*Investors lose N960bn in 3 months
31 March 2014, Lagos – Investors in the Nigerian capital market lost N960 billion between January and March this year. The Nigerian Stock Exchange, NSE, market capitalisation dropped by 7.3 per cent to close at N12.27 trillion last Thursday from N13.23 trillion opening at the beginning of trading on 2nd of January, 2014.
Conversely, investors reaped more from their investment in the global capital market than in Nigeria in the first three months of the year.
The NSE All Shares Index dropped by 5.2 per cent for the first quarter ended March 27, 2014 from 41.329.14 points it opened during the beginning of trading in January 2014 to close at 39,186.93 points on Friday. The index measures the performance of the stock market and also reflects how prices of stocks have moved, which in turn determines how much investors made as gains or losses.
Capital market operators here have attributed the current decline in stock market indicators to the Central Bank of Nigeria (CBN)’s tight monetary policies.
Findings show that global stocks performance fared better in the first quarter as the US Nasdaq Index surged by 2.95 per cent to close at 4,154.20 points last week Thursday. Similarly the Standard &Poor 500 index also appreciated by 0.8 per cent to close at 1,855.81 points on Thursday from 1,841.07 it opened in January 2014.
However, the Dow Jones which opened at 16,504.29 points in January dropped by1.2 per cent to close at 16,302.77 points last week. Tokyo’s Nikkei 225, which opened at 16,291.31 points declined 9.5 per cent to close at 14,750.00 points; Hong Kong’s Hang Seng index dropped by 6.0 per cent to close at 21.846.45 points from 23,244.87 points it opened in January, while London Stock Exchange’s FTSE 100 index dropped by 3.2 per cent to close at 6,518.87 points on Thursday from 6,731 it opened in January.
Meanwhile, another stock market performance gauge, market capitalisation, which opened in January at N13.23 trillion, dropped by 7.3 per cent to close at N12.27 trillion last week, .
Specifically, at the close of trading last Thursday, the Nigerian bourse maintained a bullish stance, as the All-Share Index and market capitalisation gained 0.97 percent (97 basis points) to close at 38,186.93 points and N12.27 trillion, respectively.
Also the number of deals rose by 2.93 percent and the volume of deals surged by 78.42 percent, while the value of deals dipped by 27.81 percent.
The NSE weekly reports for the review period had affirmed that the Financial Services Industry (measured by volume) led the activity, followed by the Consumer Goods Industry and the third place was the Conglomerates Industry.
Speaking on the market performance for the first quarter under review, Diekola Onaolapo, Managing Director/CEO, Eczellon Capital Limited, a business and financial advisory firm, said that despite the favourable outlook for the market at the beginning of the year, there has been a considerable pressure on the market since the beginning of the year.
According to him, the market witnessed a myriad of challenges both foreign and domestic in the last three months as current Year to date YTD, figure stands at -9.84 percent.
He stated that the combined effect of the United States Government’s gradual withdrawal of its stimulus package (US tapering on its Quantitative Easing Programme by US $10 billion) and the outcome of the monetery policy committee (MPC) meeting in January both sent shock waves through the market, adding that some foreign portfolio investors dumped their shares ‘hot money’ in the Nigerian market for more attractive and less risky positions in more stable markets.
“This was in no way exclusive to Nigeria as it affected all the emerging market economies with the worst hit being Argentina,” he added.
He emphasised that the outcome of the MPC meeting, which resolved to increase the Cash Reserve Ratio, CRR, on public sector funds to 75 per cent from 50 per cent had an effect on the Exchange rate as it dipped by 3.21 per cent in the following week and plunged to -0.34 per cent. He said that this added to the palpable uncertainty of Nigeria’s economy.
“The suspension of the Governor of the Central Bank also contributed to the dip in equities prices in the market. The All Share Index plunged by 1.47 per cent at the announcement of the suspension which led to a further fall of 4.46 per cent in the banking sector index, an event which further exacerbated the market dynamics highlighted above affecting the Bond Market. This also gave a push to a series of sell-offs by foreign investors,” Onaolapo stated.
Corroborating his view, Mr. Johnson Chukwu, Managing Director/CEO, Cowry Asset Management limited, said the Nigerian capital market has been largely bearish in the first
quarter of the year with the index and market capitalisation losing about 10.04 per cent and 9.71 percent respectively year-to-date as at March 19, 2014.
He noted that the development was at variance with the return of 47.2 per cent posted by the market in 2013, while attributing the lacklustre performance to factors both within and outside the Nigerian economy.
“One of these factors is Nigerian’s declining foreign reserves, which is currently below $38billion and the attendant heightening of prospects for Naira devaluation or at least depreciation.
“The clear risk of currency devaluation has not only discouraged foreign portfolio investors from making further investments in Nigerian equities but has led to the exit of investors whose funds are not African or frontier market focused,” Chukwu said.
“The second factor is the much expected tapering of Quantitative Easing by the US Federal Reserve which started in December 2013. With $20billion already taken off the amount of monthly mortgage-backed securities and treasury bills purchases, the era of cheap money is gradually coming to an end.
Portfolio investors who, borrowed cheap in US to invest in Nigeria and other emerging markets are now unwinding their emerging and frontier markets investments and re-balancing their portfolio in favour of US financial instruments,” he added.
Commenting on the outlook for the second quarter, the Eczellon boss said, “We expect a positive recovery from the first quarter dip; this position is supported by the recent impressive earnings posted and record dividend payment of some quoted companies. With high expectations from other companies yet to release their audited accounts, we are positive of a market recovery.”
“A foray of primary market issues is expected to set the tone for rest of the year, as the market has been viewed as viable platform to raise long term funds,” he added, saying that the de-mutualisation of the Nigerian Stock Exchange, capital issues by indigenous oil companies and likely approach of the market by the power companies would add to the expected positive run in the second quarter.
He further stated that the rebasing of the GDP by the National Bureau of Statistics (NBS) will also lead to an optimistic outlook for the economy, adding that the rebasing would push the nominal output to about $400 billion.
“The implication of this is that public debt will contract, improving the capacity of the Nigerian state to increase her borrowing. We believe this will spur more of domestic borrowing than external borrowing, hence the issue of capital market instruments.”
Unlike Onaolapo, Chukwu stressed that the bearish run will likely continue in the second quarter as some of the factors that impeded performance in the first are yet to ebb.
His words: “The two critical factors that contributed to the bearish equities market in first quarter 2014 seem to be worsening. While Nigeria’s foreign reserves is recording accelerated rate of decline, the US Federal Reserve is expected to further reduce the monthly asset purchases by $10billion to $55billion at their March 2014 meeting.”
Consequently, he said that the Nigerian equities are likely to record further price declines as local fund managers particularly the Pension Fund Administrators, PFAs, who should have filled the gap created by the exit of foreign portfolio investors seem to have stepped to the sidelines waiting to see how low the market can get or hoping to buy when stock prices drop to their support levels.
In his review of the market performance for month of March, Bismarck Rewane, Managing Director, Financial Derivatives Company, FDC, said the Nigerian Stock Exchange was off to a rough start in the month with Year-to-Date, YTD, return declining to 4.28 percent from 1.83 percent, while market capitalisation declined by 2.30 percent to N12.71trillion from N13 trillion.
The month, he said, closed in the negative in 11 out of 18 trading days. He added that the banking stocks were biggest casualties declining by 7.34 percent; consumer goods and conglomerates sectors were also affected.
Going forward, he stated that the performance of the stock market in the second quarter will be determined by forthcoming election in 2015 and increased government spending, changes in commodity prices, as well as increased finance cost.
He listed other determining factors to include prospects for further weakening of the naira, resurgence of developed markets, policy change, where the Monetary Policy Council Meeting is expected to maintain tight stance on liquidity, as well as hunt for good bargain by investors on the floor of the Exchange.
According to him, emerging market volatility and Ukraine region unrest and expected full year financials will all impact the market in the quarter.
*Peter Egwuatu & Nkiruka Nnorom – Vanguard