By Chinenye Anuforo and Chinwendu Obienyi
Despite predictions by market analysts that the stock market will recover this year, the first quarter ended with 5.1 per cent deficit.
The market ended 2016 with a decline of 6.17 per cent, which was still an improvement on the 17.4 per cent drop recorded in 2015. Speaking on the market outlook for 2017 in Lagos, the Chief Exchange Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, said investors should expect positive performance this year.
According to him, the capital market is a subsector of the Nigerian economy and the World Bank has projected it will recover from its recession in 2017 with a modest growth of 0.6 per cent. Onyema, argued that based on the positive forecast and the initiatives being put in place by the NSE, investors should be optimistic about recovery of the market in 2017. Although the first quarter of the year has ended with the market bleeding.
However, the market began on negative note as the NSE All-Share Index fell by 5.1 per cent to close lower at 25,516.34 in the first quarter (Q1). The market capitalisation shed N426 billion to close Q1 at N8.829 trillion, from N9.255 trillion.
Explaining what led to the poor performance in the period under review, analysts said that market performance has been affected by factors such as investors’ drift to fixed income securities, exit of foreign investors due to foreign exchange (forex) challenges and poor corporate results engendered by difficult operating environment.
Specifically, the Chief Executive Officer, APT Securities and Funds Limited, Kasimu Garba Kurfi, argued that the the last quarter in the market in 2016 experienced scarcity of the foreign exchange and the devaluation of Naira and when there is scarcity of the foreign exchange, it denies foreign investors access into the country and this affected the market negatively.
He added that President, Muhammadu Buhari ill health also contributed to the poor performance of the market as there wasn’t any clear information from the presidency about the president health. “There were uncertainties and our market doesn’t work with uncertainties because the more the uncertainty the more the market misbehaves. Another factor is the economy itself which closed negative last year and because it closed negatively, it is still being felt even this year because if you look at it, companies are gradually recovering from the effects of last year. Therefore the effects of last year has flown into the first quarter of 2017 and generally it affects our turnover. If you look at the turnover at the Exchange, its less than N2 billion on the average per day, and this contributed to poor performance of the market that reflected in the All-Share-Index.
“Another thing that shows the market may still rebound is the coming of other companies into the capital market. Union Bank is coming with a rights issue coupled with the listing of Medview Airlines and Jaiz Bank, showing that there is hope in the capital market as other companies are looking at coming into the capital market either at the end of the second or third quarter of the year. And the more the activities. Now you can see that naira is gaining and the availability of the foreign exchange in improving. The gap between the parallel and unparallel market is reduced. This also attracts foreign investors to come into the market because the gap is minimal but once the gap is very wide, nobody will come to your market. The CBN has done some good job in reducing the gap and we hope that by the end of the second quarter, the market will close on a positive note”.
In his own contribution, shareholder activist, Bayo Adeleke, said that the year 2016 closed in very bad shape. “That was actually the peak of the recession and that was when the dollar also peaked at N500 to $1,” he said. “We started the year with a lot of uncertainties, Mr. President fell ill and things were not all that in shape and we are just coming out of 2016 which was not so encouraging. Be that as it may, I think going forward to the second quarter; we should begin to see reversal. At least, inflation has come down by 1 point and with the levels of activities generated by the Vice President when he was the acting president coupled with efforts of the CBN, dollar rate has reduced to N350 interbank and about N380 in the parallel market. This is a better than N525 seen back in January. I want to believe that going forward what we call FX base may now be either recorded or reversed in the books of some of the companies. By the time we are seeing the third quarter results, things will begin to look very good and if the CBN can continue to defend the naira and it stabilises, we may get out of this recession very quickly and the market will bounce back.
The Managing Director, High Cap Securities Limited, David Adonri, explained that the economy is still in disrupt. “If you look at all the economic indices, they are still in the negative and that is what is reflecting at the equities market so far. So, until the direction of the economy is positive, we may still be having low investors’ confidence in the market.
Also speaking the Chief Executive Officer, Cowry Asset Limited, Mr. Johnsonn Chukwu, said a couple of factors contributed to the first quarter poor performance. He said, For local investors, the return metrics is in favor of fixed income instruments in the sense that you have FGN bonds at 18.6 per cent even treasury bills at about 13.5 per cent whereas the dividend yield averaged 5 per cent and we were coming from a preceding year where the market was negative. So, for local investors, their preference is for fixed income instruments instead of equities, even the pension fund administrators portfolios are in favor of fixed income instrument.