Market capitalisation to hit N20trillion in 2018

By OKEY ONYENWEAKU

Nigeria’s equity market is floating on a bubble again as foreign emerging market traders become excited about the markets relative cheapness. Year to date the market’s All Share Index (ASI) has soared 14.46 per cent or 3.66 per cent above the Hong Kong Hang Seng’s 10.8 per cent, and 10.95 per cent above the South African Johannesburg Exchanges’ (JSE’s) 3.5 per cent  but 2.34 per cent lower than the Argentine Merval’s 16.8 per cent.

Capitalisation for the first time in the markets history has topped N15.60 trillion as at Friday January 28, 2018 after it peaked at N16 trillion a week earlier.

During January alone the market gained 15% while capitalisation has grown by 15.7 percent. Last year the leader board (All Shares Index) grew by 43 per cent and capitailisation by 49 per cent. While the ASI rose from 26,616.89 points early in the year 2017 to 38,243.19 points at the end of the year, market capitalisation jumped from N9.1trillion to N13.6trillion. Sectoral indices equally flipped through a few hoops.

There is also strong speculation that MTN may list its shares on the floors of the Nigerian Stock Exchange. Of course, analysts say, the company will come with huge capitalisation and push further up the market capitalisation. In fact, the NSE expect to admit other listings this year.

Analysts reckon that the capital market has the potential to grow exponentially this year given the level optimism in the air. They believe that the expected economic growth which has started with the rise in the price of crude will definitely rub off positively on the equities market in the short and long term.

‘’With the foreign reserve at about $40 billion and the rising price of crude, there increased confidence in the market, especially that of foreign investors. So, the market may take into consideration all of that and respond positively’’, a senior officer at the Nigerian stock exchange who pleaded anonymity said.

In his view, Managing Director, Crane Securities Limited, Mr. Mike Ezeh, was of the opinion that the stock market will receive a boost in 2018 stronger than in 2017 when foreign investors dominated activities.

Unfortunately, these are projections and assumptions that will shape the economy and the capital market next year. According to him, there will be more rally’s in the market this year which may push the market to very comfortable levels. But since there is no certainty that all things will be equal, there are yet other conditions that may hamper growth of the market.

Latest figures of Nigeria’s principal data agency, the National Bureau of Statistics (NBS), shows that the country’s Gross Domestic Product (GDP) for the third quarter of the year (Q3) grew by 1.4 per cent, a significant improvement over the revised 0.77 per cent in the second quarter (Q2) and a sign that economic activities may be picking up after a deep recession in 2016. The price of crude has been relatively stable, hovering between $58 and $60 per barrel. The volume of production has also been stable given relative peace in the Niger Delta. 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 appear 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. This has helped in no small way to create some level of confidence in the Nigerian economy despite recent low ratings Moodys, an international rating credits agency.

National Bureau of Statistics (NBS) figures show that the value of capital imported into Nigeria in the second quarter of 2017 rose by $884.1 million to stand at $1.79 billion, represents 95.02 per cent increase.

According to the NBS, 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.

A tour of 2018

There appears to be shimmering prospects for equities in 2018. Stock analysts believe that with the year being a pre-election period the government would be under pressure to reflate the economy and generate demand needed to expand the real sector and create jobs.  With a staggering local unemployment rate of 36 per cent between the ages of 18 and 34, the unemployment question will be a major campaign issue in 2019.

There is strong belief that fiscal and monetary policies of the federal government will be expansionary in the New Year as the government struggles to push the economy ahead faster. Of course, those who want to win election will pretend to have the masses at heart and loosen the tight policies to provide liquidity. In this light, President Muhammadu Buhari has already presented a budget of N8.6trillion for 2018.

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele may  also temper down monetary policy rate (MPR) from 14 per cent to affect  lending rate which hovers between 20 to 25 per cent in the banking industry. This will prompt higher earnings for companies and attract investors to invest in the market. Analysts note that it may not be out of place to see investors drifting from money market securities to the stock market. More so, interest rates for deposit savings accounts are still very low at 3 to 4 per cent while coupon rates have declined to about 14 per cent. Many market observers agree that this may have been caused by the Federal Governments shift to borrow from the international market and not crowd out the private sector.

A few weeks ago, the Minister of Finance, Mrs Kemi Adeosun released N750billion capital expenditure, the price of crude still hovers reasonably at $62 and $66 per barrel and there is relative calm in the Niger Delta. These many believe will provide liquidity to players in the market.

The stock market in 2018

Whereas nobody can predict the capital market with accuracy, experts have always tried to make projections which could be close sometimes and outright wrong at other times.

However, there is huge optimism, given the prevailing trend which nobody expects could run to a hitch in 2018 or anytime soon.

Almost all the measurement indices seem to favour a continued bullish trend.

Analysts believe that some of the stocks are undervalued given their Price earnings ratio. Whatever may be the case, analysts are almost convinced that the debt market may give way for the equities market to dominate investment in 2018 if the Federal Government continues to borrow externally.

Recently,  the International Monetary Funds (IMF) projected  the Nigerian economy will grow at 1.9 per cent in 2018, while other analysts are seeing higher growth given the growth of 2017 at 1.4 per cent already.

Former President, Association of Stock Broking Houses of Nigeria(ASHON), Mr. Emeka Madubuike told Business Hallmark (BH) in a telephone interview that the macro-economic environment of 2018 would determine what happens to the equities market. Madubuike explained that sentiments were that the economy will fare better in 2018 than in 2017.

According to him, the issues that are holding the economy down appear to be loosening for the better. However, he noted the main problem of the economy was lack of productivity.

For Dr. Afolabi Olowokere of Financial Derivatives Company Limited, Equity Market may attract more attention than the Debt market next year. He explained that if the government continues to borrow externally, the debt market may be low and investors may shift to equity.

Olowokere projects that the equity market may grow by 15 per cent next year. ‘’Interest rate may come down next year’’, said Olowokere.

Last month, Managing Director/ Chief Executive officer, Financial Derivatives Company, FDC,Mr. Bismarck Rewane, pointed out that the 2018 budget had nothing significant to grow the economy and also lacked incentives for expenditure growth.

“Inflationary projection in the budget is not realistic. Government is silent on subsidy on power and petroleum products, and minimum wage. The projection for non-oil revenue is not realistic and the deficit gap may widen after all,” Rewane said.

There is also the discomfort that the multiple exchange rates in the economy may continue to pose challenges and this was not addressed in the budget and is capable of distorting the market. In the prevailing circumstances Nigeria has different exchange rates for different categories of people or businesses.

‘’The growth momentum is expected to be sustained in 2018, although at a slow pace: 2- 2.2 per cent. The drivers of growth will remain unchanged: increased agriculture and oil production. In addition, increased infrastructural development and its impact on productivity will boost aggregate demand.

Due to political campaigning in the course of the year, we anticipate an increase in the level of money supply, at a growth rate of 5-10 per cent. Broad money supply contracted by 11.06 per cent in 2017 due to tight liquidity conditions. Also, the likely review of the minimum wage (currently at N18,000) and other social intervention programmes by the government will exacerbate inflationary pressures in 2018, ‘’ Rewane had also reportedly said.

“Nigeria is not likely to slide back into recession. Growth may hover around two per cent by the second quarter of 2018. However, the country would remain in a state of stagflation for a long time; that is, high rates of unemployment and double-digit inflation (persistent high inflation combined with high unemployment and stagnant demand in a country’s economy).

“These macroeconomic fundamentals must show declining trends for a healthy recovery to continue. In addition, rising unemployment, particularly among youths, would worsen the poverty situation. Technically, we exited the recession but we are still in the stagflation phase. The economy is on a recovery path though fragile,” Said Akpan Ekpo, a Professor of Economics and Director General of West African Institute for Financial and Economic Management.

The Nigeria Stock Exchange (NSE) had failed to achieve US$1 trillion in market capitalisation target it set by 2016.

Research shows that only 16 exchanges are with a Market Cap over $1 Trillion USD. In fact, these 16 exchanges from 13 different countries and 4 different continents, make up over 80% of the global stock exchange market cap. These 16 countries’ combined market cap is over $58 Trillion USD.

#          Name   Symbol            Market Cap

1          New York Stock Exchange     NYSE  $18.17 Trillion

2            NASDAQ Stock Exchange    NASDAQ $7.05 Trillion

3            Tokyo Stock Exchange                         JPX         $4.6 Trillion

4          Shanghai Stock Exchange       SSE      $3.93 Trillion

5          London Stock Exchange         LSE      $3.64 Trillion

6          Euronext Amsterdam Stock Exchange            Euronext          $3.35 Trillion

7          Shenzhen Stock Exchange      SZSE    $3.09 Trillion

8          Hong Kong Stock Exchange   HKEX  $3.02 Trillion

9          Toronto Stock Exchange         TSX     $1.77 Trillion

10        German Stock Exchange         FSX     $1.66 Trillion

11        Bombay (Mumbai) Stock Exchange   BSE     $1.43 Trillion

12        Flag Swiss Stock Exchange     SIX      $1.42 Trillion

13        India National Stock Exchange           NSE     $1.41 Trillion

14        South Korea Stock Exchange  KRX    $1.28 Trillion

15        Stockholm Stock Exchange    OMX   $1.26 Trillion

16        Australia Stock Exchange       ASX     $1.2 Trillion