Stakeholders Caution on NSE

7/27/2019 Stakeholders Caution on NSE

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Stakeholders caution, as Nigeria's market

indicators attain new levels

September 13, 2012 / By Kingsley , Ighomwenghian / Daily

Independent

Stakeholders in the Nigerian financial industry, on Monday,

expressed happiness at the robust activities in the various

segments, just as they adduced different reasons for the growth

in the markets indicators, while hoping that the growth seen is

sustainable in the medium to long-term.

Many readily link the growth in the nations stock index, as well

as the increased volatility on the fixed income side, and the

improvement in foreign reserves to the increased activities of

foreign portfolio investors. The latest data posted on the website

of the Central Bank of Nigeria (CBN) on Monday, shows that the

nations foreign reserves rose to $39.848 billion on September 7,

2012, the highest level since 2010. This represents a $3.448

billion or 9.47 per cent increase in one month from $36.4 billion,and $5.396 billion or 15.66 per cent, when compared with the

level, a year ago.

Meanwhile, the benchmark All-Share index of the Nigerian Stock

Exchange (NSE) jumped 1.12 per cent on Friday, the highest in

12 months, according to analysts at FSDH Securities Limited. This

was helped by gains recorded through the week, resulting in an

11-day rally, following which the index closed 1,087.88 points or

4.58 per cent for the week, on the back of blue-chip gains-

involving companies in the banking and fast moving consumer

goods segments. While the blue-chip index, for example, rose

4.68 per cent; it was outpaced by the banking indexs 7.10 per


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cent rise, while the consumer goods and lotus II indices climbing

3.98 and 3.63 per cent up respectively.

The growth in the equities and fixed income markets has also

been linked to the planned inclusion of Nigeria in the JP MorganGovernment Bond Index for emerging markets (GBI-EM) from

October. There is also the ongoing restructuring of toxic loans

owed by operators by the Asset Management Corporation of

Nigeria (AMCON).

By Monday however, the first sign of profit-taking was noticed, as

capitalization fell by N53.236 billion, and the index by 167.23

points or 0.67 per cent owing to losses suffered by heavy weights

like Dangote Cement; Flour Mills; and Zenith Bank.

Reactions

On the rise in the nations foreign reserves, Edwin Ikhinmwin, a

stockbroker and Chief Executive of Lagos-based Emi CapitalResources Limited, told our correspondent in a telephone chat on

Monday that the prices of crude have been good at the

international market.

Beyond this, he noted that the reserves have also benefitted

somehow from the noise that trailed the removal of subsidy on

the price of premium motor spirit (PMS) by the Federal

Government on January 1, this year. This, he believes, has

resulted in a drastic reduction in the volume of under-the-table

spending of the nations foreign reserves to pay for petroleum

products that never landed in the countrys seaports, and yet

huge billions of Naira was claimed by some oil marketers,

conniving with dubious government officials. This has therefore


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resulted in a more prudent outflow of foreign exchange, he said,

besides which nothing has changed considerably

On the stock market index, Ikhinmwin agreed that among others,

big time investors are reacting positively to a more attractivevaluation, calling attention to the fact that only the prices of blue-

chips, particularly those managed by foreigners, are moving up,

as a closer look at the market shows that the movement is not

across board.

The planned addition of Nigeria to the JP Morgan index has

resulted in the rush by foreign portfolio investors to put Nigerian

investments in their book. We will begin to see whether this is

sustainable, he said, warning that the foreign investors could

exit as easily as they entered, leaving the market gasping for

breathe again.

Many easily recall the near collapse of the Nigerian capital

market between 2008 and 2010, when the ASI dropped from its

all-time high of 66,371.20 points on March 5, 2008 to around

19,000 points. On that date too, the value of stocks on the NSE

stood at a princely N12.64 trillion, helped by robust price gains

and several new listings. Sadly however, analysts note, half of

the companies listed within the period, currently trade at a par

value of 50 kobo from as much as N13 (for some like CDMA

operator- Starcomms).

According to the September 10, 2012 edition of bond watch, by

analysts at Dunn Loren Merrifield, Lagos-based fixed income and

equities market group, there was high intraday volatility in theover-the-counter (OTC) market for trading bonds. This, according

to the report anchored by Tolu Oduokoya and Jide Nwogwugwu,

may not be unconnected with the presence of foreign investors

in the market as portfolio managers and institutional investors

reposition their respective portfolios.


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According the NSEs weekly report, trading at the OTC market

yielded a turnover of 227.005 million units worth N227.196 billion

in 1,034 deals, compared with 165.869 million units exchanged

for N162.416 billion in 760 deals recorded in the preceding week

ended August 31st, 2012.

Explaining further in a phone chat on Monday, Odukoya told

**Daily Independent,** that the planned inclusion of FGN bonds

in the JP Morgan index is a key driver of growth in the fixed

income market. He also noted that shares of companies in the

nations stock market has over the past months remained

underpriced, hence the interest of investors, many of who are

foreign, at this time.

He also linked the rise in the stock markets index, before

Mondays slide, to the planned take-off of the market making

initiative by the NSE on September 18.

Ahead of this, the NSE, yesterday in Lagos, organised a market-

wide interface to intimate stakeholders like experts in market

making, securities lending, short selling, as well as participants

such as settlement banks, pension fund administrators, insurance

companies and listed companies, about the rules and operational

guidelines for the programme.

This, Odukoya believes, is responsible for the high market

turnover, since the 10 market makers have already been

assigned a portfolio of 20 stocks each, which would necessarily

boost liquidity in the stocks. Although there will be profit taking,

he believes the market will find a higher support level around the22,000 points region, in the ensuing decline.

The stock market has been over-sold, so investors are going

back to take cheap assets, such that when they exit, it would be

at a good profit margin, he stressed.


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Also, analysts at analysts at Partnership Investment Company

Plc, an investment banking firm, in their analysis of last weeks

activities in the nations financial markets, attributed the rise in

foreign reserves pool to the reduced pressure on the Naira as

well as rise in the price of Nigerias main foreign exchange

earner. Prior to now, the Central Bank was expending the

reserves to defend the Naira.

On the equities side, Partnership Investment stressed that the

surge in the NSE index is coming at a time of renewed interest by

foreign investors in the nations financial markets.

Foreign participation in Nigerias treasury bills and bond

securities has allowed for huge foreign exchange inflow and

boosted the Naira, the report added.

For Olufemi Awoyemi, a chartered accountant, financial/market

analyst and chief executive of Proshare Nigeria, a finance and

investment portal, the current trend is expected, in a market

dominated by foreign investors who constitute between 80 and

90 per cent of inflow.

This, he argued, is because local investors are yet to sort

themselves out of the chronic illiquidity postures while the

incoming market making seems to be the only reasonable driver

for such unrelenting rally we are witnessing on the bourse.

Foreign investors continued to take advantage of most active and

value stocks. They are bidding up prices before the market-

making commences.

Consequently, Awoyemi foresees a tight situation or a deadlock

somehow in the market soon, because we have less pigs in the

market to slaughter when it is time to offload, since the retail end

of the market (the usual pigs) are almost dead- we shall see how


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the whole settings work out without forbearance and margin

facilities in nearest future.

For now, he continued, proprietary trading from domestic brokers

is not active, as Nigerian retail investors remain wary and on thesideline (though, the indecision level dropped significantly) while

retail shops are almost dead.

Also, he agrees that the euphoria of market-making has been the

only sound rationale we can point to as driver so far, although

other incentives and concerted efforts from stakeholders in the

market paved way for this.

The increment in reserves, he agrees, may be of some help tothose making investment decisions in the country, because it is

an index foreigners consider along with other economic

indicators to engage in bargain spree as we have observed.

In an e-mailed response also, Idowu Ogedengbe, a stockbroker at

Vintage Wealth Managers Limited, a Lagos-based firm also said

because about 80 to 90 per cent of international trades rely on

trade finance, actors in that market might have become morecomfortable in opening credit lines with Nigerian companies on

the back of the nations rising foreign reserves. In this regard, the

prospects for an enhanced trade flow into the country might

positively impact the nations capital markets thereby leading to a

rise in the NSE ASI.

The planned take-off of the market making initiative on the NSE,

he agrees, may equally have triggered the improved performance

of the market, prompting most investors waiting on the sidelines

to enter the market in the expectation that the market should

become more liquid and less volatile.


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AbdulRasheed Momoh, equities analyst at TWR Stockbrokers

Limited, on Monday, expressed optimism that the market could

rise to as high as 27,000 points, after some initial resistance.

In a note to clients, he also warned that the recent rise may justbe the markets last dance before entering the earnings season,

and that it seems the market is being pumped up, or fattened

up for the kill as the stock market is known as a discounting

mechanism for future valuation and not a feedback mechanism

for current valuations. As such, trying to line day to day economic

numbers with what exactly is happening in the stock market

typical ends in confusion for most people.

Continuing his analysis, Momoh noted that in the NSE 30 Index,

for example, less than half of the stocks broke their 5-8 years

resistance levels, and another set are testing one-year level. My

own momentum indicators, which are short-term, still indicate a

positive trend, and the overall index is still below the middle of

the trading ranges of the individual components.

In his assessment, stocks like Access Bank; Chemical & Allied

Products, a UACN subsidiary; Evans Medical, First Bank, Guaranty

Trust Bank, agro-based companies- Okomu Oil Palm and Presco;

and beer makers like International Breweries and Nigerian

Breweries; Nestle and Zenith Bank have made 52 weeks highs.

Others, he stressed, are still tagging along or below resistant

levels.

The biggest player Nestle is the only stock now above an all-time

historical high of N550. NB, now N127.50, has an all-time high ofN131.90, International Breweries at N14.39, has all-time high of

N15.86; Okomu Oil (with a high of N38.00, closed at N35.00 last

Friday).


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These few stocks have been leading the pack and I dont think

they have the capacity to move the overall Indexes as they

approach their five to eight- year resistant levels, except new

ones come on board.

For investor, shareholder-activist and National Coordinator of the

Independent Shareholders Association of Nigeria (ISAN), Sunny

Nwosu, many of the stocks on the rise today, are either value

retaining companies with which shareholders preserve the value

of their investment.

The growth in the stock market indices, Nwosu believes, may also

have been helped by the adoption by Nigerian companies of the

International Financial Reporting Standard (IFRS), which he

stressed, has resulted in provision of more financial information

about companies and in the process, greater transparency.

Conclusion

While many still believe investors should not go yet on a spending

spree on the back of recent improvement in stock prices, to avoid

a report of the 2008- 2010 scenario, Nwosu wants themanagement of regulatory agencies- Securities & Exchange

Commission and the NSE to be more alive to their responsibility

of protecting unwary investors.

According to the Partnership Investment analysts, the decline in

demand for crude at the international market today should be a

cause for concern.

We envisage a positive outlook for the economy particularly withthe growing interest of foreign investors in the Nigerian economy.

Foreign Direct Investment (FDI) is expected to grow further as

more foreign capital seeks outlets in emerging economies.

Reforms in the ease of doing business and other regulatory


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impediments need to be carried out to enhance funds inflow, the

report said.

Despite such call for cautious optimism about the foreign reserves

by analysts, Dr. Okonjo-Iweala, Finance Minister andCoordinating Minister for the Economy, in an interactive session

with the Organised Private Sector projected that Nigerias

reserves could rise to $50 billion by year-end. The highest level

was $60 billion, during the administration of President Olusegun

Obasanjo.


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Outlook tilts towards take-off of bearish run

THURSDAY, 13 SEPTEMBER 2012 08:38 IHEANYI NWACHUKWU

Following this weeks halt of 11-day market rally at the stock market, the

outlook is now in favour of the bears, analysts have confirmed.

After successive weeks of gains, profit-takers took charge of activities at

the bourse leading the All-Share Index (ASI) and market capitalisation on a

retreating path. Not only that, the daily volume, value and deals fell

significantly when compared with the trading statistics recorded last week.

Though, the return of foreign portfolio managers had triggered market rallyrecently, but analysts believe that declining yields on government bond is

partly responsible for the renewed interest in equities, in addition to the

current currency regime that limits exchange rate exposure.

In their recent market outlook, analysts at Cowry Asset Management said

they expect to see a mix of bargain hunting and profit taking as some

investors would rather watch out for the outcome of the market-making

billed to take off by September 18, 2012.

Analysts at Meristem said, Much as we expected, the profit taking by

investors started on Monday with the 67bps loss in the index. If we hold the

historical perspective, our expectation will tilt towards the take-off of a

bearish run as bargain hunting induces a profit-taking session. The bulls

are going on recess; take profit on your portfolio.

These analysts added: The longest consecutive gain the market recorded

in the year so far is eight days, which was followed by a couple of days

loss. Our expectation of dip in prices in the coming days will however notbe sufficient to dampen the cumulative gains of the last 10 days. Of the 172

trading days in the year, the market recorded 80 trading loss days and 92

trading gain days.

While our expectation of profit taking stands in the coming days, we are of

the opinion that the rally in prices so far in the year is not a fluke as the
http://www.businessdayonline.com/NG/index.php/markets/investor/44337-outlook-tilts-towards-take-off-of-bearish-runhttp://www.businessdayonline.com/NG/index.php/markets/investor/44337-outlook-tilts-towards-take-off-of-bearish-run


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fundamentals of the major quoted counters support the upward price

movement. Banking stocks, for instance, with 2011FY attractive earnings

currently trade at a trailing average P/E of 6.03x, an opportunity to

accommodate further price ramp since share prices are still relatively low.

Partnership Investment Company plc analysts said: With the bulls

currently having a grip on the market and increased bargain hunting

activities, the market is expected to maintain this trend in the coming week.

Although profit-taking activities are expected, this may not be enough to

significantly reverse the bullish run as the positive sentiments are expected

to prevail.

They added: Investors are advised to take positions in blue-chip stocks of

interest, as the bulls are expected to maintain their grip for most part of thecoming week. Risk appetite and return expectations should be major

consideration for investment decisions.

In their own view, analysts at Access Bank plc said: The buoyant mood in

the market can be traced partly to the impressive H1, 2012 scorecards and

attractive dividend payouts by most heavily capitalised stocks, especially in

the banking sector. They expect market performance to thrive on renewed

optimism with attendant impact on trading/speculative activities.

Furthermore, the selected 10 market-makers are expected to commence

operation on September 18, 2012. This may further boost confidence in

holding equity investments as investors anticipate significant returns on

investments, the analysts at Access Bank, added.

SPONSORED BY : GTB Assect Management

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Stakeholders Caution on NSE