NSE LIVE! Equities stabilise with modest gain after JP Morgan’s scare

In from Success Allantee …
Nigerian equities shook off the mid-week scare caused by the announcement of the decision of JP Morgan to exclude Nigerian sovereign bonds from the JPMorgan Government Bond Index-Emerging Markets Indices (JP Morgan GBI-EM Index) to close last week with modest gain.
Quoted equities closed the week with a modest gain of N56 billion as the market rallied N92 billion on Friday to neutralise the mid-week scare, ending with a net positive position of N56 billion gain. After the JP Morgan announcement on Tuesday that Nigerian sovereign bonds would be excluded from JP Morgan GBI-EM Index by end of October, quoted equities lost N312 billion on Wednesday and followed this with a moderated loss of N18 billion on Thursday.
While there was a marked slowdown in market turnover and there were mode decliners than advancers, gains by highly capitalised stocks coloured the overall market position. The All Share Index (ASI), the value-based composite index that tracks prices of all quoted equities on the Nigerian Stock Exchange (NSE), recorded average week-on-week gain of 0.60 per cent to close at 29,689.08 points as against the week’s opening index of 29,511.08 points. Aggregate market value of all quoted equities on the NSE rose from N10.148 trillion to close at N10.204 trillion, representing an increase of 0.54 per cent. Average year-to-date return remained negative at -14.33 per cent.
Most group indices closed positive, highlighting the widespread buying sentiments that dominated transactions across sectors. The NSE Premium Index, which tracks the trio of Dangote Cement, FBN Holdings and Zenith Bank International, recorded the highest sectoral gain of 2.63 per cent. The NSE Consumer Goods Index followed with a weekly return of 2.36 per cent. The NSE Insurance Index appreciated by 0.73 per cent. The NSE Industrial Goods Index added 0.88 per cent. The NSE Banking Index fully mirrored the ASI with a gain of 0.60 per cent while the NSE 30 Index, which tracks the 30 most capitalised stocks, appreciated by 0.56 per cent.
However, with the steep decline by Conoil, the NSE Oil and Gas Index nosed down by 4.22 per cent. The NSE Pension Index, which tracks some 40 stocks prequalified for pension fund investments, also depreciated by 0.35 per cent while the NSE Main Board Index and the NSE Lotus Islamic Index declined by 0.48 per cent and 0.26 per cent respectively. The NSE Lotus Islamic Index tracks stocks adjudged to have met the Islamic investment rules as stipulated by the Shari’ah.
Globally, equities rode over national and global concerns to close with positive returns in most advanced and emerging markets. In the United States, the NASDAQ and the S&P 500 appreciated by 1.8% and 1.2% respectively. In the United Kingdom, the UK FTSE advanced by 1.2% last week. The European markets recorded improved performance as the German DAX and the France CAC gained 1.3% and 1.0% respectively.
In the Asia, markets were upbeat as the Hong Kong Hang Seng rose by 3.2% while the Japan Nikkei (+2.7%) and Chinese Shanghai Composite gained 2.7% and 1.3% respectively. However, major emerging markets closed in the negative as concerns over continuous decline of crude oil prices. The Russian RTS, South African FTSE and Brazilian IBOVESPA dropped by 0.8%, 0.3% and 0.4%. In Africa, Nigeria and Kenya were the bullish markets as against the depreciation in Egypt and Ghana. The Kenyan Nairobi Stock Exchange index recorded average week-on-week gain of 1.8 per cent while Nigeria’s ASI rose by 0.6 per cent. However, the EGYPT EGX and Ghana GSE dropped by 3.5% and 0.5% respectively.
In Nigeria, price trend analysis showed a stable but tight market situation as bargain-hunting combined with intermittent profit-taking transactions. There were 32 advancers against 37 decliners while 121 stocks closed flat. Trans Nationwide Express recorded the highest gain, in percentage terms, with a gain of 23.36 per cent to close at N1.32. Guinness Nigeria followed with a gain of 18.90 per cent to close at N152.19. Okomu Oil Palm Plc rose by 14.19 per cent to close at N27.12. Evans Medical chalked up 12.50 per cent to close at 72 kobo while Costain (West Africa ) rose by 12.28 per cent to close at 64 kobo.
Total turnover stood at 1.41 billion shares worth N13.51 billion in 19,950 deals last week as against a total of 2.44 billion shares valued at N21.07 billion that were traded in 22,736 deals in the previous week. The financial services sector led the activity chart with 1.16 billion shares valued at N8.63 billion traded in 11,999 deals; representing 82.24 per cent and 63.90 per cent of the total equity turnover volume and value respectively. The conglomerates sector followed with a turnover of 87.04 million shares worth N474.66 million in 946 deals. The third place was occupied by the information and communication technology sector which recorded a turnover of 49.82 million shares worth N28.9 million in 50 deals.
The trio of United Bank for Africa Plc, Zenith International Bank Plc and Diamond Bank Plc were the most active stocks, jointly accounting for 588.314 million shares worth N4.667 billion in 4,235 deals, representing 41.77 per cent and 34.55 per cent of the total equity turnover volume and value respectively.
Also traded during the week were a total of 1,526 units of Exchange Traded Products (ETPs) valued at N695,885.40 million executed in 17 deals compared with a total of 11,357 units valued at N5.868 million transacted in 24 deals two weeks ago. A total of 3,675 units of Federal Government Bonds valued at N3.611 million were traded last week in eight deals compared with a total of 3,489 units valued at N3.674 million traded in similar eight deals two weeks ago.
“While we observed a knee-jerk reaction in the Nigerian capital market since the announcement, we expect this to stabilize in the medium to long term as we await policy direction from the Buhari’s administration,” Afrinvest Securities stated at the weekend.
Afrinvest Securities projected that cautious trading would pervade the market for most of this week as the United States Federal Reserves’ highly anticipated September FOMC meeting is scheduled for 16th and 17th of September amid unrelenting instability in crude oil market as Saudi rejects calls to defend market price.
Analysts at Afrinvest Securities however noted that the JP Morgan’s exclusion could lead to further depreciation in the capital market but this may not be significant.
“We imagine that the mild reaction that greeted the JP Morgan’s announcement suggests that the risk had already been priced as most risk-averse foreign investors may have already exited the market before now. It also suggests that the level of domestic institutional investors’ participation in the market is higher than commonly acknowledged. Nevertheless, we expect borrowing cost of government to rise at the next auction as subscription level may likely reduce while investors will seek additional premium to compensate for the increased risk perception and liquidity,” Afrinvest Securities stated.

Read also: NSE LIVE! Equities record marginal decline in resilient trading

According to analysts, a further impact is expected to be felt as the exit of foreign investors is expected to increase government’s dependence on domestic investors thereby narrowing the pool of funds in the bonds market. Ultimately, this may increase the risks of government borrowing crowding out private sector investment due to higher borrowing cost.
“The financial market sentiment is still likely to continue to feel the impact of this news flow as the domestic investor sentiments will seem to be the new major force driving the Nigerian fixed income market whilst the equities market may still continue to enjoy a mix of foreign and domestic sentiments as Nigerian equities still remains in the MSCI (Morgan Stanley Capital Index) for frontier markets,” Afrinvest Securities stated.
Analysts pointed out that with a weight of 1.5 per cent out of $183.8 billion in the index, $2.8bn worth of foreign holdings of Nigerian government bonds is expected to exit the market, but this is significantly lower than a total of $8.0 billion in September 2014. This is expected to further pressure the external reserves as these funds, which have been gradually exiting since 2014, will be expected to leave the financial system; although the effect may not be noticeable on interbank foreign exchange rate given the Central Bank of Nigeria (CBN)’s managed peg of N199/$1.

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