By OKEY ONYENWEAKU
Despite periodic bouts of resilience at the Nigerian capital market, an underwhelming state of unease continues to pervade the deep structure of investors’ confidence at the bourse, Business Hallmark can report.
And within this climate, those who have reposed unwavering confidence in the capital market to increase their wealth are querying and reappraising their investment decisions. This is owing to the fact that, overall, the equities market has not lived up to expectations. Hopes have been dashed and aspirations killed. The market has since ceased to be a somewhat guaranteed source of capital formation or long term funds for not only companies/firms to survive or consolidate, but also secondary investors whose livelihood are tied to the market.
Many investors are now afraid to return to the market while market capitalisation plunged from the giddy height of N13.1 trillion and the All-share Index of 66,551.84 basis points on March 5, 2008, to N9.2 trillion and 26,874.62 points.
Even this year, those who plunged into equities investment are developing goose pimples as they no longer find it easy to sleep well. The investment environment is hardly signalling hopes of any kind in the short to long time this year. ‘The road may still be far’ as most of them believe that life is mostly about ‘ups and downs’.
All projections for the year appear to be moving in the wrong direction. Surprisingly, the market is mildly at -7% negative year to date (YTD) with negative returns of -10.96% Year on Year (YoY). This is better than the situation earlier in the year when the twin major indexes were very low and signified discomforting times for investors. The All-share Index (ASI) which opened this year at 26,867.79 and with market capitalization at N12.9 trillion on January 2, 2020, had eased to 24,826.75 points and N12.9trillion respectively by June 19, 2020, despite the listing of projected new powerhouses like BUA Cement, among others. Keen market observers are not overly impressed as they insist that, under the current market conditions, comprehending the complexities of this year and its future is still uncertain.
Indeed, many experts have expressed concern over the dismal performance of the equities market which is reflected in the stocks of the Blue-chip companies. The blue-chips have over the years remained a source of strength and confidence to the market, but that is now being subtly questioned given the relatively sharp drop in many of their share prices recently. However, some of them have insisted that since it is difficult to divorce developments in the broader economy from the capital market, anybody who experts magic, while the economy is weak and down, must be joking.
Many of them are of the view that any capital market will find it difficult to boom in a volatile macro-economic environment.
Indeed, the weakened economy does not seem to favour the thriving of equities at the growth of 1.87 per cent in the first quarter of 2020. More worrisome is the twin corrosive effect of the low price of crude and the devastating effect of Coronavirus or Covid-19 on the operations of firms and other businesses.
The pandemic prompted a lockdown which easing has been gradual thereby causing many firms and business to endure partial operations and the attendant losses therein.
Yet a third group has sadly pointed at the shrinking revenues of the nation, caused by the volatility in crude price, lack of productivity and increased funding for security, in addition to low disposable income in the hands of consumers. These, market observers believe have also been responsible for the near weak performance of other sectors of the economy.
While some of them fingered the lack of economic direction of the President Buhari-led administration as one of the strong reasons, others have hinged it on tight regulation of both the fiscal and monetary authorities.
These have dealt a heavy blow on business operations as many firms seem to be struggling to survive.
There have been projections that the economy may slip into recession again, and that it may indeed be dipping by about 8 per cent. Even the government is troubled given that revenues have shrunk badly and is preparing to borrow hugely to the tune of over N5trillion to fund her budget of N10.27trillion.
Recall in the first quarter of 2016, the nation’s economy slipped into a recession by-0.4 per cent, -2.06 per cent in the second quarter and slipped into a deeper recession by -2.4 per cent in the third quarter.
When push comes to shove, what becomes the most important thing to a man is survival. Accordingly then, the most important thing to investors now is to only survive this year given the twin problems of the crash in the price of crude and devastating effect of Coronavirus, otherwise called COVID-19.
In fact, almost every sector of the economy is caving into not only macro-economic challenges but also that of crisis in the price of crude and the devastating effect of Covid-19. Investors are praying for the unenthusiastic year to pass.
Commenting on the issue a senior broker who would not want his name to be mentioned in print believes there is not much prospect for the equities market to perform to the extent of delivering unusual returns this year. He explained that whereas there will continue to be activated in the market, it will fluctuate from time to time and not grow significantly before the end of the year 2020.
He also said that the though the Monetary Policy Committee of the Central Bank of Nigeria has reduced the Monetary Policy Rate, also known as main interest rate, to 12.5 per cent from 13.5 per cent the short term, the effect of the COVID-19 pandemic was still very strong on the economy all over the world.
But the Managing Director of APT Securities Limited, Mallam Garba Kurfi said that the recent rally in the market surprised everybody amid the pandemic.
“Generally the market really surprised us because the fear of COVID-19 really beat down our market seriously. Our All-Share Index was as low as 24% despite the fact that in the previous two years, 2018 and 2019, we closed in the negative. In 2018, we lost about 17% and in 2019 we lost about 16%. So, when you add the two, you will see that we have lost over 30%; plus the fear of COVID that is projected to result in a 2020 loss of 24%. When you add 24% to the 30% that the All-Share Index had lost, it comes to over 50% and that brought our shares down below the par value and they became very attractive. However, by the end of April, the market gained over 9%, by the end of May, the market gained about 10% and today, our entire loss from 22% has been reduced to less than 6%.’’
“We are hopeful with corporate actions and the first-quarter results, the market may likely go further better up. So, we are anticipating that before the end of June, the market loss will likely go much lower and even full recovery is possible.
“The big players in the market are doing very well. For instance, Dangote Cement went down as low as N117 but is currently trading at N139. Even after marking down to N16.00 dividend, it went as high as N150 and we know that it has the approval and permission of shareholders to buy back 10% of its holding, so we anticipate that that will trigger the price to be much better.
“This is a stock that controls more than 25% of the market capitalisation. So, as the stock rises, the better it is for the All-Share Index. Next to it is Bua Cement which is almost number two in terms of market capitalisation and it has surprised the market. It came with its surprising dividend of N1.75 per share compared to the 50 kobo dividend it paid in the previous year. So, this triggered the market and the stock, as I am talking to you, is trading about N44 from its previous position of N28. That means the stock gained about N16 and that is more than 50%. It also helps the rising fortunes of the All-Share Index,” he enthused.
On the global plane, the International Monetary Fund (IMF) in its latest Regional Economic Outlook for Sub-Sahara Africa, titled COVID-19: An Unprecedented Threat to Development, said that the Coronavirus pandemic would largely disrupt production, which may cause workplace closures, disruption of supply chains, and reduction in labour supply because of sickness or death.
“Furthermore, a lockdown can have a devastating effect (for example, food insecurity) on vulnerable hand-to-mouth households with limited access to social safety nets. Meanwhile, the loss of income, fear of contagion, loss of confidence, and heightened uncertainty all reduce demand,” it stated.
“In addition, the sharp tightening of global financial conditions reduces investment flows to the region and hampers its ability to finance spending needs to deal with the health crisis and support growth. This may result in a cut in government spending, a buildup in arrears, or an increase in government borrowing in local markets, with attendant consequences on domestic credit and growth. For frontier economies, the sudden stop of capital outflows is exerting exchange rate pressures and can result in a large current account adjustment through domestic demand compression and further balance sheets pressures in countries with large foreign exchange mismatches.”
A few days, Matt Winkler of Bloomberg had expressed optimism that Africa was still an investment destination given many of its countries belong to the top 10 fastest-growing countries in the world this year, according to economists’ forecasts.
He noted that while stocks from North America, Western Europe and the Asia Pacific contributed 3, 2 and 1 percentage points, respectively, to the world benchmark’s 8% loss, Africa contributed just 0.24 percentage point to the deficit and remains the best performing region.
“So far this year, communications companies in sub-Saharan Africa lead all industries in Africa with a total return of 22% — more than twice the 9% earned by global health-care companies, the No. 1 performing industry in the world”, said Winkler
Whereas no expert can predict the market with accuracy, many investors cannot hide their sadness as investment yield continues to grow thinner by the day.
Their discomfort stems from the fact that investment yields have not been impressive, especially from the traditional investment options, except perhaps the fixed income market. Nigeria’s economic growth did not meet expectations. The economy has remained weak.
Findings by BH reveal that the market is still very weak and it is indeed difficult to predict with any amount of certainty its future. However, it 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. The market also fell 6.17% in 2016, closed positive at 42.30% in 2017, and lost -17.8% in 2018 and -14.60%.
And our final word on the best way to live in these times: be cautiously optimistic. May better days come. Amen.