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Invest in smaller capitalized stocks in 2015. Here’s why



Last week, Director General, Nigerian Stock Exchange Mr. Oscar Onyema, held a media parley on 2014 Market Recap and outlook for 2015, where small capitalised stocks were adjudged the best performers. He also unveiled the exchange’s plan for 2015, reports Festus Akanbi

Indications emerged last week that the brunt of last year’s market decline was borne by large capitalised stocks even as investors begin to take position for the New Year.
The Director General, Nigerian Stock Exchange, Mr. Oscar Onyema, who disclosed this, said small-capitalised stocks were the best performers in 2014. He explained that small capitalised stockes recorded a 32.78per cent growth rate, followed by mid-cap stocks which were up 23.53 per cent, signifying the brunt of the market decline was borne by large-cap stocks – down 21.43 Per cent.

Rise in Turnover
Onyema, who spoke at last week’s 2014 Market Recap and Outlook for 2015, disclosed that the Exchange recorded an increase in the value of shares traded (turnover) in 2014 – up 28.20 per cent to N1.34 trillion ($7.19 billion), though not as high as the 58.66 per cent recorded in 2013.
According to the data made available at the event, average daily turnover was up 29.50 per cent, and the NSE recorded the single largest trade since 1997 on September 8, 2014, representing 243.54 million shares of Dangote Cement Plc, valued at N48.71 billion. Year-to-date, as at November 2014, 41.49 per cent of all market activity was by local investors.

Bond Market Declined
The report showed that in the bond market, market capitalisation declined slightly to N5.38 trillion ($28.93 billion) despite five new state and municipal bond issues, three corporate bond issues, and two federal government bond issues. In the OTC market, the value of cash transactions for government bonds decreased 19.81 percent (31.15per cent in $-terms) from N8.91 trillion ($55.76 billion) to N7.14 trillion ($38.39 billion), following the CBN’s move to increase the cash reserve ratio (CRR) on public sector funds from 50 per cent to 75 per cent(to mitigate the economic impact of declining oil revenues, the drawdown of reserves, depletion of the excess crude account, falling FPI inflows, and the widening gap between CBN and bureau de change exchange rates), and the CRR on private sector funds from 12 per cent to 15 per cent (to manage excess liquidity in the interbank market). Transactions in treasury bills (T-bills) soared by 120.05 per cent from N10.92 trillion ($68.34 billion) to N24.03 trillion ($186.10 billion).

2015 Outlook
Speaking on the outlook for the year, the exchange helmsman said, Nigeria’s 2015 macroeconomic performance is expected to be influenced by a number of variables, including crude oil prices, foreign exchange movements, national security, global financial markets, fiscal and monetary policies, as well as the outcome of the 2015 elections.

“Post elections, we anticipate that elimination of some of the uncertainties highlighted above may lead to stability in the equities market. However a strengthening dollar may continue to precipitate FPI reversal, which remains a real threat to the Nigerian capital market.

“Although economic growth projections for 2015 will be greatly impacted by the challenges above, we expect that as time progresses, and as uncertainty is steadily reduced across all the risk categories, that negative sentiments in the market will begin to subside, with volatility slowing in the second half of the year, strengthening potential for a market rebound.”

Expressing optimism in the ability of the nation’s capital market to bounce back, Onyema said, “Despite the market’s sharp downturn in 2014, it is not all doom and gloom for 2015. Although many anticipate volatility through the first half of the year, some stock prices are at their lowest since the May 2013 sell-off, and some are below book value, thus, presenting domestic investors with no currency risk, an opportunity for cautious long-term investing.

“We expect that as the year progresses, underpinned by a successful election with no or low levels of violence, a tighter grip on the security situation in north-eastern Nigeria, and a more certain macroeconomic outlook for oil prices, interest rates and the naira, the market’s attractiveness could improve rather significantly. On the fixed income side, government bond yields hovered between 11.0 per cent and 12.5 percent throughout 2014, and this will remain an attraction for investors seeking high risk-adjusted returns.

“The World Economic Forum (WEF) report, “Outlook on the Global Agenda 2015” ranks Deepening Income Inequality and Persistent Jobless Growth as the two top trends for 2015. The world is slowly coming to terms with the reality that its fastest-growing markets are emerging from the African continent, with Nigeria in a lead position,” he said.

He explained that although Nigeria exhibits the trends highlighted in the WEF report, its large and disproportionately young population (approximately 70 per cent of the Nigerian population is under the age of 30) and growing middle class, supported by strong growth GDP projections, provide major opportunities that could translate into a powerful market for consumption.

According to Onyema, this has not gone unnoticed by the increasing number of international businesses and investors looking to exploit this potential. As a result, both the foreign and domestic investment communities are optimistic that the recent economic expansion experienced in Nigeria should continue for the foreseeable future, in spite of economic challenges recently witnessed.

It is believed that in order to achieve this potential, the fundamentals of the Nigerian economy will need to be restructured away from reliance on oil revenues. The Stock Exchange Director General said management of the exchange intends to play its own part to facilitate this restructuring and call for greater support for the capital market as a real financing alternative to driving inclusive growth and job creation.

He said, “The Nigerian capital market and the business of the stock exchange will always be impacted by shifting economic trends and investor demands, however, achieving success through growth that creates value will increase the bourse’s ability to operate effciently and profitably in the transient-advantage economy that has unfolded in Nigeria and around the world. The effect of disruptive short-term market cycles can be reduced with (i) the right market structure, (ii) a diverse set of products that perform well in different market conditions, and (iii) enabling policy that provides stability to the marketplace, and gives confidence to issuers and investors. Therefore, this will be the focus of the Nigerian Stock Exchange in 2015,” he concluded.

Bearish sentiments prevailed in most commodities based economies including the Nigerian market in 2014; the capitalisation of listed equities retreated by 13.15 per cent (24.95 per cent in $-terms) from N13.23 trillion ($82.80 billion) to N11.49 trillion ($61.72 billion).

The NSE All Share Index (ASI) slid 16.14 per cent, while NSE ASeM Index and NSE Oil/Gas Index grew 26.09 percent and 11.84 per cent respectively. Average daily turnover for equities was N5.4 billion ($29.00 million), up 29.50% (11.03 per cent in $-terms).

The Nigerian Stock Exchange (NSE) closed the year with six new equity listings – two on the Main Board, one on Assam, and three ETFs, while the Bond market recorded 12 new listings with a slight dip in the value of new issues. The NSE was admitted as a full member of the World Federation of Exchanges (WFE), and Phase 1 of the West African Capital Market Integration (WACMI) programme is well underway with the successful launch of direct market access (DMA).

The NSE made history by becoming the first African stock exchange to join the Inter market Surveillance Group (ISG), and welcomed a new president and six Council members to its National Council.

ThisDay, January 18, 2015

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