Nigerian Bourse Loses over N550 Billion in One Week as Profit Taking Intensifies

 The activities of speculative investors in the equities segment of the Nigerian Stock Exchange have led to loss of over half a trillion naira in market capitalisation in the last one week

Market capitalisation as at the end of trading session on Thursday, January 25 stood at N15.60 trillion. Market capitalisation dropped from a rally of N16.15 trillion on Friday, January 19, as All Share index (ALSI) came down to 43,529.06 points on Thursday, from 45,092.83 points on Friday the previous week.

As at Thursday, according to a report from Stanbic IBTC Stockbrokers Limited, year- to- date return on investment for investors on the Nigerian bourse remained positive at 14.96 per cent. The Nigerian bourse, which ranked as the third best performing stock market in the world in 2017, offered investors a 42 per cent return in the NSE ASI index.

Excellent Performance

Director General/Chief Executive Officer of the Nigerian Stock Exchange, Mr. Oscar Onyema, in his review of the sterling performance of the market in 2017, said the market, which witnessed a three-year downturn preceding 2017, recovered from the macroeconomic overhang of the commodity down-cycle to become the third best performing market in 2017, globally, with a 42 per cent return in the NSE ASI index. He attributed this performance, in part, to the Central Bank of Nigeria’s monetary policies that resulted in increased liquidity in the foreign exchange market. 

According to Onyema, the equity market activity skyrocketed from 2016 levels, as market turnover increased by 121 per cent to N1.27 trillion from N0.58 trillion. He said, “IPO activity in the year remained mute. However, there were several other positive indicators, including the revival of supplementary listings and the return of new issuances. The value of supplementary listings increased by 27 per cent, bringing the total value of equity issues in 2017 to N408 billion.”

Downturn

“As the Nigerian bourse continued its losing streak Thursday, last week, with further profit taking activities, the ASI lost 96 basis points; and is up 14.96 per cent year-to-date,” analysts at Stanbic IBTC Stockbrokers noted.

Further explaining the activities responsible for the slide on Thursday, Stanbic IBTC Stockbrokers Limited added, “We saw profit taking continue today in the market, especially in the banking sector, which was down -3.12 per cent on the day. We saw names, including FCMB, SKYEBANK and FIDELITY, trade on offer with significant volumes on the offer. We saw some volatility in other names, including GTB and ZENITH as well. We are seeing buyers take advantage of the weakness following the recent rally combined with profit taking activities. In the consumer sector, we are still seeing interest in the likes of NB as it spiked up +2.06 per cent. We expect today’s trend to continue tomorrow (Friday, January 26, 2018).”

Analysts

Managing Director of Afrinvest Securities Limited, Ayodeji Ebo, said the current trend in the market was expected, as investors were always poised to take profit after any strong rally, as was experienced in the Nigerian bourse in the first two weeks of January 2018.

According to Ebo, performance of the Nigerian stock market, which was largely due to renewed interest by foreign and domestic investors following stability in macroeconomic fundamentals, will remain upbeat in 2018. He disclosed that Afrinvest held that the Nigerian bourse would deliver a return of at least 32.7 per cent in 2018, which he described as a Bull case; which Base case was put at 19.8 per cent for 2018 and 7.7 per cent for Bear case.

“Nigerian market traded at a premium to frontier market peers in the last bull market (2013) but currently trades at a discount,” he added.

However, the 2018 performance projection for 2018 by Afrinvest  is largely dependent on three key factors, which are earnings fundamentals of corporate, stability in the FX market and other macro indicators, as well as portfolio flow dynamics .

Head of Research at SCM Capital, formerly Sterling Capital Market Limited, Mr. Sewa Wusu, believes earnings will be sustained given recent events and favourable economic indicators in the biggest economy in Africa. He attributed the recent rally in the equities market in Nigeria to market sentiments. His words, “The present profit taking in the market is expected as the rally in the first few weeks in January was huge and it is normal for investors to offload at a point to take profit.”

Wusu said both the Tier One and Tier TWO Banks are being speculated on by investors as they prepare to announce their financial year ended 2017 earnings. “Investors look forward to getting dividend from these banks towards the end of the first quarter in 2018,” he disclosed.

In a recent market review, Cordros Asset Management Limited said the possibility of continued profit taking remained high, but stressed, “Our theme on the market remains positive, on the back of favourable macro-economic conditions.”

Analysts at Cordros Research added, “Despite profit taking in today’s session, we believe that still-positive market fundamentals and improving macroeconomic conditions suggest legroom for further gains.”

Meanwhile on Thursday, MAYBAKER (+4.95%) topped the gainers chart while FCMB (-9.71%) topped the laggards table. Transcorp led the volume chart with 91.04 million while GTB led the value charts with N1.61 billion. A total of 11 stocks gained points while 44 stocks lost points.

Sector Update

 The NSE Banking Index lost 312 basis points on Thursday as profit taking continued. FCMB (-9.71%), DIAMOND (-9.60%), FIDELITYBANK (-9.52%), STERLINGBANK (-9.35%) and SKYEBANK (-9.03%) were among the top losers.

The NSE Consumer Goods Index gained 47bps. NB (+2.06%) and PZ (+1.23%) were gainers, while CADBURY (-6.13%), Honeywell Flourmills (-4.90%) and CHAMPION (-4.84%) were losers in the sector.

The NSE Oil and Gas Index was down 7 basis points on the review day.  The NSE Industrial index gained 48 basis points on the review day as WAPCO (+1.00%) gained points.

Notwithstanding the slide in ALSI at the moment, Onyema, like many stock market analysts and researchers, maintains that the outlook for the Nigerian capital market in 2018 is encouraging, despite election period lurking around the corner.

 “Indeed, to some extent, political activities and currency movements will have some effect on the market, but we expect that such impacts will be short lived and the performance of the underlying business activities will ultimately determine market performance,” Onyema stated.

On its part, the NSE is on track to become a more agile and flexible demutualised securities exchange. Onyema said, “We are hopeful that the Demutualisation Bill will be signed into law in 2018, and are working assiduously with our advisers to fine-tune outstanding aspects of the demutualisation project as well as providing clarity and transparency on the process via regular engagement with all our valued stakeholders.

“In 2018, NSE will launch Exchange Traded Derivative instruments and continue to engage with the government on privatisation and listing of state owned enterprises in collaboration with the private sector. We also plan to maintain our role as an advocate for the adoption and implementation of market friendly policies.”