Stock market bounce lifts economy

… Dangote, Zenith, GTB win big

Okey Onyenweaku

The New Year started off on a bright note for the Nigerian stock market as the All Share Index (ASI) soared by 12.17 per cent year to date at the end of the previous week. Investors have noted that this is one of the fastest growing markets in the world soaring past the Honk Kong Hang Seng at 4 per cent, the South African Jo’ Burg Exchange (JSE) at 0.2 per cent and the Dow Global (World) at 3.7 per cent.

Nigeria’s Bourse has risen to its highest level in nine years as investors go long by buying up stocks on the cheap and making tidy profits. Those who scurried into the market early in January, 2018 have already creamed up 12.2 per cent yields in 12 days. The major bench mark, the NSE All share index has jumped from 38,264.79 points to 42,898.90 points at the close of business last week.

Market capitalisation has also recorded soared from N13 trillion to N15 trillion year to date. The market’s surge has reflected strongly in the prices of Dangote Cement, G T Bank, Zenith Bank, UBA, Access Bank and other blue chip stocks. For instance, Dangote Cement stock has gained 9.56 per cent year to date. G T Bank has jumped 20.8 percent from N40.55 per share on January 2, 2018 to N49.00 as at January 12, 2018. Access Bank’s stock leapt by 13 per cent from N10.60 early in the year to close at N11.92 at the end of last week. Similarly, the stocks of Zenith Bank surged 20.5 per cent, UBA  Plc added 15.4 per cent, First Bank enjoyed a lift of 31.62 per cent to close at N11.57.

The ASI in 2017 had gained 42 per cent year on year (YOY) easily one of the best risk –to-return rates anywhere in the world for the year. Bumping up from a negative return of – 6 per cent at the end of 2016, the Nigerian stock market has edged up powerfully with a slew of foreign direct investors buying up equities.  The ASI which measures the average value of equities rose from 26, 616.89 points early in the year to close at  38,243.19 points on December 29, 2017.  Market capitalisation equally advanced by 49 percent (or N4.4trillion) from N9.1 trillion on January 3, 2017 to N13.6 trillion on December 29, 2017 . Sectoral indices also climbed equity escalators.

Calling it a good year, Equity traders have attributed the recent bullish market run, to a generally optimistic outlook on the economy, especially in respect of growth in the agricultural sector (which grew by 3.1 per cent in the course of the year) and the service sector which equally saw major improvement in patronage and grew by slightly less than 2 per cent. The Oil and Gas sector experienced some set back as oil prices dipped on the international oil market at the beginning of the year but with prices rising above $65 per barrel for Brent, some respite looks likely for companies listed in the sector. Already companies like Seplat and Oando have seen their financials looking brighter.

The 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.

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.

In his view, Managing Director, Crane Securities Limited, Mr. Mike Ezeh, submitted that the capital market will receive a boost in 2018 better than in 2017 when foreign investors dominated activities in the market.

Unfortunately, these are projections and assumptions that will shape the economy and the capital market next year. But since there is no certainty that all things will be equal, there are yet other conditions that may hamper the growth of the capital market in 2018.

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.