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April slowdown cuts Nigerian equities’ return to 7.91%

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April slowdown cuts Nigerian equities’ return to 7.91%

Average return at the Nigerian equities market declined by 0.57 per cent in April to close the four-month period at 7.91 per cent compared with 8.53 per cent recorded at the end of the first quarter.

This approximately reduced the net capital gain by N44 billion in April to N1.34 trillion for the four-month period.

Benchmark indices at the Nigerian stock market showed a considerable recovery in April compared with a steep decline recorded in March, but sustained profit-taking continued to moderate the market performance, leaving the overall benchmark index down by 0.57 per cent in April.

The All Share Index (ASI)-the common value-based index that tracks share prices at the Nigerian Stock Exchange (NSE), dropped from the month’s opening index of 41,504.51 points to close April at 41,268.01 points, representing average month-on-month decline of 0.57 per cent. Aggregate market value of all quoted equities also declined from its month’s opening value of N14.993 trillion to close yesterday at N14.949 trillion, representing a net capital depreciation of N44 billion. Adjusted for the influence of supplementary listing and aligned to the benchmark ASI, net capital depreciation for April stands at about N85.5 billion.

With the continuing slowdown in April, the average return so far at the Nigerian equities market now stands at 7.91 per cent. The ASI had opened 2018 at 38,243.19 points while aggregate market value of all quoted equities had opened the year at N13.609 trillion. This implies that investors in Nigerian equities still have about N1.34 trillion or adjusted net capital gain of more than N1 trillion as locked-in capital gains for the four-month period ended April 30, 2018.

The performance of the equities market in April represents an improvement on the previous month, underlining the bargain-hunting that continues to seek values in depreciated stocks.

Investors in Nigerian equities had lost total net value of about N557 billion in March 2018 as the peak of the earnings season failed to sustain the bullish start that had dominated transactions in the first two months of the year. The ASI dropped from March’s opening index of 43,330.54 points to close the month at 41,504.51 points, representing average month-on-month decline of 4.21 per cent. Aggregate market value of all quoted equities also dropped from the month’s opening value of N15.550 trillion to close March at N14.993 trillion, indicating net capital depreciation of N557 billion.

The sustained decline in March had depressed the average year-to-date return to a single digit gain of 8.53 per cent, from about 12 per cent recorded at the beginning of the month.

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Against expectations that corporate earnings and dividend recommendations would sustain the strong rally that started the equities market in January 2018, investors had turned early in February to monetise accrued capital gains, triggering a profit-taking trend that has extended for nearly three months.

Nigerian equities had in mid-January 2018 rallied to all-time high of N16 trillion with the average year-to-date return at 17.37 per cent. Aggregate market value of all quoted equities had reached all-time high of N15.783 trillion, the highest in the 57 years of formal trading at the stock market. The ASI also reached a nine-year high at 44,885.24 points. At 17.37 per cent, the average year-to-date return for the 12-day trading sessions then in January 2018 totalled N2.47 trillion.

Nigeria had ended January 2018 as one of the three best-performing stock markets globally, extending the bullish run that started in 2017 with a full-year return of N4.36 trillion with additional gain of N2.287 trillion in January 2018. Average return at the Nigerian equities market stood at 15.95 per cent in January 2018, equivalent to net capital gain of about N2.29 trillion. Average month-on-month at the Nigerian equities market had more than doubled average returns in most advanced and emerging markets of America, Europe, Middle East and Africa.

Most analysts remain optimistic that Nigerian equities still hold substantial headroom for capital gains in the period ahead.

“We anticipate this positive performance to be sustained in subsequent sessions as investors take positions in growth stocks which will buoy market performance,” Afrinvest Securities stated in reference to month-end rally that closed April.

“We expect sentiment to remain uptick in near term on continuous bargain hunting,” SCM Capital stated.

While most analysts hold positive outlook for Nigerian equities in 2018, they remain cautious on the performance in the second quarter. Analysts have noted that corporate earnings, macroeconomic performance, bargain value and election activities are major factors that will shape the performance of the Nigerian equities market in the second quarter of 2018.

Market analysts were cautiously optimistic on the sustained positive performance of the market, after investors netted N1.38 trillion in net capital gains in the first quarter. Analysts however expected a relative quarter-on-quarter slowdown in the second quarter as preparations for Nigeria’s national elections gather momentum.

Managing Director, Afrinvest Securities, Mr. Ayodeji Ebo, said the performance of the equities market in the second quarter will be spillover of the first quarter and the emerging political environment in the second quarter.

According to him, the pricing trend in the second quarter will reflect the earnings reports of companies for the first quarter as investors seek to outline the prospects for each company based on its early operational figures.

“While we expect less activity relative to first quarter, Nigerian economic indicators remain strong, hence should sustain investor confidence. As election activity kicks in, investors may trade cautiously prompting more volatility in the equity market in second quarter relative to first quarter,” Ebo said.

Cordros Capital stated that the improving macroeconomic performance will positively impact the equities market in the medium to long term.

“Still-positive macroeconomic fundamentals continue to strengthen our medium-to-long term outlook for Nigerian risky assets, while lower prices of value stocks suggest likely bargain-hunting in the short term,” Cordros Capital stated.

Economist and Head, Investment Research and Advisory, SCM Capital, Mr Sewa Wusu said the current macroeconomic environment is supportive to a positive outlook for the equities market.

“Despite the fact that the market has failed to respond to some of the impressive results released so far, I still think the outlook for second quarter looks positive. Most stocks are trading at their lows and that presents an attractive entry points for the second quarter. The only downside risk will be the election cycle,” Wusu said.

FSDH Merchant Bank noted that although Nigeria’s Gross Domestic Products (GDP) growth rate improved further in fourth quarter 2017 at 1.92 per cent from 1.40 per cent in third quarter 2017, the recovery is still very fragile, thus additional monetary policies are required to stimulate a broad-based growth.

FSDH pointed out that the increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance.

“FSDH Research however recognises the vulnerabilities of the Nigerian economy to the adverse movements in the crude oil prices, thus the need to stimulate other non-oil sectors to reduce these vulnerabilities,” FSDH stated.

Analysts at FSDH added that Nigeria recorded the highest Foreign Portfolio Investments (FPIs) inflows in 2017 during the last quarter, which implied improving confidence on the short-term outlook of the Nigeria economy.

“FSDH Research believes the inflation rate may drop to single digit mid-year, while the exchange rate should remain stable in the short-term. Therefore, there is a need for monetary policy easing to boost credit creation and stimulate economic growth,” FSDH stated.

 

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