Nigerian equities rode on the back of increased bargain-hunting and positioning for the new earnings seasons to record a modest gain of N198 billion in February. The bullish performance in the second month contrasted sharply with the downtrend that started the year when equities lost N1.63 trillion.
Aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE) closed February at N10.045 trillion as against its opening value of N9.847 trillion for the month. This represented capital gains of N198 billion.
The benchmark index at the stock market, the All Share Index (ASI)-a value-based common index that tracks prices of all shares on the NSE, closed the month at 30,103.81 points compared with its opening index of 29,562.07 points for the month. This indicated month-on-month average gain of 1.83 per cent.
The upswing in February moderated the negative overall market situation as average year-to-date return improved to -13.14 per cent as against -14.70 per cent recorded in January.
Analysis of the price movement trend showed widespread bullish sentiments during the month with investors showing greater interests in undervalued banking stocks. All the group indices at the NSE closed higher, with the exception of the consumer goods index which closed on the downside.
The NSE 30 Index, which tracks the 30 most capitalised stocks at the stock market, recorded a month-on-month average return of 2.71 per cent. The NSE Banking Index recorded the highest gain of 10 per cent. It was followed by the NSE Oil and Gas Index, which rose by 8.13 per cent. The NSE Lotus Islamic Index, which tracks stocks that comply with Islamic jurisprudence, chalked up 7.53 per cent. The NSE Industrial Goods Index showed a modest appreciation of 0.46 per cent while the NSE Insurance Index inched up by 0.11 per cent.
Total turnover during the month stood at 7.74 billion shares worth N92.25 billion in 84,768 deals. Financial services sector continued to dominate the market with a monthly turnover of 5.94 billion shares valued at N46.28 billion in 50,330 deals.
However, the market remained in the negative over the two-month period. Average year-to-date return remained negative at -13.14 per cent, equivalent to a loss of N1.43 trillion over the two-month period. Nigerian equities had lost about N1.63 trillion in January, indicating average month-on-month loss of 14.70 per cent.
Aggregate market value of all quoted equities on the NSE closed January at N9.847 trillion as against its opening value of N11.478 trillion for the month. This represented a loss of N1.63 trillion. The ASI closed January at 29,562.07 points, indicating a year-to-date return of -14.70 per cent. It had opened the year at 34,657.15 points
The performance in the first month had raised the spectre of the grueling bearishness in 2014 when Nigerian equities ranked among the worst-performing stocks globally with average full-year decline of 16.14 per cent. Aggregate market value of all quoted equities closed 2014 at N11.478 trillion as against its opening value of N13.226 trillion for the year, indicating a loss of N1.75 trillion during the year.
Most analysts expected the market to be dominated by bearish sentiments in the first half, but the pricing trend is expected to pick up in the second half.
Managing director, Finawell Capital Limited, Mr. Tunde Oyekunle said the market situation would improve towards the end of the first quarter as the political risks subside.
“Specifically, the economic and political risk of the country is currently too high for multinational and foreign investors. Factors influencing this includes dwindling price of Brent Crude Oil, uncertainty of the election transformation period, decreasing value of Naira and unfavourable foreign exchange. Local investors are further affected by the increased volatility of the market due to increase in movement band from daily allowable change of five per cent to 10 per cent,” Oyekunle said.
Group head, research, Lead Capital Plc, Mr. Sadiq Waziri, attributed the earlier downtrend to the pump and dump technique adopted by most traders at the NSE.
According to him, traders forced the market to close high towards the end of 2014 by pumping up the share prices in order to ensure that their portfolios closed the year on a good note.
“They all adopted the same tactics to close the market high and dump in the New Year. Since everybody has the same strategy, the market will suffer for it,” Waziri pointed out.
He, however, noted that the market situation will moderate after the elections, adding that investors should expect stronger performance after the swearing in of the newly elected government.
Head, Research and Intelligence, BGL Plc, Mr. Femi Ademola, said the security challenges in the North East, which is scaring away many strategic investors and the continuous decline in oil price with its effect on exchange rate stability as well as political uncertainty had created a risk scenario that is making investors to be afraid to risk their money into the market.
He, however, added that most of the identified problems are transitory and the market may ride over remaining concerns after the elections.
Analysts at Vetiva Capital Management Limited however said investors in Nigerian equities may earn an average double-digit return of about 16 per cent this year, in spite of the bearishness that started the year.
Vetiva, in its outlook for 2015, stated that Nigerian equities have been significantly undervalued by the previous bearishness and would witness considerable recovery this year.
Analysts at Vetiva noted that while the performance of the equities market will correlate with the global oil price trend, a mid-point analysis suggests that Nigerian equities can make potential average return of 16 per cent this year.
Analysts pointed out that while valuations appear relatively cheap, sustained pressure on oil prices will likely continue to constrain investor re-entry into equities. Analysts thus anchored their 2015 return expectation for the All Share Index (ASI) of the NSE on oil price performance in the year.
According to analysts, using 16 year data, a correlation factor of 72 per cent between Brent crude prices and the ASI was established. The assumption of Brent crude recovering to $70/bbl by year end indicates a 22 per cent recovery from 2014 end position; thus, factoring in 72 per cent correlation suggests that amidst much volatility, the ASI holds a potential 16 per cent return in 2015 to 40,201.56 points.
“Our scenario analysis indicate that at $100/bbl level, ASI would hold a potential 54 per cent return for the year, whilst at $20/bbl price level, the return potential is -47 per cent. Given that the market selloff in the final quarter of 2014 was broad based, we believe a market recovery in 2015 will equally be broad based,” Vetiva stated.
“We expect a moderate recovery in oil prices in 2015, driven largely by a marginal improvement in global economic growth, which should support demand, but will still be overshadowed by supply, stemming any sustained rise in the oil price. Our sense, however, is that the prospects of a sustained recovery will be based on whether price weakness triggers substantial reduction in non-OPEC supply and/or a cut in OPEC production either at the June 2015 meeting or earlier. The former could be influenced by the risk of delayed shale projects if prices stay well below projected break-even for too long, and the latter by the risks of running large budget deficits and lower growth prospects resulting from depressed oil revenues. Other risks that could trigger an uptrend in oil prices would be: supply disruptions in the Middle East, an aggressive build-up in China’s Strategic Petroleum Reserves (SPR), and a more intense winter in the US These events however need to be significant enough to alter oil market fundamentals by tightening supply in order to sustain the oil price rebound. In our core scenario, we expect the Brent to gradually rise from the current levels to US$60/bbl by first half of 2015, and up to US$70/bbl levels by year-end 2015,” Vetiva noted.
