Bamidele Famoofo
DExpectation
espite persisting sell-offs and continued sessions of sideways trading after a promising takeoff in the equities market of the Nigerian Stock Exchange (NSE) in January, analysts were optimistic that positive macroeconomic fundamentals remain suggestive of gains in the equities market in the long term. FSDH Research, earlier in the year, said its outlook of the equity market remains positive in 2018 as it expects the macroeconomic environment in Nigeria to strengthen further. I said, “We expect a strong rally in the first half of the year 2018. The quarterly analysis of the equity market in the last seven years shows that it appreciated consistently in Q2. We attribute the appreciation in Q2 to the release of the full year earnings and corporate actions during the period”. FSDH Research expected the equities market for 2018 to grow by 27.43 percent in 2018, lower than 42.3 per cent achieved in 2017. “Looking at the developments in the international and in the domestic markets, we expect the equity market to grow by 27.43 per cent in 2018,” it added. Afrinvest Securities Limited also said its forecast for the performance of the benchmark index in 2018 was largely positive as its scenarios (bear, base, bull) all signal appreciation in the benchmark index. Continuing it noted, “Finally, to make a call on market performance for 2018, we adopted a blend of both valuation methodologies. Based on the foregoing, we arrived at an ASI projection of 45,811.73 points for 2018 which is a 19.8 per cent appreciation from 38,243.19 points in 2017. Our bear case (+7.7 per cent to 41,189.9 points) and bull case (+32.7 per cent to 50,749.10 points) also follow the same trend and further buttress the consensus view of positive market performance in 2018.” It, however, warned that the macro space would determine overall market performance. “We opine that barring any major shocks in the FX market, corporate fundamentals will be a key determinant of overall performance as shown below.”
Reality
Projections by experts that the equities market of the Nigerian Stock Exchange (NSE) will likely have a jolly ride in 2018 in line with a terrific performance recorded in 2017, may be far from the reality on ground. After emerging the best performing Stock Exchange in Africa in January, with All Share Index advancing by 15.95 percent to hit a 10-year high of 45,092 points and Market Capitalisation increasing to N16.15trillion, performance has nosedived as the same market now ranks among the least in Africa. According to a report published by the NSE in March, the Nigerian equities market has lost its steam, as it now ranks as one of the least performing markets in Africa in the review period. “Amongst markets under review, the NSE ranked as one of the least performing markets in the month under review on the back of contagion effects of downturn in global markets. Insurance sector proved to be the only one in positive region and this may be attributed to the impact of revised price floor. Total turnover declined by 46 percent month-on-month (MoM), while liquidity indicators (market depth and breadth) also waned within the period with a Daily Average Value Traded (DAVT) of N5.3billion”, the report revealed. The report noted that the Nigerian equities market was not shielded from the impact of the trend on other markets. “Global market trend had a strong impact on the Nigerian equities market, as the NSE ASI dipped further by 4.21 percent. However, the market adjusted marginally as a number of listed companies released impressive financials for the year 2017”, the report added. An update on the performance of the market in May showed that the ASI inched lower for the fifth consecutive session by 0.25 per cent to 40,150.55 points on Wednesday, 23 May 2018.
“Accordingly, the month-to-date loss increased to 2.71 percent while the year-to-date gain dropped to 4.99 percent, the lowest since January 8th”, the report indicated. Still, nothing has changed since May because rather than experience a turnaround from a dwindling performance that commenced after January; the All Share Index (ALSI) has continued to move in the south direction while returns have dropped into the negative threshold. Year-to-date, returns have dropped to -2.5 per cent based on data from the NSE. The All Share Index depreciated by 0.45 per cent to 37,253.25 points on Wednesday, July 11. Market capitalisation also dropped to about N13.49trillion as 15 stocks posting gains while 25 posted declines. “The projections by analysts appear be about to miss its target as performance in the market as at half year is far from the expectations of stock analysts”, a source close the market said.
Comparison
The performance of the market in the same period in 2017 represented a sharp contrast to the situation in 2018. All Share Index appreciated by 6,242.86 points to close at 33,117.48 on June 30, 2017 from 26,874.62 at which it opened for the year. Similarly, market capitalisation gained N2.205 trillion, rising from N9.247 trillion at which it opened trading on January 3, 2017 to close at N11.452 trillion for the half year. The Nigerian Stock Exchange (NSE) in the 2017 financial year was rated the second best performed market in Africa with All Share index growth of 42.3 percent. According to capital market analysts, the unprecedented increase the NSE All Share index recorded at the close of 2017 represented the second highest year on year return in 10 years. CEO, NSE, Mr. Oscar Onyema, attributed the performance, in part, to Central Bank’s monetary policies that resulted in increased liquidity in the foreign exchange market. Another factor, which he said was responsible for the recovery of the market, was change in the macroeconomic overhang of the commodity down cycle.
Reason
Some stock investors who spoke to THISDAY revealed that a number of factors were responsible for the negative downturn being experienced by the equity segment of the market at the moment. Investor and former national coordinator of Independent Shareholders Association of Nigeria (ISAN), Chief Sunny Nwosu, said the challenge the market faced was the preparation for the 2019 general elections. “It would appear that 2019 is far away, but we are already there. We can see the manoeuvrings by politicians based on money”. He suggested that politicians could no longer approach the banks for loans to sponsor their elections because of Central Bank of Nigeria’s grip on the banks, and the option for them is to sell-off their holdings in the market to raise capital to fund elections. Another stock investor, Mr. Adeola Salako, was optimistic that investors will earn a positive return at the end of the year, but noted that it will not be significant. He blamed profit taking, illiquidity in the economy and political uncertainties ahead of the 2019 election for the current dismal performance of the market. “You know that when the elections year is drawing closer, economy becomes a secondary concern for the people in government while politics takes the centre stage”, he added.
Growth Drivers
Analysts at Afrinvest Securities Limited said they envisaged that market performance would be largely determined by earnings fundamental of corporates; stability in the FX market and other macro indicators; and funds flow dynamics to emerging and frontier markets. Our analysis of market trend over the past 10 years makes a case for a possible repetition of history. As noticed in 2012 and 2013, the periods following the global economic crisis, sentiment in the local bourse strengthened, which drove the ASI 35.4 per cent and 47.2 per cent northwards in the respective years. In a similar situation, as the economy rebounded from the slump - 2014 to 2016 - in 2017, we expect market sentiment to wax stronger in 2018. “In our scenario analysis for the market performance in 2018, we employed a blend of relative valuation in which we benchmarked our market valuation against multiples for peers in the MSCI Frontier market index and absolute valuation based on price forecasts for our coverage universe which is about 86.0 percent of the entire market”, Afrinvest added. On its own part, FSDH Research believed the following factors will drive the market were “increase in crude oil price at the international market and increase in local production, expected drop in the yields on fixed income securities leading to portfolio realignment towards the equity market; Improvements in the external position of the country through increase in external trades and capital inflows; Increase in the external reserves providing further stability for the foreign exchange market; improved corporate earnings and actions and increased participation of the foreign portfolio investors.”