After going on the uptick for six straight days, the Nigerian Stock Exchange’s (NSE’s) All Shares Index (ASI) reached a three year high as investors showed growing exuberance.
Despite Friday’s 70 basis points bearish dip, the bourse recorded a 3.46 per cent appreciation week-on-week to close at 39,257.53 from the previous day’s 39,534.14. The last time the market had risen so high was in October 2014, reinforcing broad optimism amongst traders.
The market recorded a 6.17 per cent decline in 2016 on the back of acute foreign exchange scarcity which hit the foreign currency market due to a significant fall in crude oil prices, causing portfolio investors to take flight.
The economy slipped into recession in the first quarter of 2016 before rebounding in the second quarter of the year. The economy saw a 1.4 per cent growth in Gross Domestic Product (GDP) in Q3 with analysts predicting a final Q4 growth of 1.7 per cent.
“The positive sentiment surrounding the economy and the expectation of a better dividend at the end of the year are the major factors fuelling the market movement,” explained David Adonrin, Managing Director, Highcap Securities Limited.
Robert Omotunde, analyst, Afrinvest West Africa Limited, further exp[lained that foreign portfolio investors, who have renewed their confidence in the economy as oil prices move upwards, constitute major drivers of the market.
He added that the stability in the foreign exchange market further toughened investors’ positive sentiments.
“The fundamentals for the equities market seem to be right. The Major driver for the market is the foreign portfolio investors and their major concern for Nigeria has been foreign exchange” stated Omotunde.
The Nigerian economy is heavily dependent on oil, which provides over 90 per cent of her foreign exchange earnings. It was, therefore, dealt a heavy blow when oil price dropped to $27 in February 2016, causing the value of naira to decline to N525 against the US dollar in February.
Following the recovery of oil prices, the Central Bank of Nigeria (CBN) in the first quarter of the year commenced aggressive intervention in the forex market and has so far injected over $10 billion into the market in the last 10 months. The CBN also introduced the Nigerian Autonomous Foreign Exchange (NAFEX) window, otherwise known as the Investors’ & Exporters’ (I & E) window, which has helped stabilize the currency market.
Nigeria’s oil production output recently hit 2.2 million barrels per day, but OPEC has asked the country to peg its production at 1.8 million bpd in 2018 as part of the deal to keep prices up.Oil was sold for $63 on Friday.
Omotunde was of the view that, “We can expect that some profit taking will take place as the year runs to an end and we can believe that the market will sustain this trend till the end of December.”
The financial sector was the major catalyst of the bullish trend recorded last week with FBN Holdings, Fidelity Bank and Zenith Bank emerging as the top three equities for the week. They accounted for 958.742 million of the 3.316 billion shares worth N36.451 billion traded.
The 6,765 deals involving FBN Holdings, Fidelity Bank and Zenith Bank Transactions were valued N11.355 billion, contributing 28.91 per cent and 31.15per cent to the total equity turnover volume and value respectively.
FBN Holdings, Cadbury andFidelity Bank led the gainers for the week, appreciating 26.33 per cent, 22.87 per cent and 20.87 per cent respectively. On the other hand, Total Nigeria, International Breweries and Chellarams were the top three losers last week, dropping -5.39 per cent, -5.37 per cent and -4.94 per cent accordingly.
Last week, Union Bank’s 51,299,322 ordinary shares of 50k each from its N50 billion Right Issue were listed on the exchange. This brought the bank’s ordinary shares to 16,987,105,793.
Flour Mills of Nigeria also proposed a Rights Issue of 1,476,142,418 ordinary shares of 50 Kobo each at N27.00 kobo per share on the basis of 9 new ordinary share for every 16 ordinary shares held through Stanbic IBTC Stockbrokers Limited.