NSE round-up! Banks’ risk profile worsens equities’ performance

Concerns about the risk profile and income outlook of Nigerian banks coloured the overall market performance at the Nigerian stock market last week as investors re-priced possible declines in incomes and capital adequacy of banks in 2016 into their share prices.

Many regulatory policies including zero Commission on Turnover (COT), higher capital adequacy ratio for tier 1 banks and transition to Basel 11 requirements amongst others are scheduled to kick off in 2016. Besides, banks are expected to be at the receiving end of Nigeria’s grueling foreign exchange crisis and the resultant limping foreign capital flow.
Average losses within the banking sector were thrice more than the average loss in the entire market, a downturn that placed banking stocks at the curve of being the worst-performing stocks in the stock market so far this year.

The performance of banking stocks, usually the most active stocks and with large component within the large-cap stocks that dictate the overall market direction, has further exacerbated the general negative selling sentiments that have dominated transactions at the stock market.
Nigerian equities dropped below their three-year lows mid last week and a subsequent two-day rally failed to cover up the steep declines in the earlier days. Quoted equities closed the week with average week-on-week decline of 1.31 per cent, equivalent to a loss of N124 billion.

The All Share Index (ASI), the value-based benchmark index that tracks prices of all quoted equities, declined from 27,631.05 points to close at 27,269.71 points. Aggregate market value of all quoted equities closed at N9.376 trillion as against its week’s opening value of N9.500 trillion. The sustained decline built up the negative average year-to-date return to -21.32 per cent.
Compared with the average benchmarks, the NSE Banking Index recorded the highest loss of 4.26 per cent. Other indices were banking stocks and other highly capitalised stocks featured prominently also showed steeper declines compared to average index and other non-bank sectoral indices. The NSE 30 Index, which tracks the 30 most capitalised stocks, recorded above average performance of -1.43 per cent while the NSE Premium Index, which tracks the trio of Dangote Cement, FBN Holdings and Zenith Bank International, recorded the third highest loss of 1.84 per cent. The NSE Pension Index, which tracks some 40 stocks specially screened for pension investments, recorded a week-on-week decline of 2.04 per cent.

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Other non-bank indices showed more restraints. The NSE Main Board Index, which nearly covers the entire market with the exception of the trio of Dangote Cement, FBN Holdings and Zenith Bank International and the negligible stocks under the Alternative Securities Market (ASeM), dropped by 1.01 per cent. The NSE Insurance Index showed more restraint with a decline of 0.22 per cent. The NSE Consumer Goods Index recorded the lowest loss of 0.15 per cent. The NSE Industrial Goods Index dropped by 1.32 per cent while the NSE Lotus Islamic Index, which tracks ethical stocks according to Islamic rules, depreciated by 0.73 per cent. However, the NSE Oil and Gas Index played the contrarian with a modest gain of 0.09 per cent.

On a year-to-date basis, banking stocks still remain the worst-performing sector. Against the ASI’s average year-to-date return of -21.32 per cent, the NSE Banking Index led other subgroups with -22.66 per cent. It was followed by the NSE Consumer Goods Index with -22.59 per cent. The NSE 30 Index trailed with -21.77 per cent. The NSE Main Board Index has returned -21.65 per cent. The NSE Oil and Gas Index indicated a return of -20.46 per cent. The NSE Pension Index followed closely with -20.26 per cent. The NSE Premium Index carries a return of -17.83 per cent while the ethical NSE Lotus Islamic Index has a negative return of -14.35 per cent. The NSE Insurance Index, where most equities are already trading at their nominal values, posted a return of -5.45 per cent while the NSE Industrial Goods Index, which tracks cement stocks and other hard-stuff manufacturers, showed the best performance with a negative return of -5.14 per cent.
While analysts are still awaiting the budget breakdown, Federal Government’s proposed N6 trillion budget in 2016 appeared to have clustered the income outlooks for banks and other equities.
“The projected doubling of domestic borrowing (mostly by issuance of bond instruments) in our view may likely trigger an upward re-pricing of yields in the fixed income market in 2016 given the anticipated increase in supply of fixed income instruments. The uncertainties in the foreign exchange market also run against the fiscal plan of government as foreign capital inflows would remain stunted, leaving the domestic market to fully fund the domestic component in 2016. Thus, even as we view the planned fiscal expansion to be positive for company earnings, sentiment for equities would remain guided by foreign exchange rate dynamics, success of government effort to diversify the revenue base and implementation of the capital-vote component of proposed budgetary plan,” Afrinvest Securities, a Lagos-based securities firm, stated in a weekend review of the planned budget and stock market.

Total turnover during the week stood at 1.17 billion shares worth N13.85 billion in 13,870 deals as against a total of 1.22 billion shares valued at N14.69 billion that were traded in 13,495 deals two weeks ago. The financial services sector remained the most active with a turnover of 827.65 million shares valued at N5.11 billion in 8,266 deals; representing 70.49 per cent and 36.89 per cent of the total equity turnover volume and value respectively. The natural resources sector rode on the deals on Multiverse to pool a total of 147.047 million shares worth N73.740 million in 18 deals. The consumer goods sector placed third with a turnover of 88.35 million shares worth N4.43 billion in 2,518 deals.
Also, a total of 318,734 units of Exchange Traded Products (ETPs) valued at N1.469 million were traded in 50 deals, compared with a total of 23,812 units valued at N417,201.24 traded in 32 deals in the previous week. A total of 10,501 units of bonds valued at N12.024 million were traded in five deals.

Low-priced stocks dominated the top price and activities chart, in what might underlined a shift from liquidity to potential yields as major consideration for portfolio allocation. Law Union and Rock Insurance recorded the highest gain of 21.82 per cent to close the week at 67 kobo. Learn Africa followed with a gain of 18.18 per cent to close at 78 kobo while Eterna Plc placed third with a gain of 17.76 per cent to close at N1.79 per share. On the downside, Honeywell Flour Mills led with a loss of 11.60 per cent to close at N1.60. Fidson Healthcare followed with a loss of 9.76 per cent to close at N2.68 while Unity Bank declined by 9.46 per cent to close at 67 kobo. Altogether, there were 37 decliners against 25 advancers last week while 128 stocks closed flat.
Multiverse and Guinea Insurance, which trade around 50 kobo, were the two most active stocks. Together with Zenith Bank International, the three accounted for 397.435 million shares worth N1.86 billion in 1,785 deals, representing 33.85 per cent and 13.50 per cent of the total equity turnover volume and value respectively.
Globally, stock markets were in the red in most regions. In Europe, London’s FTSE indicated a week-on-week decline of 1.6 per cent. France’s benchmark CAC 40 declined by 4.4 per cent while Germany’s XETRA DAX recorded a loss of 4.8 per cent.

Emerging markets also showed a down market. Brazil’s benchmark Ibovespa index declined by 1.7 per cent. China’s Shanghai index slipped by 0.01 per cent while Japan’s Nikkei index dipped by 1.9 per cent.
In Africa, most markets followed Nigeria’s downtrend. South Africa’s JSE FTSE Index dropped by 4.6 per cent. Kenya’s NSE 20 Index and Ghana’s GSE Index declined by 0.1 per cent each. However, Egyptian stock market remained robust with the Egypt’s EGX 30 Index rising by 5.5 per cent.
Most analysts believe that the low prices at the Nigerian stock market would continue to excite intermittent bargain-hunting in the meantime, although the short-term outlook for the market remains largely negative.

“While concerns about the further decline in oil prices following OPEC’s decision and the looming Fed rate hike may further weaken sentiments in the week ahead, we believe that pockets of opportunities still exist in the equities market for end of the year bargain hunters,” Afrinvest Securities stated.

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