Prospects of market recovery bleak
. Stocks lose N4trn in 3 years; Blue chips shed 47% value
Nine years after the melt down of global financial markets in 2008, the Nigerian stock market has taken a frightening tumble as the Nigerian All Shares Index (ASI) dropped by an astonishing 60% or -10.7% per annum on a compound annual basis between March 2008 and January 2017 as investors lost a staggering N4trillion between 2014 and 2016.
With the All Shares Index sliding from 66,551.84 basis points at the beginning of March 2008 to 26,223.54 last week investors have begun to write off the market as a safe haven for savings in the New Year. Equity buyers point to the thumping 29.7% drop in Market Capitalisation from N13.1 trillion in 2013 to N9.2 trillion at the end of 2016 as a major reason for their circling round the stock market for investment opportunities in 2017.
Equally disturbing to them was the fact that the All Shares Index slid consecutively over the last three year ends from 2014 to 2016. The ASI closed the year 2014 at a drop of -16 %, followed by a -17% fall in 2015 and a -6.17 % stumble in 2016. In fact, investors have lost a cumulative value of about N4trillion in the last three years as the market capitalization plunged from N13.226 trillion in December 31, 2013 to N9.255trillion in 2016.
The market major index also fell from a giddy height of 41, 329.19 basis points in 2014 to 26,874.62 points by year end 2016. The various sectors of the market have also betrayed gross weaknesses and historic losses.
On a stock-by-stock basis, values of individual stocks, especially blue-chips have been battered, with major erosion of capital values.
For example, on average blue-chip stocks have lost 47 per cent of market value between January 2, 2014 and last week (January 20, 2017). A critical assessment of individual blue-chips which were hitherto unassailable stores of value, show that Nigerian Breweries has lost 14 % of its market value over a two year period, sliding from N166.00 per share in January 2014 to N142.06 per share last week.
Similarly, Guinness Nigeria Plc fell 73 % from N237.00 per share to N63.65. Nestle Nigeria dropped 36 % from N1,182.00 to N755.00, Cadbury Nigeria lost 84 % from N56.61 per share to N9.00, Unilever Nig. Plc slid 37 % from N53.80 per share on January 2, 2014 to N33.50 last week, Flour Mills Nig. Plc declined 79 per cent from N87.06 per share to N18.20, Stanbic IBTC toppled over 26.7 % from N21.60 to N15.82, G T Bank retreated 17.2 % from N28.88 to N23.91, ETI slumped 43 % from N17.00 per share to N9.69.
Zenith Bank also slumped 37 % from N25.10 per share on January 2, 2014 to N15.80 as at January 20, 2017, Union Bank slipped 50 % from N10.00 per share to N4.91, Access Bank sank 27.6 per cent from N9.70 to N7.02, UBA declined 45.6 per cent from N9.38 to 5.10, Diamond Bank declined 84 per cent from N7.56 per share to N1.19, Glaxosmith tumbled 76.8 per cent from N68.00 per share to N15.75, Dangote Cement also plunged 23 % from N220.00 per share to N 168.00.
Tracing the performance of stocks with pedigree, Wapco Larfarge has tumbled 65.2 % from N115.00 per share on January 2, 2014 to N40.00 as at January 20, 2017, MRS slumped 20.5 per cent from N54.44 per share to N43.24 and Forte Oil retreated 25.5 per cent from N92.64 per share to N 69.00 per share.
On the other hand, 7-Up Nigeria, Mobil Nigeria and Total Nigeria bucked the trend by achieving record performances within the said three years from 2014 to early 2017. While Seven Up, according Business Hallmark research gained 42 % from N71.40 per share to N101.65, Mobil advanced 125 % from N115.70 to N260.50 and Total Nigeria also climbed 36.2 % from N181.96 to N285.45 per share.
Market Analysts have expressed deep concern over the dismal performance of the equities market reflected in the fall in the value of several Blue-chip companies. Large Cap stocks have over the years remained a major source of strength and confidence for the local bourse, but this is being brazenly questioned by the massive drops in corporate market values. However, a few market reviewers have insisted that the performance of stocks cannot be divorced from the broad economy which has also experienced severe challenges.
A number of economists have expressed the view that any stock market would it find difficult to do well in a volatile macro-economic environment.
Nigeria’s recent recession has not favoured investors. In fact, there have been stories of anguish and disappointment as many businesses saw profits cave. The dismal performance of investments has been blamed on an unstable and disoriented macro-economic environment. As at the first quarter 2016, the nation’s economy slipped into a negative gross domestic product growth of -0.4 %, by the second quarter the GDP dipped a further -2.06 % and slipped to a deeper -2.4 % in the third quarter.
Many people confessed the past year was very challenging because of lack of good policy direction to drive the economy.
An overview of 2016 shows that inflation was high at 18.6 %, the naira to dollar exchange rate was equally steep (official closure of the naira for the year stood at over N305.00 to a dollar and N495 in the parallel market) while prime lending rates averaged 29 %. Analysts noted that this constituted a disincentive to investment.
Almost every sector of the economy has shown weaker indices as the macro economy continues to hobble along with low growth and high cost of domestic operations and consumer retail prices.
Few Nigerians have welcomed the year 2017 with any degree of enthusiasm despite the federal governments landmark fiscal expenditure plan of N7.3 trillion and the increased allocation of resources to various sectors. Indeed there is still major uncertainty in the polity as regards the government’s broad economic direction and many economic agents are waiting to see the details of the recently announced Economic Recovery Plan discussed by the Vice President, Professor Yemi Osinbajo, on the sidelines with investors at a recent World Economic Forum (WEF) meeting in Davos, Switzerland.
The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr Oscar Onyema, has argued during his recap and outlook for the market for 2016/2017 that the bottoming out of crude oil prices and a drastic decline in domestic oil output curtailed crude oil export proceeds, which accounts for roughly 90% and 70% of Nigeria’s FX earnings and government revenue4, respectively. This according to him, resulted in foreign exchange liquidity challenges during the year, as the supply side of FX into the Central Bank of Nigeria (CBN) dropped by over 70%4, despite heavy domestic demand. ‘’ Accordingly, the oil price shocks and associated prolonged FX dilemma, coupled with challenges to policy implementation, drove the Nigerian economy into its first recession in over twenty (20) years by Q2’16.’’ Said Oscar Onyema
‘’Capital markets tend to act as barometers of any economy, and in Nigeria’s case, the prolonged economic downturn directly impacted an array of products and asset classes on the Nigerian Stock Exchange (NSE or The Exchange) ‘’ he added.
‘’The NSE Industrial Index recorded the steepest drop of the year at 26.37%, a result of severe difficulties faced by companies in accessing capital for imported raw materials
‘’Further indication of the equity market’s link to economic dynamics is reflected in the drop in NSE Oil/Gas Index which declined 12.31%, mimicking the 22.01%5 decline in real GDP growth of the oil sector by Q3’16 driven by output and distribution complications. Real Estate Investment Trusts (REITs) declined by 49.48% and 47.10% in value and volume traded, respectively, reflecting the macro-economic impact of the real estate sector which declined by 7.37%5 in terms of GDP.
Inflation had a converse-effect on activity in the fixed income market during the year. Inflation spiked above 18% by Q4’16, driven by rising prices of imports and structural deficiencies in power, transportation, and production. The high rate of inflation forced the CBN to raise interest rates to 14% in July 2016. Consequently, the value of bonds in the market depreciated, increasing investors’ appetite for portfolio diversification via interest rate products selling at discounts. This resulted in a 137% increase in the value of bonds traded on the NSE in 2016, admittedly from a low base. We also saw a 31.17% improvement in bond issuance during the year.
‘’After peaking at 31,071.25 in June 2016, an increase of 8.48% over the 2015 closing value, the NSE All Share Index (NSE ASI) began to retreat to negative territory as total foreign inflow dropped 45% between June (N42.46Bn) and July (N23.43Bn) due to i) loss of confidence in the implementation of an announced free floating FX regime; ii) weak corporate performance; and iii) 2nd consecutive quarter of negative economic growth in the period resulting in the economy entering into a recession’’, he said.
Onyema assures that Nigeria is expected to recover from its recession in 2017 with a modest GDP growth forecast of 0.6%9 driven by first, the vigour of fiscal policy implementation, with a keen focus on articulation of desired goals; second, lower rates of disruptions to oil infrastructure from resolution of the Niger Delta conflict, thereby increasing FX inflows; third, crude oil prices remaining above the FGN’s benchmark of $42.5/barrel; fourth, positive impact of the war against corruption manifested in ease of doing business improvement; and fifth, policies aimed at boosting economic productivity (ex: improved budgetary allocation to capital expenditures, exit from JV Cash Call arrangements with IOCs by the FGN, which is expected to save the country $2Bn annually, etc.). These, he believes can change the market dynamism positively.
Others who share Onyema’s views believe that the government appears to be getting a better handle on the economy given moves to harmonise the tariff structure, pursue desperate development of capital projects. There is also the perspective that the recent defeat of the errant Islamic Sect, Boko Haram, will reduce military expenditure.
However, there are still security concerns as the Boko Haram group has scattered into every part of Nigeria causing fear in the communities, the nefarious activities of Herdsmen, political face-off between the Executive arm of government and the National Assembly (NASS), rising inflation at 18.55, rising unemployment could pose major challenge in nudging the economy. And the development will continue to rub-off on the capital market.
Commenting on the issue, Dr. Afolabi Olowokere, believes there is no much prospect for the equity market to perform to the extent of delivering unusual returns this year. He explained that whereas there will be activity in the market, it will fluctuate from time to time and not grow significantly before the end of year 2017.
Olowokere however, said the fixed income market possesses the potential to perform better than equities given that there is no tendency to reduce interest rates in the short term. The fixed income will be doing better than the equity market in the next one or two years.
|Capital market performance in 11 years|
|Prices from Jan 2, 2014||Jan. 18, 2017|
|Companies||Stock prices as at
|Stock prices as at Jan. 18, 2017||change figure||% change|
|Nigerian Breweries Plc||N116.00||N142.60||-N23.4||-14|
|Guinness Nig. Plc||N237.00||N63.65||-N173.35||-73|
|Unilever Nig. Plc||N53.80||N33.50||-N20.3||-37
|Flour Mills Nig.||N87.06||N18.20||-N68.86||-79
|G T Bank||N28.88||N23.91||-N4.97||-17.2|