capital market.
If you also look at the top players in the market like Rencap Securities and Stanbic IBTC Stockbrokers, most these top players deal with foreign investors and their volume of transaction has been on the increase. So, that will tell you that the foreign investors have started coming back.
Does it mean that the fears and uncertainties that previously kept them out of the market have subsided?
Actually, it has. We saw the current Central Bank of Nigeria’s governor, Mr. Godwin Emefiele, giving assurance about the stability of the forex market. You also know that stability in the foreign exchange market encourages foreign investors to enter the market because when there is instability in the forex market, they take off.
With the re-election of President Muhammadu Buhari, what are some of the things you will want his administration to focus on with regards to the equities market to ensure stability in the system?
I expect him to have a positive outlook in relation to the market because if you remember when he took over in 2015, he sacked the Board of the Securities and Exchange Commission, SEC. It is now getting to four years and the Commission has been functioning without a board. If the Commission must be effective, it needs to have its own board and it also needs to have a substantive Director General not a DG in an acting capacity.
These are some of the things I think he should attend to. Since he has said he will look at the issue of the economy, I believe that the capital market should be part of his top priorities. Don’t forget that he has already signed the Demutualisation Bill, which has been gazetted. So, any time from now, the Nigerian Stock Exchange, NSE, will become fully demutualised like any other developed market. Once our market is demutualised, it will encourage more foreign investors to come into the market.
But there are still indications that domestic retail investors are still sitting on the fence?
The domestic retail investors do not do much analysis of the market. The foreign investors are the ones that analyse the financials, the earnings, and the dividend yield of quoted companies. If you look at the earnings, especially that of the major banks, the results declared by Zenith Bank and Guaranty Trust Bank for 2018, they are all impressive. They showed improvement both in the earnings and the dividend payout. These are some of the confidence boosters and these banks are the major players. I can tell you that it is just a matter of time and retail investors will start coming back.
I think the retail investors should take advantage of the market. Most of the stocks are trading in lower Price/Earnings (PE) ratio and when you look at the earnings, most of them are trading at PE (x) ratio of 3.4, which is far below what is obtainable in other frontier markets. I think it’s time for the retail investors to take advantage of the market, but most of our local investors don’t play the market until they see the prices rising, therefore allowing foreign investors to take advantage of the market before they move in.
What sectors do you think investors should look out for as companies release their 2018 earnings reports?
They should look at those companies that are yet to declare their results. Most of the companies have their year-end at December and most of them release their results around March, April and May.
So, they should take advantage of the earning season so that whatever the companies declare as dividend, they will benefit from it. Particularly, I will advise them to look out for the banking sector, especially the ones that have just declared their results.
They should look at the others that are yet to release their results like Access Bank, United Bank for Africa, they are all in PE ratio that is below five. We have many other stocks that are going to be to the advantage of the market.