Foreign and domestic investors have taken a beating following the downturn in the nation’s stock market, ’FEMI ASU writes
The total value of equities listed on the Nigerian Stock Exchange has plunged by N2.053tn since it peaked at N16.154tn in January.
The market capitalisation rose from N13.617tn at the start of the year to a record high of N16.154tn on January 19 on the back of greater impetus from the recovery in global oil prices, increased domestic reserves, greater foreign exchange market stability and declining inflation.
KPMG Nigeria, in its Top 10 Business Risks in 2018/19 report, noted that the introduction of the importers and exporters window in the forex market last year by the Central Bank of Nigeria encouraged the return of portfolio investors to the Nigerian market.
But the stock market has been wobbling in recent months, with the market capitalisation losing N1.146tn last month as it fell to N13.802tn on May 31 from N14.948tn on April 30. It closed at N14.101tn on Friday, June 14.
Against the backdrop of the recent downturn in the stock market, the Chartered Institute of Stockbrokers and the Association of Stockbroking Houses of Nigeria have assured investors of the safety of their investments.
The stockbrokers attributed the downturn to the effect of general lull in the economy and other exogenous factors prompting both domestic and foreign investors to convert their shares to cash.
The President, CIS, Mr. Adedapo Adekoje, who noted that market fundamentals remained strong, attributed the recent bearish trend to panic sales by foreign portfolio investors who were taking advantage of emerging higher returns on mutual funds in the United States and Europe, leading to massive sale of their shares on the Nigerian bourse.
He said, “Current information about mutual funds in America and Europe that are giving five per cent return on investment is attractive to foreign portfolio investors and they are offloading shares to take advantage of the investment opportunity. They are more comfortable with the new returns on mutual funds.
“The good news is that we are having good valuations. Investors should buy on long-term basis and not short term.”
The Chairman, ASHON, Chief Patrick Ezeagu, stated that nothing was wrong with the NSE in terms of governance structure, technology and compliance with the rules and regulations by stockbrokers.
According to him, the quoted companies are not doing badly, given the general lull in the economy and the usual concerns about elections, which could elicit massive sale of shares, especially by foreign investors.
He said, “The Federal Government should intensify efforts in addressing insecurity problems in Nigeria and keep on ensuring a safe investment environment. Our market is full of opportunities but we need to sustain the momentum of assuring both indigenous and foreign investors that the market is safe.
“The Exchange is a barometer that gauges the mood of the economy. Therefore, we should address investors’ fears in order to enable them to take advantage of good returns associated with our market. The current bearish trend is temporary as the market would bounce back soon.”
Financial analysts at FSDH Research, an arm of FSDH Merchant Bank Limited, have said the equity market is expected to appreciate from the current levels as investors’ position for half-year 2018 results.
In their latest monthly economic and financial market report, the FSDH analysts noted that the equity market depreciated for the fourth consecutive month in May.
The NSE All-Share Index depreciated by 7.67 per cent (a loss of 7.75 per cent in dollar) to close at 38,104.54 basis points, while the market capitalisation recorded a month-on-month loss of 7.67 per cent (a loss of 7.75 per cent in dollar) to close at N13.80tn.
According to FSDH Research, some investors attribute the downward trend in the equity market to uncertainty ahead of the general election in Nigeria next year and the fact that some foreign investors are repatriating their maturing fixed income investments due to low yields.
The Head of Research and Strategy, FSDH Merchant Bank, Mr. Ayodele Akinwunmi, said, “FSDH Research believes the equity market is approaching an oversold position. Thus, there may be a reversal of the current downward trend very soon as the economic environment continues to improve.
“The following factors should drive the performance of the equity market: stability in the foreign exchange market due to positive developments in the crude oil market; bargain-hunting investors taking advantage of current prices; strategic positioning ahead of first half 2018 results, and repositioning of portfolios as a result of the drop in yields on Nigerian Treasury Bills.”
According to the analysts, investors should take strategic positions in the stocks that pay interim dividends and have prospect for capital appreciation from current levels.
“Some stocks in the consumer goods, building materials, petroleum marketing and banking sectors are attractive at their current prices,” they added.
The Chief Executive Officer, NSE, Mr. Oscar Onyema, said at the 5th NSE/LSEG Dual Listings Conference on June 1 in Lagos, noted that the NSE ASI on May 31 witnessed a reversal of all the gains made this year.
“Since the market is a leading indicator, we cannot take our eyes off the ball and must continue to press for positive catalysts that will propel the economy to new heights,” he said.
He stated that over the last few years, the nation’s economic landscape had been particularly challenging for the capital market.
He said the combined effects of the 2015 elections, slump in commodity prices, global economic slowdown, recession and forex market illiquidity have resulted in a dearth of initial public offers in the Nigerian capital market.
Onyema said, “As the government grapples with the task of articulating a clear economic blueprint for the short to medium term within which credible fiscal and monetary policies can emerge, the reality of the need to leverage and embrace the globalisation of economies and financial markets becomes clearer.
“Capital markets are critical to sustainability of growth and development in an economy. It is my strong belief that one of the things that Nigeria (and Africa) needs to sustain its growth is a solid and vibrant capital market ecosystem that will attract investment and unlock the potential that exists in the economy.”