NSE Loses N477bn in Market Cap in One Week

As speculative activities trigger slide in stocks’ value

Last week, the Nigerian stock market succumbed to the interplay of forces within local and international financial markets as the aggregate Market Capitalisation declined N477.3billion to close at N11.241trillion on November 21, from N11.7trillion on November 14, while average volume and value declined 26.6 percent and 52.8 percent to 271.7million and N2.9billion respectively.

Similarly, all indices depreciated during the week with the exception of the NSE Banking index that rose by 0.34 percent and NSE Alternative Securities Market (ASEM) Index by 5.78 percent.

However, the market capitalisation has lost N1.128 trillion this month from N12.369 trillion on November 3, compared to N11.241 trillion on November 21.Similarly, the NSE index has declined from 37,343.85 basis points to 33,926.18 basis points on November 21.

On Friday, the financial advisory firm, Afrinvest West Africa Limited, disclosed that the fixed income market has also been characterised by an increased amount of sell-offs, as yields have generally been on the rise especially on the longer end of the yield curve.

“Given the current economic and political headwinds coupled with the intensified outflow of capital owing to the depreciating naira, we anticipate sustenance of the bearish trend in the capital market,” the report noted.

Analysts attributed the persistent bearish trend at the exchange to a combination of factors, accentuated by the speculative attacks on naira in recent times.

Virtually all the financial and investment analysts that offered explanations over the downward trend in the performance of the nation's capital market, at the weekend, said the tempo would continue this week until the market bounces back after the Monetary Policy Committee meeting where the Central Bank of Nigeria is expected to take some far reaching decision on the economy.

According to Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, the Nigerian capital market is merely reacting to a chain of economic development including the activities of financial market speculators.

He said, “First and foremost, market capitalisation will shed some more because the market was already slightly overpriced. Again, the international investors do not know when the exchange rate issue will be settled. So, they are just taking their money out because, no matter what gain they make from the market, for instance, if they make a 10 percent gain, and there is 10 percent devaluation then, everything will amount to zero.”

Explaining further, he said the current pressure on the naira is giving financial market speculators the opportunity to take their money out which they intend to bring back should the naira be devalued with the hope of buying stocks cheaply.

“What we are seeing is a speculative attack reinforced by the indecisiveness of the policy. If we take a position and say this is where we are taking the currency to like what Soludo did in 2009 when the parallel market rate was lower than the interbank rate, then sanity will return,” Rewane said, adding that whatever decision is arrived at on the currency will be accepted and absorbed by the system before the end of the year.

Listing the factors that triggered the exit of portfolio investors in recent times, Managing Director, Proshare Nigeria, Mr. Femi Awoyemi, dwelled on issues like the recent Q3'earnings reports of quoted firms which revealed mixed performances across board, a development said to have further dampened investors bargain appetite.

Other factors, according to him, included the fact that the business environment appeared more challenging than ever; banking sub-sector is battling with stiffen monetary policies; a hole in the core income streams /revenue of most banks as CBN ends free-lunch on both public and private funds with tight monetary stance and the fact that the face of the economy is not suggesting friendly trend as inflation figures are climbing the ladder in the face of falling oil price and the oil price is now at 4-year low, suggesting more pressure on Nigerian economy ahead year 2015.

Other factors, according to the Proshare chief, include the attractive yield in fixed income; inactive of market-marking; low dividend yields across board; lack of positive news; growing uncertainty towards general election in 2015 and the peculiarities of forthcoming election, which he said had really heightened tension in the stock market and investment environments.

He listed other factors to include the falling value of naira; on-going recapitalisation of market operators, which he said weakens proprietary trading; heavy sell-down by foreign investors and recapitalisation of market operators, which he said, may warrant sell off assets to raise funds for recapitalization.

Meanwhile, foreign portfolio investment transactions at the nation's bourse which recorded its highest flows for the year in September decreased to N153.28 billion (about $0.99 billion) in October 2014, down 32.38% from September 2014.

In comparison to FPI transactions, domestic transactions decreased from 56.64 percent to 12.46percent whilst FPI transactions increased significantly from 43.36 percent to 87.54percent over the same period.

On the other hand, data supplied by the Nigerian Stock Exchange shows a sharp rise in the ratio of total foreign investment outflow from the capital market in October which totalled N101.22 billion as against N42.8 billion in the corresponding period of 2013.

Last week, a turnover of 1.359 billion shares worth N14.565 billion in 20,844 deals were traded by investors on the floor of The Exchange in contrast to a total of 1.850 billion shares valued at N30.863 billion that exchanged hands last week in 27,397 deals.

The Financial Services Industry (measured by volume) led the activity chart with 1.056 billion shares valued at N7.186 billion traded in 10,962 deals; thus contributing 77.70 percent and 49.34 percent to the total equity turnover volume and value respectively. The Conglomerates Industry followed with a turnover of 111.742million shares worth N618.169 million in 1,465 deals. The third place was occupied by the Oil and Gas Industry with 65.489 million shares worth N2.046 billion in 2,420 deals.

Trading in the Top Three Equities namely- FBN Holdings Plc, Sterling Bank Plc and Transnational Corporation of Nigeria Plc (measured by volume) accounted for 409.470 million shares worth N2.464 billion in 4,421 deals, contributing 30.14 percent and 16.92 percent to the total equity turnover volume and value respectively.