Chinwendu Obienyi
Broad economic factors routinely had jolting influence on the Nigerian Stock Exchange, forcing both traders and investors to react quickly to hedge against new market conditions.
Consequently, movements in the market appeared quite volatile with movements in share prices trending against prevailing economic conditions overall.
Although, months of June and July 2019 have come and gone, the footprints they left on Nigeria’s stock market may never be forgotten in a hurry as transactions on the nation’s bourse ended negative going by several reports released on developments around the Nigerian economy.
This was because Investors who closed their equities portfolio at about N13.685 trillion on the last trading day of May saw it eroded to N13.205 trillion on the last trading day of June.
The market capitalisation of equities (not including the value of MTN Nigeria Communications Plc and Airtel Africa Plc), closed at N10.347 trillion on July 31, 2019, which was the last trading day of the month.
This represents a total haircut of N482.85 billion shaved off the market capitalisation in two months and as at August 16,2019, year-to-date (YTD) loss worsened to 14.3 per cent.
Analysts had hoped that the listing of two major telecommunications companies on the NSE would boost market performance, but the reverse turned out to be the case.
MTN listed its shares on May 16, driving the market capitalisation up to N12.526 trillion as it added N1.8 trillion to the total market capitalisation. The market capitalisation climbed further to N13.400 trillion on May 21 and N13.864 trillion on May 23, after which it started declining, dropping to as low as N13.048 trillion on June 26.
For its part, Airtel, listed shares on the NSE on July 9, adding N1.36 trillion to the total market capitalisation of the Exchange. The nation’s stock market recorded gains on the day of the listing, after which it was hit by bearish sentiments with Airtel share price shedding 18 per cent in the two days following its listing.
The record decline in the months reviewed (June and July 2019) no doubt left groans in the mind of some long-term investors who opted not to sell their stocks.
Despite that prices of stocks across board remained deflated in the reviewed months and presented attractive entry points for bargain hunting, proceedings still slowed down as investor sentiment on Customs Street remained bearish.
Statistical data obtained from the Exchange showed that International Breweries led the losers’ chart with 31.69 per cent price depreciation to close at N12.50 per share. This was as Linkage Assurance came second with 26.76 per cent to close at 52k, while Forte Oil dipped 26.68 per cent to close at N19.65 per share.
Others major losers within the month of July include Ecobank Transnational, Eterna, Total Nigeria, GlaxosmithKline, Nigerian Breweries, NAHCO and Fidson Healthcare.
Investors’ traded volume dropped by 49.84 per cent with an exchange of 4.67 billion shares compared with 9.31 billion shares traded in June 2019.
Furthermore, earnings from quoted companies have been mixed while some other were pretty bad. For example, Zenith Bank Plc.’s audited H1-19 result which was recently released, showed gross earnings growth was tepid, expanding moderately by 2.9 per cent y/y, as non-funded income growth provided the only support. Interest income declined by 6.15 per cent y/y, driven by weak risk asset creation and declining yields on fixed-income securities.
Consequently, income from loans and advances to customers declined by 21.43 per cent y/y, completely offsetting the 21.06 per cent y/y growth in income from investment securities.
For GT Bank, its gross earnings growth came in lower by 2.09 per cent y/y, as interest income declined (7.96 per cent y/y) due to weaker income from both loans to customers (-9.97 per centy/y) and investment securities (-7.74 per cent y/y). However, the decline in interest expense (-25.8 per cent y/y) partly cushioned the impact of weaker interest income and resulted in net interest income declining marginally by 1.33 per cent y/y.
Perhaps the performance of Nigerian Breweries seemed more disappointing, as revenue declined by 1.4 per cent y/y while Earnings Per Share (EPS) also dipped 27.8 per cent y/y to N1.67.
The above trends were however not surprising considering that the Presidency had earlier last week raised the alarm that the economy might be heading for a fiscal crisis unless urgent steps were not taken to halt the negative trends in target setting and realisation in government revenue. The government at the Aso Rock Villa had expressed some trepidation over the failure of the Federal Inland Revenue Service ( FIRS) to hit the bullseye in its revenue generation, in a development its Chief revenue collector said was in line with the signs of the time.
Even as the Muhammadu Buhari administration, claimed the number of taxable adults have risen from 10 million to 20 million with concerted efforts still on-going to bring a lot more into the tax net, the anxiety over a looming fiscal crisis is not lost in the mind of the government and the generality of the citizens.
It is still a pointer to President Buhari’s warning at the beginning of his second term that tough economic times are ahead of Nigerians.
In the first quarter of 2019, Nigeria’s gross domestic product advanced 2.0 per cent year-on-year, easing from a 2.4 per cent expansion in the previous period and below market expectations of 2.1 per cent, mainly due to a steeper contraction in the country’s oil sector.
The oil sector shrank 2.4 per cent in the three-months to March of 2019, after contracting 1.6 per cent in the prior period. The country produced 1.96 million barrels of crude oil per day, lower than 1.98 mbpd in the same period a year earlier. As a result, the oil sector accounted for 9.1 per cent of GDP compared to 9.6 per cent a year ago.
Analysts who spoke to Daily Sun, noted that with the economic and security challenges currently facing the country coupled with weak earnings reports from quoted companies, the nation’s weak economic fundamentals are apparently showing off and reflecting on the stock market.
Economist and Financial consultant, Dr Biodun Adedipe, noted that the government was yet to do things in the right way while adding that although the economy is growing, the growth has remained sluggish.
He said, “When you look at it, we are a few months to vision 2020 and we are yet to get certain things right even from when this vision was created. It means that some things went wrong. So the critical question is what has to change? Yes we live in an environment where everything is contrary to what we expect. The economy has been growing quite alright, but sluggishly, as at today, we are not creating jobs, inequalities here and there and so there are things that need to change.
First, we have to ask ourselves how other nations around us have developed so quickly and the fact is that not every single one of those nations developed peacefully without an anchor”.
According to Adedipe, the government needs to pick an economic activity or a sector of the economy that would be its primary focus.
“One is Agriculture, we need to do much work in this sector because of our population. The government must be very conscious of population growth and l say this with every sense of responsibilities because as at today we have a population of about 7.7 billion and we are projected to grow by 9.7 billion by 2050. This means that 200million that will be added to the growing population that we already have, sends a strong signal to what we should be doing in terms of population control. On the other hands, this population is producing more people who would be looking for jobs and so we have a responsibility to increase productivity and create jobs.
Manufacturing is another sector we should look into because it goes hand in hand with Agriculture. The foreigners recognise that the market in Africa is here is in Nigeria and so when they produce in their own country, they come down here to sell it. So how can we then grow if we do not maunfacture our own goods? Why do we have less number of factories? So we have to deal with this issues first before we begin to see it reflecting in the nation’s capital market”, he concluded.
Equity Research Analyst, Cordros Securities, Mustapha Wahab, lamented that the market has really been battered to the point where people are now afraid to put their money in shares.
Wahab noted that the equities market is in need of market friendly reforms and policy implementation by the Federal Government.
He said, “Our views in the equities market is very clear and it is until we see market friendly reforms and policy implementation by the Federal Government, that is when we will start to see some form of positive activity in the market. But from where we are right now, the market is very cheap when compared with Nigeria’s PE with comparable countries which should have driven some activity in it but for the fact that it wants to see conducive policies put in place.
The global environment is not supportive of risk assets that is why you see investors playing more in the fixed-income space rather than in equities despite sell-offs. Our total offshore yielding of foreign transactions stands at N27 billion, that is off N26 billion in the previous month in July and most of the income was from the fixed-income not equities which has fallen to about N4.5 billion from N11 billion recorded in February. This goes to show that the foreign investors are no longer interested in investing in Nigeria, they would rather stay with fixed income instruments”.
According to him, the market should see a rebound in equities in the month of November by which time, the government must have gone far with implementation of the 2019 budget with presidential cabinet ministers now inaugurated.
Another Investment analyst, at Afrinvest, Adedayo Bakare, attributed the run of losses present in the stock market to slow growth in earnings.
“Growth is improving but it is very slow. You find out that these investors are also thinking about the future more like what the plan for the next four years would look like, what reforms are coming on stream, this is because we have weak investment in infrastructure, social services, education, health and also when you balance government position which is currently bad. So they are looking for a response from the government and they are yet to see that so far and we believe that these are the reasons investors are playing it safe rather than playing in the equities, they are now focused on the fixed income instruments”.
For his part, Head, Research at FSL Securities, Victor Chiazor said, “Investors should review their positions in line with their investment goals, the strength of the company numbers and act as events unfold in the global and domestic environment, so investors have to toughen up as tough times await the capital market”