Nigerian equities grope for macro-economic direction

In from Success Allantee ….

The average share price at the Nigerian stock market dropped by 1.08 per cent in the immediate past week, further highlighting the tardiness that has pervaded the Nigerian capital market as investors await the new government of President Muhammadu Buhari to form his cabinet and make key pronouncements on macroeconomic direction.

Trading at the Nigerian stock market in recent weeks has seen the metamorphosis of what had been a reluctant downtrend into seemingly open frustration and pervasive negative sentiments, highlighted by continuous declines in share prices and a reversal of gains made in the wake of the successful national elections.

Quoted equities, which had gained N1.82 trillion in the immediate rally that followed Nigeria’s successful March 28 presidential election and the emergence of President Buhari, has since lost steam considerably as investors wait for the government to form its economic management team and make clear-cut pronouncements on key economic issues.

Nigerian equities fell for four consecutive trading sessions and lost about N124 billion last week. The two main common benchmark indices at the Nigerian Stock Exchange (NSE) indicated a week-on-week average decline of 1.08 per cent, worsening the negative sentiments that had dominated the market this month. Average year-to-date return at the stock market worsened to -4.04 per cent at the weekend, driven by a month-to-date return of -3.07 per cent in June.

The All Share Index (ASI), the common value-based index that tracks prices of all quoted equities at the NSE, closed weekend at 33,257.90 points as against its opening index of 33,621.75 points for the week, representing a decline of 1.08 per cent. Given Nigeria’s mono-stock exchange status and the all-inclusive nature of the ASI, the index also doubles as Nigeria’s sovereign equity index. Aggregate market value of all quoted equities also declined from its week’s opening value of N11.477 trillion to close the week at N11.353 trillion, indicating a loss of N124 billion or 1.08 per cent.

The congruence between the ASI and aggregate market capitalization indicates that the decline in market value was driven by share price depreciation rather than adjustments of shares, delisting or share restructuring among others. This validates the monetized value of percentage loss at N124 billion. Further share price analysis indicated that 28 equities appreciated during the week while 46 equities depreciated. A total of 119 equities remained unchanged.

“The market has so far been driven by macroeconomic uncertainties as investors continue foot-dragging ahead of policy pronouncement,” Afrinvest Securities, a Lagos-based investment firm and dealer at the NSE, stated in a post-trading review.

Foreign portfolio investors dominated the Nigerian stock market and accounted an average of 70 per cent of turnover value.

While the market had been highly enthusiastic on the heels of the successful elections, caution had set towards the formal inauguration of the new government, and what many perceived as undue delay on economic priorities has made the market restive. The negative overall year-to-date return has been driven primarily by steep declines in share prices this month, a downtrend that was capped by the last week almost free-fall.

Cross-sectoral review indicated that most stocks traded in the negative last week with the selling sentiments more pronounced in the oil and gas sector and the consumer goods sector, two sectors that had suffered from transitional leakages.

The NSE 30 Index, which tracks the 30 most capitalized companies, recorded weekly decline of 1.08 per cent. The NSE Consumer Goods Index, which tracks large manufacturers of fast moving consuming goods, recorded average weekly return of -1.29 per cent. The NSE Lotus Islamic Index, which tracks Islamic compliant ethical stocks, recorded average loss of 1.53 per cent. The NSE Oil and Gas Index dropped by 1.88 per cent. The NSE Banking Index, which tracks the most active sector, recorded a week-on-week negative return of -0.74 per cent while the NSE Industrial Goods Index posted average return of -0.48 per cent. It was only the NSE Insurance Index which posted a modest positive weekly return of 0.77 per cent.

The sustained decline last week highlighted the concerns that had seen the market mostly on the downside this month. Month-to-date analysis indicated that all major market movers were trading at lower prices. Most highly capitalised stocks have suffered significant depreciation, especially in the banking sector which drives activities at the stock market. Against average month-to-date decline of 3.07 per cent indicated by the ASI, the NSE 30 Index highlighted the rampant depression within the blue chips with a month-to-date return of -3.32 per cent.

The NSE Oil and Gas Index recorded the highest month-to-date loss of 5.81 per cent. The NSE Banking Index, arguably the second most important index for the market, recorded negative 20-day return of -5.62 per cent. The NSE Industrial Goods Index posted average month-to-date return of -0.45 per cent. The NSE Consumer Goods Index recorded a modest loss of 0.29 per cent while the average Islamic compliant ethical stock and insurance stock has lost 0.78 per cent and 1.99 per cent respectively so far this month.

With these, an average investor in the Nigerian stock market appears to be coasting to a negative first half. With inflation rate at 9.0 per cent and the interest-benchmark Monetary Policy Rate at 13 per cent, generally negative equity indices illustrated the gaping holes in the pockets of investors. The NSE 30 Index now carries a year-to-date return of -2.91 per cent. The NSE Consumer Goods Index indicated average year-to-date return of -6.75 per cent. The NSE Lotus Islamic Index recorded average loss of 2.39 per cent. NSE Insurance Index recorded average loss of -2.47 per cent while the NSE Oil and Gas Index carries average year-to-date loss of 6.19 per cent.

Meanwhile, the NSE Banking Index retained some values with a positive return of 5.26 per cent while the NSE Industrial Goods Index posted average return of 3.64 per cent.

Total turnover last week stood at 1.28 billion shares worth N31.3 billion in 19,143 deals compared with a total of 1.55 billion shares valued at N17.53 billion that were traded in 17,785 deals two weeks ago.

The bank-led financial services sector remained the most active with a turnover 976.65 million shares valued at N11.27 billion in 10,121 deals; representing 76.2 per cent and 36 per cent of the total equity turnover volume and value respectively. The consumer goods sector occupied a distant second on the activity chart with a turnover of 114.14 million shares worth N7.98 million in 3,467 deals. The oil and gas sector placed third with a turnover of 70.87 million shares worth N10.49 billion in 2,016 deals.

The trio of Access Bank Plc, Zenith International Bank Plc and Guaranty Trust Bank Plc were the most active stocks jointly accounting for 486.911 million shares worth N7.69 billion in 3,963 deals, representing 37.99 per cent and 24.56 per cent of the total equity turnover volume and value respectively.

Market analysts said investors were being cautious and biding their time to ensure they have a clear view of the economic direction of the new government.

The current downtrend has dwarfed the upswing that greeted the successful conduct of the national elections and the emergence of the new government.

As investors saw that the March 28 general elections were largely peaceful and credible, and the opposition candidate of the All Progressives Congress (APC) was leading, investors on Monday March 30 upped demand for Nigerian equities. Quoted equities’ capitalization, which opened at N10.319 trillion, closed at N10.494 trillion. The eventual announcement of Buhari as the president-elect and the concession of defeat by President Goodluck Jonathan had further spurred the bullish rally.

The immediate week after the presidential election saw the largest gain by Nigerian equities this year. Aggregate market value of all quoted equities closed the four-day trading session ended April 2 at N12.135 trillion as against the week’s opening value of N10.319 trillion, representing an increase of N1.82 trillion. The ASI also jumped by almost six steps to close at 35,728.12 points as against its opening index of 30,562.93 points.

Aggregate market value of all quoted equities, which opened April at N10.718 trillion, closed the month at N11.787 trillion, representing a gain of N1.07 trillion, about 9.97 per cent. The ASI also indicated a month-on-month average gain of 9.3 per cent during the period, rising from the month’s opening index of 31, 744.82 points to close at 34,708.11 points.

Major foreign and Nigerian investment firms that had placed “buy” on several Nigerian stocks in reference to the reduction in the political risk and the attractiveness of Nigerian equities, most of which had been undervalued by sustained depreciation over the past 15 months, are now advising caution until the macroeconomic outlook becomes clearer.

“The development in the markets reflects the mixed corporate earnings performance of quoted companies and the conflicting macroeconomic signals which leave investors at sea regarding market direction and appropriate investment decisions. Headwind factors of rising consumer prices, fiscal austerity and consequent weaker consumer spending powers, as well as uncertain fiscal direction of political transition have veiled the improving dynamics in the polity and commodity prices,” analysts at Afrinvest Securities stated in a review.

According to analysts, the modulation the markets await is stable fiscal environment which is consequent on the policy pronouncements of the new government.

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