The Nation Newspaper

Tag: stock market

  • Expect more volatility in the stock market, say analysts

    There may be increased volatility in the stock market as portfolio and fund managers realign their portfolios toward the year-end and investors seek alternative investment options to lock in their funds.

    Analysts said the performance of the stock market in the remaining weeks of the year will be affected by the devaluation of Naira, high cost of funds and high interest rate.

    The outlook report came as the stock market lost 0.46 per cent on Monday, pushing the negative average year-to-date return at the Nigerian Stock Exchange (NSE) to -19.97 per cent.

    In their latest review, analysts at FSDH Securities Limited said the current market situation was due to investors’ apathy in the market, on account of the continued threat pose on the economy as a result of the declining oil price, the regulatory headwinds affecting the banking stocks, security challenge in the Northern part of the country affecting most of the Fast Moving Consumer Goods (FMCG) results.

    According to analysts, the fact that interest rate in the money market has been on the rise lately has also not helped the equity market.

    “We expect to see a high level of volatility in the equity market in December, as portfolio and fund managers begin to realign their portfolio to close the year. We are of the opinion that the valuations of stocks quoted on the NSE are attractive both in absolute and relative terms and has potential to attract potential investors,” analysts stated.

    They noted that a number of stocks on the NSE have good fundamentals and have prospects for growth in the medium to long-term pointing out that the market has continued to offer exceptional opportunities for medium to long-term investors.

    Analysts stated that while the equity market historically usually appreciates in December, the current negative developments on the economy may temper the historic trend.

    “Going forward, we expect some pressure on corporate earnings of companies quoted on the floor of the NSE to decline, as a result of high cost of funds, exchange rate losses, higher interest rate and inflationary pressures,” FSDH stated.

    They advised that investors should maintain a medium-to-long term view of the market noting that stocks with diversified products and business may be good choices at the moment.

    “This time may not be a good time for the speculators in the equity market,” FSDH stated.

    The report indicated that a total inflow of about N1.27 trillion is expected to hit the money market from the various government maturing securities and Federal Allocation this month while expected outflows from various sources such as government securities and foreign exchange funding are estimated at N776.83 billion, indicating a net inflow of N492.33 billion.

    The analysis does not include the possible Central Bank of Nigeria (CBN)’s interventions at the inter-bank segment of the foreign exchange market; and Nigeria National Petroleum Corporation (NNPC) withdrawals from the system which are difficult to estimate.

    “We expect that the CBN will continue to issue Nigeria Treasury Bills (NTBs) at higher yields in December. Yields are expected to increase in the month of December 2014. The increase will be driven by the following factors: declining oil price and the risk of declining revenue that it portends for the Federal Government of Nigeria (FGN), the decision of the CBN to tighten monetary policy, electioneering spending to fuel inflation, possible increase in the inflation rate from December 2014 following devaluation of the foreign exchange rate and bank’s deposit mobilization drive for the end of year,” FSDH noted.

    They however stated that that the recent quantitative easing (QE) measures of the European Central Bank (ECB) and the expansionary measures of the Peoples Bank of China (PBoC) may lead to additional inflows of investment funds to Nigeria in the form of Foreign PortfolioInvestments (FPIs) thus moderating yields.

    Analysts said fund managers may move funds to the longer-tenored fixed income securities while placement of funds with banks to earn attractive yields will be a good strategy.

  • Understanding cycles and their influences on the stock market

    Cycles are unique phenomena that have fascinated man all through civilization. A cycle represents the completion of a periodically repeated phenomenon; it is an event-happening one after the other in a certain order. No matter what sector, cycles have similar characteristics, but may have different time or life span. All the cyclical variables have four common stages which go up-expansion, peak-prosperity, go down-contraction and then bottom out-recession. Cycle stages are intertwined and this makes it difficult to predict exactly when the next phase of a cycle commences or ends.

    The following are variables whose cycles have a direct bearing on the investment sphere:

     

    Economic cycle: Economic cycle generally captures the reoccurring and fluctuating levels of economy driving indices such as gross domestic product (GDP), interest rates, levels of employment, rate of inflation, prices among others. Apart from random shocks to the economy, such as wars and technological changes, the main influences on the level of economic activity are investment and consumption. Other factors that drive the economic cycles include; volatility of investments spending, technological innovations, fluctuations in government spending, monetary policies and fluctuations in exports and imports. Business cycles are usually of shorter duration than economic cycle, are industry or market specific and can be more easily influenced by money supply and monetary policy.

     

    Market cycle: A market cycle basically reflect the entire range of activity or event over a given time period in a given market and though market cycles reoccur periodically, they do not occur in predictable schedule. The length of each full cycle can vary from several months to several years. It represents the movement from a period of increasing prices and strong performance-bull market, through a period of weak performance and falling prices-bear market, and goes back again to regain strength.

    Trends may exist in a given market environment allowing some securities to outperform others due to advantages created by certain innovation, new product line and regulatory environment. Though market cycles are often hard to pinpoint and rarely have a specific beginning or ending point, investment experts believe they exist and pursue investment strategies that aim to profit from them by trading in securities within the swing of the cycle.

    A unique feature of market cycle is that it generally runs ahead of the concurrent economic cycle. For example, investors begin to sell stock because they anticipate a recession, or turn bullish in the early stages of a recovery. Also within the market cycle not all cycles operate on the same schedule, a good example is the stock market which tends to operate on a different cycle from that of the bond or commodities markets. These overlapping but distinct cycles are the basis of the investment strategy known as asset allocation backed by fundamental and technical analysis.

     

    Stock cycle:Stock cycle defines the period between the early uptrend in the stock’s price to a high and eventually to a downtrend. In effect, it represents an expansion and contraction period, somewhat like the economic cycle. It can be deployed for portfolio management allocation, allowing for more investment during accumulation and mark-up phases and less investment during the distribution and markdown phases.

    The study of stock cycle is very critical to the success of investment decisions and will give investors invaluable insight into trending conditions for a stock whether sideways, up or down. Though the stock cycle can repeat itself, it is not necessary to predict it, having the right strategy however is essential to take advantage of what the price is doing to maximize profit taking.

    To maximize investment or trading returns, investors must recognise that stock markets are cyclical and pose a significant challenge to investors aiming to time or predict the top or bottom of the market.

    The following are four stages of the market investors must study and master to avoid being caught off guard or getting sucked into the market bubble:

     

    Accumulation stage: This phase occurs after the market has bottomed out and savvy investors made-up of value investors and risk inclined investors begin to take position in the market, believing that the worst season is over. Valuations are usually very attractive to investors, who invest in securities over a period of time in order to build a portfolio of desired value. Though reports on the performance of these stocks may be gloomy and general market sentiment may still be bearish, the accumulation phase presents the best time to buy as prices are usually flattened due to sellers throwing in the towel.  Overall market sentiment begins to switch from negative to neutral.

     

    Mark-up stage:At this stage, the market has achieved some level of stability and is beginning to move higher. The early majority of mature investors join the bandwagon for several reasons including; fear of being left out, seeing that the market is putting in higher lows and higher highs and recognition that market direction and sentiment have changed.

    As this phase begins to come to an end, the late majority run into the market and volumes begin to increase substantially. At this point, the greater fool theory prevails: the late majority are getting in, the savvy investor who entered at the accumulation stage begin to unload their stock holding. But as prices begin to level off, or as the rise slows down, those late-comers who have been sitting on the fence see this as a buying opportunity and jump in en masse. Prices make one last parabolic move, known in technical analysis as a selling climax, when the largest gains in the shortest periods often occur. But the cycle is nearing the top of the bubble. Sentiment usually goes from neutral to bullish to downright euphoric during this phase.

     

    Distribution stage: In the distribution stage of the stock market cycle, sellers begin to dominate. This part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns into a mixed sentiment. Prices can often stay locked in a trading range that can last a few weeks or even months. The distribution phase is a very emotional time for the markets, as investors are gripped by periods of complete fear interspersed with hope and even greed as the market may at times appear to be taking off again.

     

    Mark-down stage: The final phase in the cycle is the most painful for those who still hold positions. Many hang on because their investment has fallen below what they paid for it. It is only when the market has plunged 50 per cent or more that the late-comers, many of whom bought during the distribution or early mark-down phase, give up. Unfortunately for them, but fortunately for savvy investors, this is a buy signal and a sign that a bottom is imminent.

     

    Political cycle: One of the best examples of the cycle phenomenon is the effect of the four-year presidential or political cycle on the stock market, real estate, bonds and commodities. The theory about this cycle states that economic sacrifices are generally made during the first two years of a president’s mandate. As the election draws nearer, administrations have a habit of doing everything they can to stimulate the economy so that voters go to the polls with jobs and a feeling of economic wellbeing.

    The stock market benefits from increased spending and lower interest in the year of an election. Evidence abounds on the immediate and lasting impact of politics on market forces and cycle.

    The most constant thing about cycles is their ever changing character. This presents a challenge to investors whose expectation of earning of good returns is dependent on their understanding and ability to ride the various cycles mentioned above without getting swept away by the resultant forces at play.

     

    • Olisakwe is the head of corporate social responsibility at Investment One Financial Services Limited

  • Waiting for telcos at stock market

    Waiting for telcos at stock market

    Over three years ago, the House of Representatives Committee on Capital Market resolved that telecommunications and oil firms should be listed on the Stock Exchange. The Federal Government is now pushing to actualise this dream. Will it succeed? LUCAS AJANAKU writes.

    When the Co-ordinating Minister of the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala and her Communications Technology counterpart, Mrs Omobola Johnson spoke during a visit to the Nigeria Stock Exchange (NSE), Lagos, they did not conceal their mission.

    “We are here today because we believe that this stock market needs to be deepened and broadened and one of the key ways to do that is to get more companies to list.

    “Our vision for this stock market is that it must become the premier stock exchange of Africa. We must overtake Johannesburg, even as our economy overtakes that of others and we are hoping that down the line this stock market will do the same,” Dr Okonjo-Iweala said.

    Mrs Johnson said the telecoms sector is the fastest growing sector of the economy, adding that it has taken the leadership position in the last five years, growing yearly at an average of between 22 and 23 per cent and contributing 8.5 per cent to the Gross Domestic Product (GDP) as at the second quarter of the year.

    “The main reason we are here is to bring more companies unto the stock exchange. The ICT industry contributes 8.5 per cent to GDP; it is the fastest growing sector of the economy and we need to ensure that companies in the sector are listed. It is therefore appropriate that many more Nigerians should benefit from this success through the increased public ownership of these companies. That will happen when they are listed on the stock exchange,” she said, stressing that efforts had gone beyond just calls for more companies to be listed to collaboration.

    The ministers pledged the government’s support to the NSE and the Securities and Exchange Commission (SEC) as it moves to deepen the market.

    Twelve years after the liberalisation of the telecoms sector, the subscriber base has crossed the 100 million mark while most of the telcos have been smiling to the banks, repatriating billions of dollars yearly as profit.

    Though some of the telcos have moved close to indigenising the brand by appointing Nigerians as chief executive officers, sector analysts argue that listing on the NSE will further strengthen the people’s confidence in the telcos.

    Chief Executive Officer (CEO), Teledon International Group, Dr Emmanuel Ekuwem, said the time had come for the telcos to list on the NSE. According to him, when he was national president of the Association of Telecoms Companies of Nigeria (ATCON), getting the telcos listed was one point he raised.

    “The big telcos, MTN, Etisalat, Glo and Airtel should be listed on the NSE. They are big enough. They are generating a lot of revenue. They should become proper Nigerian entities so that Nigerians, who desire can own shares in them. When their public offer is out, people can buy their shares. When they have annual general meetings, management will account for their stewardship. The move will popularise them rather than victimise them. It will make them open to Nigerians so that if there is any subscriber that has the financial muscle to participate, such a subscriber will buy shares and bring a lot of capital onboard. They keep talking about going abroad or going to banks to source $2 billion, $3 billion to expand their networks. When they do public offer, they will have a lot of capital because of the shares that people will buy. That will give them the financial muscle to expand their network and improve on the quality of service as well as popularise them as Nigerians will now have a sense of ownnership of these companies,” he said.

    He added that listing will also enhance the institutionalisation of corporate governance which will bring about transparency and accountability.

    The telcos, he said, would be reluctant to list, arguing that when the necessary regulatory framework is in place, the telcos will fall in line.

    President, National Association of Telecoms Subscribers (NATCOMS) Chief Adeolu Ogunbanjo, agrees with the former ATCON boss. According to him, if the telcos get listed, the issue of vandalism will become a thing of the past as the subscribers will see the infrastructure as their own. “The telcos will be able to raise money from the public to finance network expansion and improve services. People will be prepared to allow the erection of BTS in their homes and offices. There will be a sense of belonging by Nigerians who will jealously guard the infrastructure,” he said.

    All the operators except Glo are listed on the stock exchange of their home countries.

    MTN Nigeria

    Board Chairman: Dr Pascal Dozie

    CEO: Michael Ipkoki

    Subscribers: 55, 238,430 million

    MTN Group is a South Africa-based multinational mobile telecommunications company, operating in many African, European and Middle Eastern countries. Its head office is in Johannesburg and it is listed on Johannesburg Stock Exchange (JSE).

    Globacom Limited

    Board Chairman: Dr Mike Adenuga

    CEO: Jameel Mohammed

    Subscriber base: 25,019,862 million

    Globacom Limited is a Nigerian multinational telecommunications company headquartered in Lagos. The firm is a privately owned telecommunications carrier that started operations on August 29, 2003.

    Since then, there is no record of the telco going to source funds from any bank both onshore and offshore.

    About four years ago, the firm single-handedly funded a submarine cable, Glo 1, at $800million. It recently signed a network modernisation with two Chinese quipment vendors, ZTE and Huawei worth $1.25billion. It also operates in Ghana, Republic of Benin and Cote d’Ivoire.

    Airtel Nigeria

    Board Chairman: Oba Otudeko

    CEO: Segun Ogunsanya

    Subscriber: 21, 591,904 million

    Bharti Airtel Limited, popularly known as Airtel, is an Indian multinational telecoms services company with headquarters in New Delhi, India. It operates in 20 countries across South Asia, Africa, and the Channel Islands. Airtel has GSM network in all countries in which it operates, providing 2G, 3G, (3.75G in Nigeria) and 4G services depending upon the country of operation. It is reputed to be the world’s fourth largest mobile telecommunications company by subscribers with over 275 million subscribers across 20 countries as of July, this year. It is the largest cellular service provider in India, with 191.39 million subscribers as of last month. Airtel is the third largest in-country mobile operator by subscriber base, behind China Mobile and China Unicom.

    Airtel is credited with pioneering the business strategy of outsourcing all of its business operations except marketing, sales and finance and building the ‘minutes factory’ model of low cost and high volumes. The strategy has since been copied by several operators.

    Aside Nigeria, it operates in 16 other African countries, namely Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Rwanda, Seychelles, Sierra Leone, Tanzania, Uganda and Zambia.

    It is listed on the floor of both the National Stock Exchange of India Limited and Bombay Stock Exchange Limited.

    Emirates Telecommunications Corporation (Etisalat Nigeria)

    Board Chairman: Hakeem Belo-Osagie

    CEO: Steven Evans

    Subscribers: 15,303,647million

    Emirates Telecommunications Corporation, branded trade name Etisalat is a United Arab Emirates (UAE) – based telecommunications services provider, operating in 18 countries across Asia, the Middle East and Africa. As of February, last year, Etisalat was the 15th largest mobile network operator in the world, with a total customer base of more than 135 million and was named the most powerful company in the UAE by Forbes Middle East last year.

    Etisalat International Investments is the business unit of Etisalat that operates outside the UAE and manages the firm’s stakes in telecommunications carriers in Nigeria, Afghanistan, Benin, Burkina Faso, the Central African Republic, Gabon, India, Indonesia, Iran, the Ivory Coast, Egypt, Niger, Saudi Arabia, Sudan, Tanzania, Togo, Sri Lanka and Pakistan.

    The International Investments unit also manages Etisalat’s minor stakes in other telecommunications services providers, such as Sudatel (a mobile, fixed and Internet services provider in Sudan), and Qtel (Qatar-based telecoms services provider).

    It is listed in the UAE Stock Exchange.

    “Any of these telcos that braves the odds and be the first to get listed on NSE will attract the attention of subscribers who will naturally see it as truly a Nigerian brand,” Ogunbanjo said.

  • Stock market rebounds, gains N32.06bn

    Stock market rebounds, gains N32.06bn

    The Nigerian stock market  closed on a positive note to break the losses recorded since the beginning of the week.

    The benchmark indices of equities maintained an uptrend and closed positive because investors bought shares of blue chip companies.

    Trading results revealed that the market capitalisation recorded a growth of N32.06 billion to close at N11.54 trillion as against the decrease of N57.06 billion recorded on Wednesday to close at N11. 51 trillion. Also reflecting the bullish trading, the All -Share Index appreciated by 101.08 basis points or 0.28 per cent to close at 36,400.38 points, compared to the decrease of 0.5 per cent recorded the previous day to close at 36,299.30 points.

    Investors yesterday staked N5.17 billion on 559.81 million shares in 5,547 deals. Investors were cautious in their dealings as they targeted shares of highly capitalised companies.

    There were 51 price movements at the close of business with 22 companies recording price appreciation and 29 others recorded losses.

    DN Meyer Plc led the gainers’ table with 0.13 Kobo or 10 per cent to close at 1.43 Kobo per share. It was followed by Champion Breweries Plc with N1.54 Kobo to close at N17.03 kobo.

    Jos Breweries Plc added N0.24 kobo per share to close at N2.67 kobo per share.

    Evans Medical  Plc led the price losers’ table. The company shed N0.47 kobo to close transaction at N4.27 kobo per share.

    RT Briscoe Plc dropped by N0.15 kobo to close at N1.38 kobo per share, while ABC Transport Plc  shed N0.07 kobo to close at N0.79 kobo per share.

  • Stock market primed for profit-taking,say experts

    The stock market may witness pronounced profit-taking transactions in the days ahead as investors seek to cash in on substantial capital gains. The profit-taking transactions may lead to price correction, an inference to possible decline in market benchmark indices.

    The market opened this week with average year-to-date return of 28.25 per cent but several equities carry three-digit returns.

    Analysts in latest reviews of the market outlook said several market-determining equities garnered substantial capital gains to entice speculative investors to sell their holdings.

    They, however, remained optimistic about the medium to long-term outlook of the market with most pundits projecting continued rally through the second half.

    Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane, said the market outlook suggests stock market correction and may begin with profit-taking transactions.

    According to him, while portfolio investors remain long in the equity market, bargain-hunting retail investors have induced price volatility, which may further become pronounced as investors monetise recent capital gains.

    Analysts at FSDH Merchant Bank also indicated possibility of price correction, citing the prices in the market.

    Rewane said expected price correction may however, provide entry opportunity for portfolio investors as the market medium to long-term outlook remains strong.

    “Our forecast for the market to hit the 38,000 points by end of the year remains intact provided there are no exogenous risks,” Rewane said.

    He said large-cap stocks would continue to be market drivers as investors prefer the safety offered by the easily predictable sectoral leaders to the extreme volatility of penny and mi-cap stocks.

    He noted that though there had been echoes of possibility of an asset bubble, the Nigerian equity market still has substantial intrinsic values, pointing out that average dividend yield of selected listed companies in Nigeria is still higher than frontier market peers at 4.1 per cent.

    According to him, the first quarter results released so showed that banks and building materials, which have domineering influence on the market, would continue to outperform expectations.

    He noted that though consumer goods sector may struggle with flat sales and tough operating environment, future earnings power of the companies remain strong.

     

  • ‘Africa’s stock markets should unite to attract investors’

    Africa’s 24 stock markets should work together if they are to attract high investors’ interest, Nicky Newton-King, Chief Executive Officer, Johannesburg Stock Exchange (JSE), has said.

    The leader of Africa’s biggest securities exchange told AFP that global investors have eye in Africa and the continent’s stock market leaders should seize the opportunity.

    “The appetite for Africa is very, very high. I think everybody is trying to find their way, to participate meaningfully in that. All of us who are privileged enough to run exchanges, need to figure out that these waves of investor appetite aren’t yours by right. Once they come, you have to be able to ride them properly. We should not be taking this as business as usual, this is a business opportunity,” she said.

    Newton-King said allowing South Africans to more easily place orders into Nigerian stock markets, or by allowing Kenyans to invest in joint-listed South African stock in KES shillings, would attract more foreign investors.

    She added that there are benefits from cross-listing, as the JSE learned when its leading shares moved to London. “When Anglo-American cross-listed in London, the amount of trades in Anglo-American increased. South Africa’s percentage of trade in Anglo-American decreased, but the decreased percentage was worth more. In those cases you have to think quite bravely,” she said.

    The International Monetary Fund (IMF) forecasts the aggregate economy of sub-Saharan Africa will grow at 5.7 per cent this year, also presents a giant opportunity for the continent.

    Newton-King said one way to channel the investor interest through African markets would be to make it easier to invest across borders and to improve liquidity in small markets so that assets can be bought and sold quickly.

     

  • Analysts project 33% return on equities

    Analysts project 33% return on equities

    The stock market can brace through yuletide cash demand and profit-taking transactions to attain average full-year return of 33 per cent for 2012, market pundits have said.

    The benchmark value index for the stock market, the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), opened this week with year-to-date return of 28.88 per cent.

    Analysts and advisors at leading investment firms said they expected the stock market to record its best performance in five years this year with full-year return expected between 27 per cent and 33 per cent.

    Investment advisors at Cowry Asset Management Limited, FSDH Securities Limited and GTI Capital Limited, among others, said the stock market would neutralise intermittent profit-taking dips and expected increase in demand for cash by the year end with upswings from bargain hunting and portfolio rebalancing as investors await full year returns of quoted companies.

    According to analysts, with the significant capital appreciation that delivered about N1.4 trillion capital gains in the third quarter, the market would witness a mix of bargainhunting and profit-taking in the remaining months, with the thin-edge going to the upside by the end of the period.

    Analysts at Cowry Asset said the release of companies’ third quarter results, particularly from banks and the continued influx of foreign portfolio investors may push the ASI beyond its current position.

    They noted that the expectations of final approval of the new Pension Fund Investment Guideline could trigger mild market rallies as Pension Fund Administrators rebalance their portfolio store flect new threshold.

    Investment advisors at FSDH said the macroeconomic developments in Nigeria and initiatives in the equities market should further drive the equities performance in the remaining period of the year.

    “Our expectation is hinged on the premise that most companies’ results released up till date have shown improved performances with wide margins against previous years. Albeit there are some challenges which may adversely impact the market, we are of the opinion that the equities market will close year 2012 remarkably better than it recorded in the last five years,” FSDH stated.

    Analysts said they expected the ASI to achieve a growth rate of 25.46 per cent in the second half of the year, thus nudging the full-year return to 32.05 per cent.