NSE Round-up! Equities lose N252b as Naira crashes

Nigerian equities closed the weekend with its steepest loss this week as Naira fell to a new low against the United States Dollar and the United States Federal Reserve made a near-decade change to its zero interest rate. The benchmark indices at the Nigerian stock market indicated a week-on-week loss of 2.69 per cent, equivalent to a loss of N252 billion.

The All Share Index (ASI)-the value-based common index that tracks prices of all quoted equities on the Nigerian Stock Exchange (NSE), dropped from its week’s opening index of 27,269.71 points to close at 26,537.36 points. Aggregate market value of all quoted equities also declined from N9.376 trillion to close the week at N9.124 trillion.

The weekly performance was worsened by the steep decline on Friday, the last trading session of the week, as the market lost an average of 1.54 per cent. Naira fell to a new low on Friday at N281/$1 in the parallel market as operators continued to grapple with shortage of dollar supply.

The decline last week worsened the negative average year-to-date return at the stock market to -23.43 per cent. The foreign exchange problem, the US Fed rate increase and macroeconomic concerns created a formidable tripartite force against the stock market. The US Fed increased its Fed-Fund rate to a range of 0.25 per cent to 0.50 per cent from the previous 0.0 per cent to 0.25 per cent.

While the global markets had anticipated the increase and the immediate impact was therefore subdued, most analysts said the intermediate impact could be felt more in Nigeria and other emerging markets.

“A higher interest rate environment presents the US economy as a more viable investment destination relative to commodity dependent emerging market economies in an era of lower commodity prices. Thus, we expect a reduced flow of funds towards emerging and frontier markets including Nigeria in 2016. Our view is further buttressed by weaker macroeconomic fundamentals in these markets given the significant plunge in commodity prices in the last 15 months,” Afrinvest Securities, a Lagos-based securities firm, stated in a weekend review.

Afrinvest Securities sees a further decline in Naira, compounding the outlook for the stock market which depends largely on foreign portfolio investors. Analysts noted that increased flow of fund towards the US economy due to higher rate environment points to a stronger dollar, which could further impinge on the value of Naira.

“Consequently, we expect the pressure on the CBN to devalue to intensify as dollar receipts to government treasury continue to shrink in Naira terms while current account deficit worsens”, Afrinvest Securities stated, adding that higher interest rate in the US and a stronger dollar will increase cost of foreign debt, thus raising the cost of borrowing for the government.

“Notwithstanding the anticipated impact as noted above, the short term impact in Nigeria is expected to stay muted given that macroeconomic concerns in the domestic economy had already forced market actors to adjust ahead of the announcement,” Afrinvest Securities stated.

Total turnover last week stood at 1.46 billion shares worth N13.80 billion in 13,648 deals as against a total of 1.174 billion shares valued at N13.846 billion that were traded in 13,870 deals in the previous week. The financial services sector contributed 68 per cent of turnover volume with a turnover of 993.154 million shares valued at N4.417 billion in 7,283 deals. The consumer goods sector followed with 352.118 million shares worth N6.935 million in 2,979 deals while the conglomerates sector placed third with a turnover of 49.140 million shares worth N193.919 million in 659 deals.

The trio of Continental Reinsurance Plc, Champion Breweries Plc and Tiger Branded Consumer Goods were the most active, jointly accounting for 569.712 million shares worth N1.141 billion in 543 deals, representing 39.11 per cent of total equity turnover volume.
Also traded during the week were a total of 6,372 units of Exchange Traded Products (ETPs) valued at N445,625.60 executed in 32 deals, compared with a total of 318,734 units valued at N1.469 million transacted in 50 deals in the previous week.

With 41 losers, 27 gainers and 122 flat stocks, the market showed widespread underlying selling sentiments as hard-pressed investors continued to accept lower prices to cross deals. UAC of Nigeria led the losers, in percentage terms, with a drop of 21.49 per cent to close at N19. Skye Bank followed with a drop of 16.33 per cent to close at N1.23. AG Leventis Nigeria dropped by 16.22 per cent to 62 kobo. Stanbic IBTC Holdings dropped by 11.24 to close at N15 while Cadbury Nigeria lost 9.75 per cent to close at N18.05 per share.
Most analysts expected the market to open to a mild bargain-hunting, citing the low prices of several equities. Analysts at GTI Securities, Cowry Asset Management, FSDH Securities and Afrinvest Securities said they expected bargain-hunters and investors with mid to long term outlooks to increase demand for equities.

“We expect the market to rebound in the opening sessions of next week due to the low level of prices. However, we have observed that market has struggled to hold on to gains in recent time due general weak sentiment which has reduced the holding period of technical investors. Hence, we retain our short term bearish outlook for the market,” Afrinvest Securities stated.

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