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H2’19: Withdrawal of FPI from equities may continue

By Peter Egwuatu

THE downward trend in the equities market on the Nigerian Stock Exchange, NSE, witnessed in the first half of the year, HI’19, may continue in the second half, H2’19, following the sustained withdrawal of Foreign Portfolio Investors, FPIs, from the equities in the secondary market.

Nigerian Stock Exchange SEC)
Nigerian Stock Exchange NSE

United Capital Securities Limited revealed this in its half year report, 2019, noting that uninteresting macroeconomic environment scares FPIs.

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Reacting to the bearish sentiment in equities, analysts at United Securities Limited, said: “While the stock market stayed bearish in H1’19, primary market activities, as well as corporate actions, supported returns for the period. Notably, MTN’s massive listing, Access Bank merger with Diamond Bank, the proposed acquisition of Dangote Flour and the divestments in Forte Oil, FO and WAPCO were some of the major events that shaped performance.”

The analysts added: “Broadly speaking, secondary market sentiment remained bearish as FPIs continue to snub equities for fixed income securities. Driven by outsized demand by local and foreign investors, average yields on bills and bonds fell 215 bases points, bps in H1’19. However, a more accommodative stance by the apex bank also resulted in the reprising of sovereign instruments.

The above notwithstanding, demand for short-term bills outstripped other segments of the market. We note that weaker appetite for equities in H1’19 increased the spread between the market Price Earning, PE ratio which settled at 7.4 times compared to its five-year average of 13.1times. Again, the Nigerian market trades at a significant discount to the peer average of 11.1times indicating that the market presents a huge opportunity for discerning investors.

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“However, overall outlook for naira assets is skewed in favour of short-term bills, as sentiments for equities remain muted in the absence of a badly needed catalyst or clarity in the policy framework of the economy.” On debt and eurobond market, the analysts said: “The fiscal narratives across Sub Saharan Africa, SSA remained largely the same in H1-19 as pressures from rising recurrent expenditures continued to reduce the headroom to raise capital for investment in infrastructure. Thus, to cater for the rising recurrent needs and spur economic activities, public debt levels were elevated in H1-19.

“The above notwithstanding, we saw a marked slowdown in Eurobond issuances compared to the prior year as only three of the region’s frontier economies – Ghana ($3.0bn), Benin ($0.6billion), and Kenya ($2.1billion) – tested the primary Eurobond market, issuing a total of c. $5.7billion in H1’19 (vs. c. $15.8billion in H1’18). This was due to rising external debt servicing cost and fragile domestic macroeconomic environment, even though monetary Sub-Saharan Arica FPIs dominated the amount of capital inflows.”

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