Business
Equities market slumps as fundamentals worsen
By OKEY ONYENWEAKU
These are indeed quite tempestuous economic times and the Nigerian equities market is not immune from the vagaries. The market has lost N2.356trillion in the last three months from N29.157 trillion in May 27, 2022 to N26.801 trillion in August 17, 2022. This represents 8.79% drop.
Pundits are not surprised. ‘How do you expect the market to remain bullish in the environment where every thing is going south,’ a senior bank who would not want to be mentioned in print told Business Hallmark.
Whereas the market has gained 20.4% Year to date (ytd) as its capitalization rose from N23.183trillion in January 4, 2022 to N29.159trillion on August 17, 2022, it became bearish since May this year. As at today, the All share Index has also taken a beating and plunged from 54,085.30 points.
Analysts have blamed the Russia/Ukraine war which is weakening world economies and the shrinking of food supply that has shot up inflation to an unprecedented level of 19.6% as responsible for the shake -up.
The sub-sectors of the market are no exception. For instance, the NGX main-board Index depreciated -5.4% from 2,357.97 in May 27, 2022 to 2,229.16 in August 17, 2022. NGX 30 dropped 10.7% from 1,984.00 to 1,770.19; NGXCG fell 11.5% from 1,392.36 to 1,231.63; NGXPremium eased down -9.6% from 5,044.35 to 4,559.98; NGX Banking Index slid -9.6% from 427.47 to 386.35; NGX Pension Index slipped -9.6% from 1,895.83 to 1,712.11; NGX Insurance Index lost 3.6% from 180.28 to 173.72; NGXAseM Index maintained flatness from 658.99 to 658.99; NGX AFR Bank value Index plunged 11.5% from 1,003.39 to 887.57; NGXAFR Div Yield index shed 6.6% 3,283.02 to 3,063.42 while NGX MERI GROWTH INDEX adjusted downward by 6.4% 2.424.06 to 2,264.46 in the period of review.
On its part, the oil and gas sector has only gained 1.2 per cent as NGXOILGAS index rose from 551.49 per cent in May 27, 2022 to 558.42 per cent in August 10, 2022. This growth is feeble and too marginal given that crude price remains high and trades at over $100pbd.
Whereas expectations seem slow now and no one can predict with certainty the performance of the market in future. But analysts can hazard or conjecture performance by looking at market activities from the perspective of macro-economic environment.
However, the market has gained substantially this year at 20% but the second half of the year is filled with uncertainty.
There is a consensus that the market could be reflective of the fundamentals and more realistic this year given the weak economy and its attendant challenges.
Looking more critically, the political atmosphere is still depressing, the economy is still weak despite IMF projection of 2.5 growth in 2021. The level of insecurity has defied all wimpy efforts of the government as many people still leave in fear.
Unfortunately, while bandits are in every part of Nigeria killing, raping, kidnapping and maiming, business activities have been crippled in most parts of the North even in Katsina State, the home State of President Buhari.
These have heightened economic challenges with inflation still high at above 19.64%, unemployment is chasing 40%, underemployment at above 25%.
These days almost everybody is aware that Nigeria is the poverty capital of the world recently over taking India with over 100 million people. The Naira which sold at N220/$ in June 15, 2015 has depreciated by over 100 per cent to N685/$ this August 2022.Nigeria’s reserves is dwindling while our total debt stock which is about N43trillion and still rising. Unfortunately,
Nigeria spends over 105 % of her revenue to service loans. From early 2020, when Covid -19 pandemic was dictated and its attendant lockdowns and disruptions in supply chains among other challenges which still persist, the Deposit money banks have like many other sectors been struggling.
It also explained that Non-debt recurrent expenditure of N6.83tn is the largest expense item, with 60% relating to personnel costs at N4.11tn.
Analysts strongly believe that the equities market may just be flat or achieve very little growth in the second half of 2022. There is doubt that the government will have time for the economy in an electioneering year as most part of 2022 may dedicated to politicking.
In his view, CEO of HIGHCAP securities limited, Mr. David Adonri believes that the market cannot be divorced from the happenings in the larger economy of the country.
‘’It is not surprising because market moves in the same direction as the economy. If macro-economic conditions are declining, off course, it will be expected that equities market will decline.
The fundamentals of the economy drives the fundamentals of the market and if you look at the macro-economic indicators, they have been progressively deteriorating. In spite of the hike in the monetary policy rate of the CBN, hike in interest rate and other policies inflation rate has not responded instead it has been galloping.
Look at where it is now at 19.64%, that is excruciating and driven principally by food inflation. You know food supply has been crippled as a result of the weaponization of food scarcity by the bandits or terrorists to wage war of annihilation against the peoples of Nigeria. You know the terrorists and bandits are using all kinds of weapons against the people of Nigeria with feeble response from government all geared towards the annihilation of the people of Nigeria so that they will take over the country.
‘’That combined with the weak state of the global economy, you know the global economy is experiencing some disruption caused by the pandemic that is just declining gradually and resurrected again by the Russia/Ukrainian war. That disruption to global supply chain is also fueling global inflation and with the way the large economies are reacting by tightening monetary policies that is also affecting capital flow in the developing economies like Nigeria. That is affecting us by way of the forex illiquidity we are experiencing partially because there is capital flight in Nigeria now. All those compounded by the weaponization of starvation by terrorists and bandits are the things that have hobbled the economy and the market.’’ Said Adonri
He however, said ‘’Of course, in a reasonably capitalist economy the market moves in cycles from booms and bursts. So we are in the burst cycle now and sooner or later every thing will adjust to a boom again.’’
According to him, we are fully in the buyers’ market .
He also advised that three things the government should do to recalibrate the economy would be ‘to provide security! Security! Security.’
Market watchers speak
‘’The local bourse was not immune to the rout in global equities, as bearish sentiments persisted for the second consecutive week. Accordingly, the All-Share Index shed 0.6% w/w to close at 49,370.62 points.
“We expect market performance to remain mixed in the coming week as investors rotate their portfolios towards stocks with attractive dividend yields, which could be matched by intermittent profit-taking activities.
“Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the weak macro story remains a significant headwind for corporate earnings.’’ Said Cordros capital limited.
Another Economist, Professor Uche Uwaleke, had recently said that the second half (H2) of penultimate election year, was not for risk-averse investors as recent evidence from the stock market supports “a buy-in-Sept-Sell in January strategy, {ceteris paribus) all things being equal.”
According to the pioneer President of the Association of Capital Market Academics of Nigeria (ACMAN), during electioneering period,”Investors are advised to take a longer term perspective as H2 of pre-election year was a good time to identify and take positions in undervalued stocks especially in dividend aristocrats.
“Domestic Investors’ sentiment is usually weak as they seek to reduce their market exposure when elections draw closer. The intensity of the impact is usually a function of the degree of political tension and uncertainty generated by political activities’’ said Prof. Uwaleke
BH recalls that in the corresponding period of 2008, the market maintained a bullish disposition and investors smiled to the banks. The major indicators attained unprecedented heights.
The market capitalization peaked at about 13.1trillion and the All share Index gained a giddy height of 66,551.84 basis points on March 5, 2008. Most of the equities grew bullish and the Nigerian Capital 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.
Indeed, not many Nigerians are optimistic that the economy of the country has much to offer them given the excruciating pains pervading the environment and general state of affairs. While many believe that the politics of the country is incapable of creating enabling atmosphere to nudge the economy forward, others have listed mis-governance, high insecurity, lack of productivity among others for losing hope in the growth trajectory of the economy.
The challenges are numerous, a former managing Director of one of the big banks who would not want to be mentioned in print told Business Hallmark.
Going to deeper grounds, recent statistics reveal that the rate of unemployment, the second highest in the world is 33%. At the same time, the underemployment rate stood at 22%; even as inflation, which has hit above 18.6 per cent. Nigeria has accumulated a total debt stock of N43trillion which is still growing.
Unfortunately, the more dreadful aspect of it is that the federal government spends 90 per cent to service the loans.