Published On: Mon, Dec 4th, 2017

Resurgent Equity market signals stronger economic recovery

By OKEY ONYENWEAKU

Investors in the Nigerian equity market have every reason to be happy as the year gradually winds down. Those of who invested early in the year and carefully mixed their portfolio based on the NSE 30 Index would have made a kill should the market close bullish. This is reflected in the surge of market capitalisation from N9.158 trillion on January 3, 2017 to N13.214trillion by November 30, 2017, representing a growth of N4.056trillion or 4.6 per cent on a compound monthly basis.

Market analysts explain capitalisation as the value of a company that is traded on the stock market, calculated by multiplying the total number of shares by the present share price. Similarly, the All share index (ASI), which explains average value of all the share prices of all companies on the Nigerian Stock Exchange also grew 42 per cent from 26,616.89 early in the year to 37,944.00 points on November 30, 2017. The sectors have also been bullish. For instance, while the Banking sector Index , NSEBNK, grew 75 per cent from 267.80 points to 470.74, NSEINS advanced 10.6 per cent. Similarly, the consumer goods index, NSECNSMRGD, inched up 31.4 per cent, NSE oil and Gas, however, recorded negative growth by -6.55 per cent year to date.

Analysts have attributed recent bullish market growth to the gradual expansion of the economy as the country’s gross domestic product (GDP) gradually climbs out of the valley of recession.

Broad economic indicators look stronger as National Bureau of Statistics (NBS) figures show that GDP grew by 1.4 per cent in the third quarter of the year, a sign that economic activity is picking up after a 2015 to first quarter 2017 recession. The price of international crude oil has remained stable, hovering between $58 and $62 per barrel. The volume of production has also been stable given the relative peace in the Niger Delta. In fact, it is speculated that Nigeria pumps about 2million barrels per day presently.

There has also been some reprieve from the creative handling of Forex by the Central Bank of Nigeria (CBN) which introduced the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (NAFEX). The CBN created the new window to boost liquidity in the foreign exchange market and ensure timely execution and settlement for eligible transactions.  This window appears to have attracted more portfolio investors into the market. Those who had, hitherto pulled out of the financial market during the recession in 2016 seem to be returning in droves. These have helped in no small way to create some level of confidence in the economy despite recent lower ratings by international Credit Rating agency, Moody’s.

In addition, the National Bureau of Statistics (NBS) figures reveal that the value of capital imported into the country in the second quarter of 2017 rose by $884.1 million to stand at $1.79 billion, representing a 95.02 per cent increase.

According to NBS data, Portfolio investments increased by 128.4 per cent, from the $337.3 million recorded in second quarter of 2016.And Portfolio investment was the largest component of imported capital in the second quarter of 2017, put at $770.5 million, or 43.0 per cent of the total.

‘’The  game changer is the economic recovery from stagflation. Then the forex window NAFEX which the CBN created has precipitated the recovery of the market’’, said the Managing Director/CEO of highcap Securities limited, Mr. David Adonri.

However, the CBN governor, Mr. Godwin Emefiele has called for caution in celebrating the economic recovery, believing that it is still fragile.

When this is juxtaposed with the MPR at 14 per cent and Cash Reserves Ratio at 22.5 per cent, liquidity Ratio at 30 per cent, there are palpable fears that the bullish trend may not be sustainable.

Others pointed to inflation rate at a recent 15.91 percent (down from 18.7 per cent at the beginning of the year)as being a major bogey as the Central Bank of Nigeria (CBN) insists on cutting back money supply and raising domestic interest rates. This has spurred high levels of domestic unemployment.

While, it is difficult to predict with accuracy the direction of the stock market, analysts can make intelligent guesses based on macro and micro economic conditions in the country.

Many investors still remember with nostalgia when market capitalization peaked at about 13.1trillion and the Allshare Index gained a giddy height of 66,551.84 basis points on March 5, 2008. Most of the equities grew bullish and the Nigerian stock market was thrown into frenzy.

The market became the toast of the Nigerian business community, with traders, civil servants, farmers and even students making equity investments.

Many analysts noted that the Nigerian Stock Exchange (NSE) became a beehive of activities with both investors and speculators scrambling to make a kill. Some individual stocks recorded over 100% appreciation while others edged up by 50% and above. However, market stakeholders have always said that that period was abnormal.

Findings by BH reveal that though the market is relatively strong in a weak economy, it is difficult to predict with any amount of certainty its future. However, the market over the years  had gained 65% in 2003;18.5%in 2004;1.01% in 2005;37.80% in 2006;74.73% in 2007; and lost -45.77% in 2008. It also lost -33.80% in 2009 and took a rebound to gain 18.50% in 2010.The market slipped back in the negative by -17% in 2011, gained – 35.4% in 2012, gained 47.19% in 2013, lost by -16.14% and close in the negative by about -17.3% in 2015 just as market closed at -6 per cent negative in 2016.

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