2016: Market Still Under Pressure, Equity Investors Lose N662bn

2016

With only about eight trading sessions left before the end of the year, it is almost certain that investors in the Nigerian stock market may well end this year again in losses, repeating the same scenarios in the two previous years, as investors in the Nigerian stock market have so far lost N662 billion this year.

The stock market had moved to the downs rather than ups throughout the year. Against the background of a loss of N1.75 trillion in 2014 and an additional loss of N1.63 trillion in 2015, the market was able to reduce the loss position but it was still on a downward in 2016.

Market analysts attributed it to dwindling crude oil price, foreign exchange problems and exodus of foreign portfolio investors.

The year began with the continued depreciation of the naira against the dollar and uncertainty around the direction of economic policies, which fuelled an already prevalent bearish sentiment in the Nigerian capital market.

The Nigerian economy entered recession in July 2016, according to the figures released by the National Bureau of Statistics. The annual inflation rose to 17.1 per cent in July from 16.5 per cent in June, and moved to 18.5 per cent in November.

Data from the Nigerian Stock Exchange (NSE) as at December 16, 2016 showed that the equity market dipped by 6.76 per cent year-to-date compared to a decline of 17.36 per cent posted in 2015.

The All-Shares Index lost 1,935.15 points, or 6.76 per cent, to close at 26,707.10 as at December 16, 2016, from the 28,642.25 it opened for the year. Similarly, the market capitalisation, which opened for the year at N9.851 trillion, lost N662 billion to close at N9.189 trillion on December 16, 2016, due to huge price losses by some blue chips.

Also, performance by sectors was mixed during the year.  The NSE Premium went up by 4.75 per cent, NSE banking index carried year-to-date gain return of 3.33 per cent, while the illiquid Alternative Securities Market (ASeM) showed a return of 0.81 per cent growth.

On the other side, investors in the Insurance index appeared to be worst hit, with 13.41 decline. For ethical investors, the NSE Lotus Islamic Index, which tracks specially screened stocks for Shari’ah-compliant investments, had a decline of eight per cent, while NSE 30 index, which tracks the highly influential 30 most capitalised companies at the stock market, depreciated by 7.41 per cent.

NSE oil & gas Index had a negative return of 6.65 per cent, underlining losses in the upstream and downstream segments of the oil industry. NSE Consumer Goods index carried year-to-date loss return of 6.09 per cent, while the NSE Pension index, which tracks 40 companies adjudged to meet the stricter rules for pension investments, indicated average decline of 0.39 per cent.

The market for new equity listings was flat for the year, with only one company listed on the ASem board and one ETF, compared to four new equity listings, one on the Main Board and three ETFs in 2015.

So far, there have been no IPOs or Public Offers (POs) on the Nigerian Stock Exchange. Four companies during the year planned to raise a total of N110 billion. Flour Mills of Nigeria Plc has registered plans with regulators to raise up to N40 billion in equities over the next three years. Others are sourcing for funds through the debt market. Sterling Bank, Wema Bank and FCMB are also planning to raise N35 billion, N20 billion and N15 billion fresh capital respectively in the debt market.

The managing director of HighCap Securities Ltd, Mr. David Adonri, noted that the market still comprises largely retail investors who are more interested in short term profit taking, which accounts for the high volatility in the market. A lot still rests on the shoulders of fiscal policy administrators for the market to rebound and achieve its full growth potentialities.

He pointed out that the economic challenges, caused mainly by low crude oil prices which had ultimately plunged the economy into a recession, as well as the impact on foreign exchange volatility, had seen the naira crash to an all-time low.

He noted that factors that contributed to this bad performance include macroeconomic issues like the slump in oil price versus low productivity, forex (mis)management, and improved economies of developed markets and high inflation, which led to flight to safety of foreign investors, among others.

A stockbroker with Calyxt Securities Ltd, Mr. Tunde Oyediran, declared that the market did not fare well this year. At the beginning of the year, the ASI went to its lowest ebb of 22,550.83 on January 18, 2016, and to as high as 31,071.25 on June 23, 2016, he said.

“Apart from these, the ASI ranged between 24,000 and 28,000 during the year. If we looked at 2015, the lowest basis point we recorded that year was 26,537.36 and went as high as 35,728.12 basis points,” he added.

The chief research officer of InvestData Ltd, Mr. Ambrose Omordion, said, “The nation’s equity market in 2016 repeated the trend of 2014 and 2015 to remain in the negative due to major lack of economic road map by the government, which is the highest spender in any economy.

“Also the dwindling foreign reserve as a result of low price of crude oil and negative impact of the militancy in the Niger Delta region that equally affected the production of oil, leading to low output.

“Exit of foreign portfolio investors due try and error policies of the government in some key sectors that affected companies’ performance, further sending the companies’ share price lower, coupled with the 2016 budget implementation style and level of disbursement,” he said, all contributed to the negative indices.

According to him, all these did not help matters but rather militated against the business environment, coupled with the lower purchasing power of the consumers, thereby putting many companies in the red.

He further noted that the high interest rate that remained unchanged for a long time also attracted funds from the stock market.

Omordion , however said that in all these, the regulators of the market should continue to develop the market, with more transparency and innovations.

Meanwhile, analysts predicted that the Nigerian capital market and, indeed, the economy would experience increased activities with innovative macroeconomic policies in 2017.

Speaking on the capital market outlook for 2017, Adnori said, “We expect that 2017 will be a better year for the capital market with new listings and renewed interest from foreign portfolio investors who are already looking at opportunities in emerging markets as a result of the spate of uncertain political climate in both the UK (Brexit) and the US (Trump Presidency). Also, the new oil deal is expected to see crude oil prices rise significantly from current levels.

“We also expect the effects of the intervention policies of the federal government in the local economy to manifest in 2017. Overall, we are optimistic that 2017 will be a better year for the economy.

“We are hopeful that 2017 will usher in improvements in most of these macroeconomic indicators. These will, of course, rub off on the stock market. As oil prices rise, we are going to see improvements in our economic activities and, of course, our reserves. Also, I foresee quality improvement in our non-oil exports next year, which will have a positive impact on our economy.”

The chief executive officer of Espera Global Corporation, Prince-Abbi, said that innovative macroeconomic policymaking along with strong strategic insight would provide the platform and delivery system to improve economic activities, including the capital market.

He expressed optimism that there would be improvements at the federal government level in 2017 going by the various fiscal policy measures being articulated to stimulate the economy.

He also said Nigeria’s foreign reserves would likely improve in 2017, with sustained stability in crude oil production output and through a progressively diversified export revenue structure.

“Along with this, the real sector performance will improve, productivity growth will register and the GDP growth will rise,’’ he stated.

He observed that the federal government’s planned investments in infrastructure would further stimulate this process and open up relatively new growth pathways.

On how to sustain the capital market, he urged the operators and investors to look more at the medium and long-term investment windows rather than being caught up by the syndrome of short-term speculative actions, explaining that short-term speculative actions could harm the market and do nobody any good.

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