20 June 2016, Lagos – The unveiling of the new foreign exchange guidelines for the country by the Central Bank of Nigeria has prompted stock investors to pump huge amount of funds into the market, STANLEY OPARA writes
The Nigerian Stock Exchange reacted positively to the news of the unveiling of the new foreign exchange guidelines by the CBN last Wednesday as the market capitalisation soared by over N760bn, with investors committing huge sums to acquire more shares.
The move by investors to acquire more stocks at this time is hinged on their desire to re-enter the market when share prices are at their lowest, as the market is expected to recover after months of persistent fall.
Prior to the three-day straight gains last week, the NSE market capitalisation had stood at N9.284tn on Tuesday. But as of the last day of trading last week on Friday, the value of the market had soared to N10.044tn.
Other variables like the All-Share Index, market turnover, share volume and deals also recorded significant appreciation.
Between Tuesday and Friday, the NSE ASI rose from 27,034.05 basis points to 29,247.27 basis points; the market turnover increased from N2.424bn to N6.791bn; the share volume rose from 170.686 million to 628.752 million; while the number of deals appreciated from 3,153 to 5,965.
On Wednesday when the market got wind of the release of the new forex guidelines, the ASI rallied by 3.17 per cent, boosting the market capitalisation by N295bn, as the value of the market rose to N9.579tn from N9.284tn, while the NSE ASI hit 27,891.96 basis points from 27,034.05 basis points.
Aggregate of 588.427 million shares worth N3.477bn were traded in 5,088 deals at the close of trading on the Exchange.
The day after, the market gained more than N205bn after 32 firms made it to the gainers’ chart, which boosted the NSE ASI by 2.14 per cent.
The NSE market capitalisation soared to N9.784tn from N9.579tn, while the index rose to 28,489.89 basis points from 27,891.96 basis points. Total of 618.248 million shares valued at N5.41bn were traded in 6,757 deals.
On Friday, the market capitalisation moved up to N10.044tn, while the NSE ASI hit 29,247.27 basis points. The number of deals rose to 5,965, while the volume of shares traded also rose to 628,752 million worth over N6.7bn.
To this end, the President and Chairman of Council, Chartered Institute of Stockbrokers, Mr. Oluwaseyi Abe, said that the coast was already clear for investors to shore up their holdings as the market had begun to rebound.
Abe noted that there was nothing unusual about the current state of the market as it essentially mirrored the economy and it was moving in phases.
He added, “It is only normal for the market to swing upward and downward because that is what makes it a market. It is absolutely normal. In any case, the direction of the market at any given time is the reflection of the economy and it’s been known that the economy has not been doing well lately.
“So, I feel it is even the best time to invest in the capital market, because the economy is now on the steady path of rebound.”
To this end, analysts at Meristem Securities Limited said the operation of a flexible forex system in an import-dependent economy such as Nigeria would certainly expose the naira to significant depreciation pressures, especially in the days and months to ahead.
“Nonetheless, we consider the new development a bold step in the right direction as it greatly reduces the pressure on the nation’s FX reserves, while also presenting market participants with a liquid and transparent exchange rate system,” they added.
Forex trading under the new guidelines is scheduled to commence today (Monday).
Also commenting, the President, Constance Shareholders Association of Nigeria, Alhaji Shehu Mikail, said unhealthy economic policies of the current government prior to now had been the bane of the country’s capital market.
According to him, the capital market is driven by information and will continue to react sharply to policy swaps.
He said the unfavourable policies of government, especially in the area of foreign exchange management, had fuelled the negative market sentiment by foreign as well as local investors in recent times.
It will be recalled that the Nigerian stock market crashed by N1.732tn in one year of the Muhammadu Buhari-led Federal Government.
Data showed that the NSE market capitalisation on May 28, 2015, a day before Buhari took over from former President Goodluck Jonathan, was N11.658tn, while it was N9.926tn on May 27, 2016, while the All-Share Index also crashed to 28,902.25 basis points from 34,310.37 basis points.
Market capitalisation is the total market value of the shares outstanding of a publicly traded company.
Investors in the country’s capital market (equity category) lost over N1.053tn in the first quarter of 2016.
During the first three months of this year, the equities market depreciated by 10.79 per cent.
As of the first day of trading this year (January 4), the NSE market capitalisation stood at N9.757tn, while the All-Share Index was 28,370.32 basis points.
But as of March 31, the market capitalisation and All-Share Index had crashed to N8.704tn and 25,306.22 basis points, respectively.
Equity investors in the country’s capital market had in the first seven trading days of 2016 lost N804tn of their investments’ worth, as the market capitalisation closed at N8.953tn.
The All-Share Index also dropped from 28,370.32 basis points recoded on the first day of trading in the year to 26,034.94 on the seventh trading day.
The market capitalisation of the NSE fell by N811bn in the first 10 weeks of trading this year.
The NSE market capitalisation dropped from N9.75tn on January 4, 2016 to N8.939tn 10 weeks into the year, while the All-Share Index also closed at 25,988.40 basis points from the 28,643.67 basis points recorded on the first trading day of the year.
Investors also made huge losses in the Nigerian equities market last year as the market capitalisation (equities only) of the NSE shed a total of N2.354tn between December 2014 and December 2015.