Nigerian Stock market loses N3.255trn in 12 months

…As investors lose N160bn in four days

By Peter Egwuatu

Total value of stocks listed on the Nigerian Stock Exchange (NSE) fell by N3.255 trillion in twelve months, from September 30 2014 to October 8, 2015. This sharp decline in value of stocks on the exchange, also known as market capitalisation, worsened last week, with investors losing N160 billion between Monday and Thursday.

Nigeria

Specifically, market capitalisation fell by 23.9 per cent from 13.61 trillion on September 30, 2014 to N10.26 trillion at the end of trading on Thursday, October 8, 2015. Another stock market indicator, the All Share Index (ASI) dropped by 26.9 per cent from 41,210.10 basis points to 30123.20 points.  Similarly, market capitalisation fell from N10.512 trillion, Friday October 2 to N10.352 trillion at the end of Trading on Thursday, October 8.

Forces behind market depression

This downward trend of the market, according to operators, is fuelled by a number of factors namely, the uncertain political climate before the elections, sharp decline in crude oil prices, devaluation of the naira, expectation of further devaluation of the naira, absence of clear economic direction or policy of the present administration reflected in the late appointment of ministers, exclusion of Nigerian from the J.P Morgan Bond Index and restrictive monetary policy of the Central Bank of Nigeria (CBN).

For example, after  the September 8, 2015, announcement by JP Morgan of its decision to phase out Nigeria from its Government Bond Index, Emerging Market, GBI-EM, by ending of October, market indices showed steady recovery from several days of decline from N10.148 trillion to N10.425 trillion in two weeks. The market added N42 billion.

But close to the October deadline for the removal of Nigeria’s bond from the J P Morgan index, the market started to experience decline, with investors losing  over N160 billion in four days’ trading .

“If Nigeria is removed from the JP Morgan Index, many foreign investors will be forced to sell off their Nigerian bond holdings, which is estimated to be worth about $2 billion,” noted  Mr. Gregory Kronsten , Associate Director Head, Macroeconomic & Fixed Income Research, FBN Capital.

He added: “There are foreign portfolio investors who knew little about investing in Nigeria but decided to invest because it is listed on the JP Morgan’s GBI-EM index.”

The FBN analyst further stated: “Delisting Nigeria would also mean that bond yields and borrowing costs will increase, negatively affecting Nigeria’s dire economy. The Naira may also face another round of major devaluation, as the economy could struggle to sustain the pace of forex outflows outside Nigeria.”

Commenting on the loss experienced in the stock market, various stakeholders who spoke to Financial Vanguard linked the performance to the state of political, economic and financial situations in the country. In its reaction to the announcement by J.P Morgan, WSTC Financial Services Limited, a Lagos-based investment house had said: “We expect both warranted and unwarranted reactions from investors in the equities market.

“We believe the sell-off in equities will be triggered by both panic reaction to the announcement, as well as more fundamental concerns which will be anchored upon elevated required return on equity, attractive returns in the fixed income market and uncertainty regarding the value of the Naira. “We reckon that the rout in the equities market will create attractive entry opportunities for value investors and the ability to take advantage of these will depend on individual investor’s ability to filter the rhythm from the noise.

“However, it is important to state that the fundamental concerns further depress our short term outlook on the performance of the equities market, reinforcing our recommendation for flight for safety through asset re-allocation into fixed income and currency-hedged assets.”

In its own analysis,  Afrinvest Group, another Lagos-based investment house, said: “While we observed a knee-jerk reaction in the Nigerian capital market since the announcement, we expect this to stabilize in the medium to long term as we await policy direction from the Buhari’s administration.

“The financial market sentiment feels the impact of this news flow as the domestic investor sentiments will seem to be the new major force driving the fixed income market, while the equities market may still continue to enjoy a mix of foreign and domestic sentiments as Nigerian equities still remains in the Morgan Stanley Capital Index for frontier markets.”

Operators comment

Speaking on the impact of the absence of a cabinet on the investors’ psyche, a financial expert, Mr. Olutola Oni said, “At first, hopes of investors were raised after a peaceful election. But weeks after the inauguration of the President and cabinet not constituted, this had affected investment in the country.

“When the elections were conducted peacefully and the transition was peaceful, people expected that the incoming government would consolidate on that, roll out the list of those that would form the new government and make one or two policy statements. This late appointment has been one of the factors that have affected the performance of stock market..”

He noted that investors are concerned about the economic team Buhari had put up and its ability to handle the twin issues of insecurity and corruption which are key parameters for investment to flourish.  “Now that the appointment has been done, the market will now begin to react based on calibre of people that are expected to initiate favourable fiscal and monetary policies,” he noted.

The Acting President of Chartered Institute of Stockbrokers, CIS, Mr. Oluwaseyi  Abe said: “Currently, the slow governance, non appointment of ministers, lack of policy direction by the Federal Government  have all contributed to affect the performance of  the market . It is our hope that once the economy starts running, the market will improve and begin to attract investors.”

In his own comment, Managing Director/CEO of Highcap Securities Limited, Mr. David Adonri said: “The recent decline of the Nigerian stock market is due to several factors. First is the increase of political risks due to infighting within the ruling party at Federal level. Next is the declining price of crude oil. Others are Chinese stock market crisis, resurgence of Boka Haram, protracted energy crisis and macroeconomic liquidity squeeze. When the new government settles down, some of these issues should be addressed.”

The Managing Director/CEO of Capital Bancorp Plc, Mr. Aigboje Higo said: “The economic situation has affected the stock market.  The foreign exchange market is a factor that affects the market. The weak naira is affecting investors to invest in the market coupled with rising inflation. Also, the non appointment of ministers is also another factor that has affected the market.

We also have the insurgent situation in the country. Investors are weary of the insecurity in the country and are waiting for the government to assure them of drastic measures aimed at addressing the situation. But it is my hope that all these will soon be addressed given the fact that President Muhammadu Buhuri has started on a clean note by appointing credible people to handle the security sector of the economy.”

Continuing, he said: “The Nigerian capital market has a lot of potentials and investors should take advantage of an array of investment opportunities and do not need to wait until the boom period.”

Market operators however expressed hope that once the President appoints his cabinet,  the market will begin to experience increased activity as funds would be made available to various ministries to execute their mandate of running the economy and this would have trickledown effect on the investors who will now have increased purchasing power to invest in the stock market.

Nigerian Stock market loses N3.255trn in 12 months

Nigerian stock market lost N1.6 trillion in Buhari"s 100 days

By Emeka Anaeto, Economy Editor

LAGOS — Investors in the Nigerian stock market lost  N1.6 trillion in the first 100 days of President Muhammadu Buhari’s government, going by report of activities at the Nigerian Stock Exchange (NSE) as at close of business last weekend.

The NSE market capitalization (total value of all shares in the NSE) closed at N10.1 trillion, down by over 14 per cent from N11.7 trillion closing value on the last day of the former President Goodluck Jonathan-led administration, May 28, 2015.

Similarly, the key performance index of the exchange, the All Shares Index (ASI), dropped by over 13 per cent to 29,511.1 points from 34,310.9 within the same period.

Market analysts have described this development as a summation of local and foreign investors’ characterization of the economic policy environment as hazy and uncertain in the past three months.

President Buhari

They also attributed the negative turn  of affairs in the stock market to the gloomy picture foisted on the economy by the combination of declining oil revenue and lack of a clear policy response to it.

In reaction to the economic developments in the first 100 days of Buhari’s regime, Afrinvest Group, a Lagos-based investment banking house, said: “Investors in the financial markets have remained on the sideline as a result of lack of fiscal policy direction from the president coupled with exchange rate uncertainty.

Equities market lost 14% since June

“The Nigerian equities market has lost 14 per cent since June till date while the bonds market (as measured by FMDQ index) shed 3 per cent in the same period.”

They added that “in the absence of clear fiscal economic blueprint, the monetary authority introduced several exchange rate policies which have continued to pressure the market, constraining foreign portfolio inflows into the market.”

Similarly, investors’ unenthusiastic expectations for first half of 2015 corporate financial reports, especially in the consumer goods sector, has further dampened investors’ sentiments. This is evident in the unimpressive earnings posted by the companies that have released their reports for the first half where almost all of them show significant decline in earnings.

According to stockbrokers, earnings results published so far underscore the tough operating environment in the economy.

Notwithstanding, Afrinvest expressed optimism thus: “The President has promised to unveil his list of cabinet members in September. This is expected to catalyze the economy and the capital market to optimizing their potentials in the medium term.

“Our position is anchored on the fact that ministerial appointments, which are set to be concluded by September 2015, are expected to give the market a sense of direction of the Buhari-led government, consequently, activating improved market performance.

“Correspondingly, we expect economic activities in the second half of 2015 to improve relative to first half of 2015; thus, corporate earnings performances should mirror the economic outlook.

“Therefore, we place a higher weighting on the possibility of a fantastic positive overall return for medium to long term investors and also preach caution on short term speculative trading.”

Afrinvest Group had earlier said the economy growth rate would be down to 3.5 per cent as against 5 per cent it had projected this year.

Updates on economy and markets

Reacting to the updates on the economy and the markets, Renaissance Capital (Rencap Group), a multinational financial institution, downgraded Nigeria’s economic growth rate expectations. According to them, Nigeria’s economy will grow year-on-year (Y-o-Y) by 2.8 per cent, down from its earlier forecast growth rate of 3.4 per cent.

In its report, Rencap Group stated: “We revise down our 2015 growth forecast for Nigeria to 2.8 per cent (from 3.4 per cent) following this week’s release of exceptionally weak growth data from Nigeria and South Africa.

Rencap was referring to the data from the National Bureau of Statistics (NBS) in its latest economic statistical report focusing on the Nation’s Gross Domestic Product (GDP) for second quarter (Q2) 2015.

The NBS report indicated that the real growth rate of the monetary value of all goods and services produced in the country during the period slowed to 2.4 per cent Y-o-Y, down from 4.0 per cent in Q1, 2015 and 6.5 per cent in Q2, 2014. This was on the back of the low crude oil prices and decline in oil production to 2.1mbpd from 2.2mbpd in Q2, 2014.

Growth rate mark-down

Giving reason for the growth rate mark-down, Rencap Group said: “We revise down our 2015 growth forecast for two reasons: First, half 2015 growth of 3.1 per cent Y-o-Y came below our 2015 forecast of 3.4 per cent and second, we expect supply constraints, related to foreign exchange restrictions and the de facto import ban, to undermine growth in second half 2015.”

The impact of continued decline in the international oil price has dragged down growth indices in the Nigerian economy in the second quarter, 2015.

According to a report by the NBS, Nigeria’s GDP expanded 2.35 percent on an annual basis, compared with 3.96 percent a quarter earlier.

Reuters, world’s leading financial media, in a commentary last week said ‘’as Buhari prepares to mark 100 days in office on Saturday, his critics are now using the less flattering sobriquet, Baba Go Slow.”

Reuters said, “Chief amongst their complaints is the 72-year-old’s decision not to appoint a cabinet until later this month, putting the economic policy of the country of 170 million people in limbo, and leaving the likes of the central bank to fill the vacuum’’.

According to Reuters ‘’a Western diplomat said the last few months, in which Buhari has governed alone with briefings by civil servants, had caused a bottleneck because he had failed to delegate authority’’.

However the Reuters report quoted Mr Femi Adesina, the president’s spokesman as saying “When the ministers are appointed, some will constitute an economic team and then formulate a policy,”

Commenting on the government economy policy gaps Muda Yusuf, director general of the Lagos Chamber of Commerce and Industry LCCI) said “The fact that the CBN has been allowed to take steps that look more like fiscal policy decisions is a source of major concern. “The president doesn’t seem to appreciate the enormity of the disruption that the CBN policy on foreign exchange is causing in the economy,” he said, adding that international trade had been hit and some firms had lost their credit lines.

CBN, in the wake of sustained demand pressure on foreign exchange reserves and exchange rate, had introduced several demand management policies that has equally restricted transaction leverages.

The results have been mixed but key amongst them was stabilization of the foreign reserves at above USD31 billion for over two months now as well as stabilization of the exchange rate at the official windows at about N199/USD1.00. But the parallel market has fluctuated widely between N210/USD1.00 and N230/ USD1.00 while the premium has been very high, an indication, according to market operators, of a fundamental distortion.

But CBN appears to be having its own peculiar challenges with the policy situation in the country. The apex bank has indicated that fiscal policy gaps resulting from absence of functional government economic policies and other factors outside its control have constrained the ability of its policies to rein in on price stability in the economy.

In its post Monetary Policy Committee (MPC) report CBN expressed worry at the developments in the inflationary pressure since this year amidst its monetary policies aimed at curtailing excess liquidity, one of the main drivers of inflationary pressures.

It stated ‘’the drivers of the current upward inflationary spiral were of a transient nature and mostly outside the direct control of monetary policy. Consequently, the opportunity for further policy maneuver remains largely constrained in the absence of supporting fiscal measures’’.

The general statement of the MPC signed by the CBN Governor, Mr Godwin Emefiele, therefore, urged for coordination of monetary, fiscal and structural policies to stimulate output growth, and stabilize the exchange rate.

Economy observers believe that emplacement of a functional federal executive council especially the finance minister and other ministers in the economy segment would have helped the situation in the area of policy formulation and strategy as well as implementation of the 2015 budget and formulation of 2016 budget and medium term expenditure framework (MTEF).

A top executive of the ministry of finance told Vanguard last weekend that the ministry has existing economic policy framework part of which was in the 2015 budget but lamented that the policies have to be stepped down following the outcome of the last presidential election lost by the federal executives that created the policy.

Though he defended the absence of a replacement or modification three months after the take off of the new regime he however stated that the President Buhari would task the in-coming economy sector ministers to rework the policies or create new one.

He defended the present regime’s apparent delay in making policy pronouncements in the backdrop of rising apprehension over the economy, saying the new regime needed time to settle down before making major pronnouncements.

As a result of this situation many investors especially multinationals, are holding back major investment decisions. One of them in the oil and gas sector told Vanguard last weekend that his company in the United States of America still believes Nigeria is a good space for their overseas expansion programme but they have decided to wait until a clear policy is announced before they can make concrete moves towards committing resources.

Members of the House of Representatives last week summoned Finance Ministry, Budget Office, Fiscal Responsibility Commission, National Planning Commission, Debt Management Office and Revenue Mobilisation, Allocation and Fiscal Commission to explain why the 2015 Appropriation Act is not being implemented.

Also, the ad-hoc committee set up by the 8th House of Assembly last week commenced a public hearing over non-implementation of 2015 Budget. It was reliably gathered that officials of other agencies related to finance may also be summoned to appear before the ad-hoc committee headed by Rep. Ahmed Pategi, Kwara APC, at the public hearing.

Officials of the MDAs are expected to come with enough evidence to convince the lawmakers that the 2015 Appropriation Act is on course.

The House, at plenary on August 13, 2015 had constituted an ad-hoc committee to investigate the non- implementation of the budget following a motion promoted by Rep. Patrick Asadu, Enugu PDP, under matters of urgent public importance.

Asadu had accused the Federal Government of abandoning the implementation of the 2015 budget and capital projects, almost mid way into the third quarter of the financial year.

He submitted that the non release of the funds deprives the country of highly needed basic facilities and subjects its citizens to infrastructural and economic hardship, stunting the nation’s economic growth.

 

Nigerian stock market lost N1.6 trillion in Buhari"s 100 days

Nigerian equities lose N228b as China crisis goes global

Global stock markets yesterday took a major plunge after China suffered its worst trading session in eight years.

Nigeria

An unprecedented collapse in Chinese shares sent tremors through financial markets, triggering the ugliest day of global trading since the depths of the financial crisis eight years ago.

Billions were wiped off indices across the world in a day of frenetic selling, which saw the Shanghai composite suffer an 8.5 per cent decline, its worst one-day performance since 2007. The mass panic, dubbed “Black Monday” by China’s official state news agency, was driven by investors’ dashed hopes that Beijing would inject a fresh round of stimulus into its economy following a series of disappointing data last week.

In Nigeria, after losing N283 billion last week, equities opened this week with a whooping loss of N228 billion in the five-hour trading session. Average decline stood at 2.22 per cent as relatively higher losses by 46 stocks, including the market’s largest stocks, overwhelmed modest gains by nine stocks.

The opening downtrend pushed the negative average year-to-date return at the Nigerian stock market to -15.71 per cent. The negative market position appeared to be increasing, unnerving the more optimistic investors, lowering demand and increasing open-order supply, which has virtually turned the market into a discount window.

Analysts were negative on the market’s outlook in the short-term, although there was almost unanimity on the good prospects of Nigerian equities in the medium to long terms.

“We anticipate another round of bearish trading at tomorrow`s session (today) as there are no catalysts in the horizon to spur positive sentiments. The tumbling in global oil prices at the international markets may also be taking its toll on the market,” SCM Capital, formerly Sterling Capital Markets, stated in a post-trading review.

Aggregate market value of all quoted companies on the Nigerian Stock Exchange (NSE) almost dropped below its psychological N10 trillion position to close at N10.013 trillion as against its opening value of N10.241 trillion, representing a loss of N228 billion or 2.22 per cent.

The All Share Index (ASI), the common value-based index that tracks prices of all quoted equities, shrank to 29,214.13 points as against its opening index of 29,878.33 points, a day-on-day decline of 2.22 per cent.

China’s benchmark index has now lost all of its yearly gains after a relentless ascent that saw its valuation rise to record levels earlier this year. Asian markets crashed on the news, with Japan’s Nikkei closing down 4.5 per cent and entering official “correction” territory. Hong Kong’s Hang Seng sanki 5.2 per cent, its steepest sell-off in 30 years.

Emerging markets, most exposed to a waning Chinese economy, saw their currencies continue an abysmal summer rout. Russia’s rouble fell to an all-time low of 70.74 to the dollar, despite desperate attempts by the Kremlin to prop up its value.

Contagion quickly spread west, decimating European indices, which all suffered record post-crisis losses. The FTSE 100 dropped 4.7 per cent, wiping £74 billion off its market capitalisation and capping its worst one-day performance since March 2009.

The index staged a minor rebound, having lost more than £55 billion in the first two hours of morning trading. Britain’s benchmark index has now collapsed by 17 per cent since hitting a high of 7,104 in April and is slipping towards official bear market territory, defined as a 20 per cent decline from its peak.

Europe’s FTSE EuroFirst300 stocks endured a 5.6pc loss that erased €450bn from the continent’s biggest companies. Italian stocks led the falls, down 6pc, while France’s CAC 40 suffered a 5.4pc decline, closing at 4383.46. Germany’s DAX also entered correction territory, bleeding 4.7pc.

“Stock markets are falling apart at the seams,” said Jasper Lawler at CMC Markets.

“There was one point today when there just seemed to be no buyers and markets just went into freefall.”

Fears soon engulfed Wall Street, where the Dow Jones lost 1,000 points, minutes after the opening bell. Pre-market futures trading in the Dow and the S&P 500 had to be suspended as investors became embroiled in a manic sell-off. The Dow later rallied to fall by 2.6 per cent in New York’s afternoon trading.

A key measure of US equity volatility, the CBOE Volatility Index, or VIX, shot above the 50 mark for the first time since 2009 before dropping back to 33 as US investors turned their focus back to domestic US issues.

“With those markets closed, it’s now focused more on US fundamentals. The US economy remains relatively strong compared to others around the world,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average was down 346.07 points, or 2.10 percent, at 16,113.68. The Standard & Poor’s 500 Index was down 47.72 points, or 2.42 percent, at 1,923.17. The Nasdaq Composite Index was down 94.91 points, or 2.02 percent, at 4,611.13.

Oil prices also recovered somewhat after plunging to six-and-a-half year lows. Safe-haven US government and German bonds, as well as the yen and the euro, rallied as currency concerns kicked in due to China’s recent currency devaluation.

US crude was last down 3.7 per cent at about $38.95 a barrel after falling as low as $37.75 earlier in the day and Brent was off 4.2 percent at $43.57 after falling as low as $42.51 to take it under January’s lows for the first time. Worries about weaker demand from normally resource-hungry China added to global supply glut concerns.

The S&P’s energy index was the weakest performer with a 2.9 per cent decline in afternoon trading.

With serious doubts emerging about the likelihood of a US interest rate rise this year, the dollar was down 1.5 per cent against other major currencies after falling as much as 2.5 per cent earlier in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 5.4 per cent to a more than three-year low. Tokyo’s Nikkei ended down 4.6 per cent and Australian and Indonesian shares hit two-year troughs.

London’s FTSE 100, with its large number of global miners and oil firms, ended down 4.7 per cent for its 10th straight decline – its worst run since 2003. The MSCI all world stock index was off three per cent.

Nigerian equities lose N228b as China crisis goes global

Nigerian Stock Markert Into Slide; Investors Lose N271bn In Five Days

A combination of macroeconmic and political factors have forced the Nigerian stock market into massive slide as the market suffered its worst week losses since after the inauguration of the President Muhammadu Buhari’s government in May. Investors lost N271.7bn last week as market capitalization of the Nigerian Stock Exchange (NSE) reduced to N10.8trillion.

The market had bounced into a frenzy of bullish run following the successful conduct of the presidential election resulting into massive gains driven by high expectations and positive sentiments.

But the market began flip-flop swings week-on-week and, by June,  the negative sentiments became predominant.  The market did not record a single gain in the first 10 days of July 2015.

According to investment analysts, the sharp decline in the market performance and the attendant huge losses to investors were due to the overwhelming influence of the difficult macroeconomic environment which dampened investors’ sentiments.

‘’There has been a general weakness in investors’ sentiments arising from the general macroeconomic conditions that have worsened the profitability of quoted companies at the stock exchange’’, Afrinvest Group, a Lagos-based investment banking group, said last weekend.

They had linked the weak sentiment to lack of clear economic policy direction almost two months into the new government. Investors’ sentiments were also said to be dampened with the announcement that ministerial list would not be ready until September, a development which confirmed the earlier position of Renaissance Capital, a world leader in international finance, that 2015 would be a lost year for the Nigerian economy.

Many investment advisers are of the view that risk in an operating environment is better than uncertainty, describing the current operating environment in Nigeria as dangerously uncertain and unpredictable.

At a  parley between Central Bank of Nigeria (CBN) and the Lagos Chamber of Commerce and Industry (LCCI) in Lagos, last week, one of the discussants said: ‘’President was ushered into power over a month ago amidst a frenzy of optimism and hope. Unfortunately, all we have seen is a deafening silence on the economy that has got potential investors glued to their cash. The president and his team are yet to provide a visible economic direction for the country leaving potential investors with no choice but to stay out of the market. Some who had shares consider his muteness a bad sign and have also decided to sell-off. Investors hate uncertainty’’.

A cursory look at the movements in the individual sectoral indices showed that the only month-on-month gain was recorded in the NSE Industrial Index with a gain of 1.99 per cent, as some stocks in the Index continue to offer upward potential in their prices. All other sectoral indices recorded month-on-month losses. The highest month-on-month loss was recorded in the NSE Banking Index with a loss of 6.03 per cent, followed by the Insurance Index with a loss of 3.51 per cent.

Analysts at FSDH Merchant Bank Ltd., who also agreed that the operating environment is very unhealthy, said the outlook for July is not going to be better.

‘’We don’t expect a major improvement in the earnings of the quoted companies in second quarter of 2015 (which would have driven a market recovery)’’, one of the analysts said. In fact, the analysts forecast that the market may drop further this month, adding that the policy direction of the Buhari administration may set the path that the equity market would follow in the short term.

 

Nigerian Stock Markert Into Slide; Investors Lose N271bn In Five Days