Market resurgence rekindles hope for economy

.      Indicators point to early end to recession

By OKEY ONYENWEAKU

A few months ago, financial experts could hardly say anything good about the capital market. There was gloom, despondency and disappointment everywhere.
The major benchmark index, the NSE All share Index stood at as low as 26, 212.09 basis points and the market capitalization managed to brace at N9.018 trillion. The situation was even worse on June 6, 2016 when both the market capitalization and NSE ASI anchored lower at N8.840 trillion and 25,701.06 respectively.
A good number of investors remained cautious while others totally dodged the market and its seeming troubles. But today the story has changed, the equities market appears to be on a recovery note and the same group of persons, who took to their heels when the Bears dominated the market, are gradually crawling back with excitement.
So are foreign investors who pulled out their funds for fear of losing a substantial part of their investment to the political uncertainty.
In fact, with the market capitalization at N11.340 trillion on June 12, the equities market is gradually restoring hope to stakeholders. The market capitalization has gained N2.322 trillion in five months and two weeks from early 2017. Similarly, the NSE All share Index has appreciated by 28.17 per cent to 33, 598.20 points.
The market is bubbling again and investors are crawling back, repositioning as well as tinkering with the composition of their portfolio to take advantage of the recent bullish trend.
The bullish trend is interesting, but market watchers are yearning for answers to the question, what is driving the market? There is a perception that the economy is picking up again. Interestingly, the volume of oil that Nigeria is able to pump daily has hit 2.2million barrels per day from as low as 1.2 million some months ago. The price of crude also hovered between $50 and above pbd before plunging to about $46.00 on Thursday June 15, 2017.
The Central Bank of Nigeria appears to be getting a better handle on the management of foreign exchange. The apex bank’s introduction in April of a window for portfolio investors to trade foreign currency at a market-determined rate, currently at about 367 naira a dollar, about the same as pricing on the black market.
The Naira which traded at about N520 / $1 on January 2017 is now converging at N367 / $1. This market watchers believe is positive and gradually has boosted investors’ confidence. The acting President Yemi Osinbajo just signed the 2017 budget of N7.4 trillion ($23billion), representing a raise in expenditure by 21 per cent.
Impressions are beginning to change in the economic environment of Nigeria that the country is after all dragging itself out of stagflation, analysts have said. Interestingly, too, it appears that investors are seeing some good in the equities market again and are taking position, especially those stocks which had traded below their book value.
“Foreign investors are associating the acting President, Prof. Osinbajo, with competence. This is bringing back confidence in the economy’’, said Mr. David Adonri, Managing Director of HighCap Securities limited.
A critical observation of the capital market has shown that some of the major sectors of the equities market are also on the upward swing. For instance; the Banking Sub-sector has surged 54 per cent, Insurance Sector gained 15 per cent, NSE Consumer Goods Index advanced 16 per cent and Oil and Gas Index has gained 8.32 per cent.
Most of the banking stocks and that of other sector have also advanced in prices, culminating to a general leap by capital market to the North. Experts have insisted that the capital market is the barometer of measuring a country’s economy.
“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) ‘’ Chief Executive officer of the Nigerian Stock Exchange Oscar Onyema had said.
President, Association of Stockbroker Houses of Nigeria (ASHON), Emeka Madubike believes stocks have traded very low long enough to attract investors before now.
“Foreign investors are coming back to the market since the business environment is easing out for the better’’, he explained
Many experts have also had a positive forecast for the Nigerian economy. For instance, the International Monetary Fund (IMF) expects that the economy could grow by 0.8 at the end of the year.
However, there is still subtle fear for the future of the economy given that the country’s budget and revenues are substantially predicated on the price of crude. Already the price of crude is volatile again and is sliding to the lower 40’s (46 pbd) evoking uncertainty.
With the MPR at 14 per cent and Cash Reserves Ratio at 22.5 per cent, liquidity Ratio at 30 per cent, inflation Rate at 16.25 percent have reduced significantly the volume of money in the hands of not only the investors, but also the amount of funds that banks can trade with. Besides, the banks are still battling with their huge non-performing loans. However, the political tension has not fully calmed.
These have raised further issues of sustainability of the bullish trend in an economy that is yet to come out of recession. Some analysts have expressed reservation about the sustainability of the sudden market surge hinting that the economy is yet to develop enough buffers and solid fundamentals to push further more confidently.
BH recalls that in the corresponding period of 2008, the market maintained a bullish disposition and investors smiled to the banks. The 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 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.
Findings by BH reveal that the market is gradually recovering, but it is still 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% in 2014 and closed in the negative by about -17.3% in 2015. It however, closed in the lower negative by 0.6 in 2016 and is now positive.