The Nation Newspaper

Tag: stocks

  • Reviving plunging fish stocks

    Reviving plunging fish stocks

    Decline in the wild fish catches nationwide, and the partial ban on fish importation has stimulated the expansion of fish farming in Lagos. This is part of an intensive effort to boost  food  production  through  aquaculture. The move is also receiving  private  sector  support. DANIEL ESSIET reports.

    Fish, has for long, been generally agreed to provide the cheapest source of protein for the human race, especially in poor countries- Nigeria inclusive. But the increasing cost of the product is gradually changing this assumption, at least in the country. Stakeholders in the fish business blame the rising cost on the difficulty in sourcing this product, especially in the wild, and also the laws bordering on fishing in international waters. Another factor for the rising cost of fish in the domestic market is the consequence of years of over-fishing in the wild- oceans, lagoon, seas, et al; which has left the nation with a growing gap between the amount of fish that can be harvested and the needs of its burgeoning population.

    For instance, Director of Fisheries in the Ministry  of  Agriculture and  Cooperatives Mrs Olatokunbo  Emokpae revealed that the  consumption of fish in Lagos has risen to 260,000 tonnes annually, a far cry from what the industry provides, estimated to be 159,000 tonnes. Of this figure, aquaculture farming contributes a meagre 36,000 tonnes, while catches from the wild and importation account for the remaining number.

    Speaking  during  a  workshop on fish cage culture techniques, organised by the West Africa Agricultural Productivity Programme  (WAAPP), Green Agriculture West  Africa Limited (GAWAL)  and the  Lagos State Agricultural Development Authority(LASADA), in Lagos, Mrs  Emokpae stated  that  the  situation  has brought crucial challenges like consistency of supply and much lower consumer prices. and with the catches from the wild depleting, she submitted that the industry needs to take measures to  ensure continuous supply of fish.

    This brings to the fore, aquaculture- the practice of using controlled environments to promote the growth of aquatic animals and plants for food, the aquarium trade, restocking or commercial purposes. Currently, it  contributes over 50 per cent of the world’s fish supply for human consumption, making it an important contributor to the world’s food supply chain.

    With the seafood farming industry facing growing pains, Mrs  Emokpae said  the  government is  determined  to promote fish farming to  help satisfy the growing appetite for fish and seafood.

    Currently, shrimp, pangasius, tilapia, and catfish  are the most common species of farmed seafood.

    For her, a dramatic growth in aquaculture  will  enable per capita consumption of aquatic protein and plants to increase over time without further taxing wild species.

    Presently,production is primarily accomplished by small-scale farmers, while there are  few  large  producers utilise more intensive, factory-farm methods.

    The potential for aquaculture, she noted,  is considerable as Lagos  has the long coastline and could advance as a major producer of farmed fish. She noted,  however, that  aquaculture is not   growing so rapidly following inability  of  more  people  to invest in  it.

    With food security becoming   a pressing issue, she noted  that  the  state is  ready   to use every resource available as efficiently as possible in order to feed its population and  that further investment in aquaculture, sooner rather than later, is critical.

    To this end, she said  the state  is  promoting   cage culture – a type of fish production where the fish is held captive by net  in some big water areas, as  an essential part of the solution to food security.

    The Programme Manager, LASADA, Mr  Kayode  Ashafa, also  lend his  voice  to this, saying   fish production needs to increase  to meet growing  demand.

    Represented by  the Head of Technical Services, Mr Abayomi  Babalola, Ashafa  said Lagos is characterised by a maze of lagoon and watersways which constitutes about 22 per cent of the state’s territory.These  water bodies, he said, provide empowerment and food to Nigerians but that there is a  major gap in fish demand and supply.

    He noted, however, that the state’s  rivers have been fished to their limit, as such it should encourage sustainable growth of aquaculture or fish farms.

    Ashafa reiterated that the state had embarked on many agricultural development projects towards addressing and reducing poverty.

    The National Project Coordinator, WAAPP, Prof Damian Chikwendu  said  Nigeria needs to farm more fish to meet growing demand for animal products.

    Chikwendu, who spoke through Fisheries Specialist, Charity  Obetta  said the programme is exploring aquaculture to meet the growing demand for fish  products, adding  that  cape  culture  is  a pragmatic response to the precipitous decline in fish stocks.

    By committing to improved aquaculture practices, he said farmers countries can deliver nutritious fish to more Nigerians.

    To improve the industry, Chikwendu  said the  programme  is  collaborating  with  LASADA  to  train  farmers  on cage culture  as it  has enormous potential to enhance   fish production in an environmentally sound and sustainable way .

    He said  the  objective of WAAPP is to increase agricultural productivity and promote sub-regional cooperation. Since Nigeria has comparative  advantage in aquaculture, he said  WAAPP  has  chosen  the  country  as a centre  of  excellence .

    The  Deputy General Manager, GAWAL, Prof Xu Yuanfang,said  fish farming is the answer to increasing meat demand.

    He  said GAWAL was established  by CGC Nigeria Limited in 2006 to enhance the productivity of grain production through local research ,development, cooperation and partnerships. Since its inception, he said the  company has introduced hybrid millet, groundnet, sorghum seeds, which have boosted yields in its 2025-hectare farm in Kebbi State. Based on the past trends of aquaculture, he noted that the method was going to make a major contribution to meet increased demand for fish through aquaculture. The advantages of cage culture, according  to him  of fish is that  it enables higher stocking rates and consequently, higher production per unit volume. The raising of fish in cages also reduces the risk of predation by carnivorous fish and other animals.  In contrast to natural fishing, where fishermen have to depend on chance, experts   believe  raising fish in cages enables a predictable and more assured source of income.

    Those who  agree include  the  Head of Component (Extension), LASADA, George Tanimowo. To  him, aquaculture holds the promise of reducing the need to catch wild fish. For this reason, he said the state is  introducing   cage culture fish farming that  offers promise for  lagosians with far-reaching implications for  commercial fish industry, and for food supplies, considering   tremendous growth in consumer demand.  So  far, Lagos  State has  also been exploring   the potential for fish production through fish culture in ponds, cages and pens, with suitable species of fish. The   government  is   encouraging  the setting up of aquaculture farms to  ensure an abundant supply of species of fish that are most in demand.

    Interestly , the   efforts of the state  is not  unnoticed   as  industry players  have  welcomed  the initiative.

    A lot  of private  organisations  see  the stage set  for  fish  farming revolution  is ready to work with the state to boost the  production of  tilapia and catfish.

    One of them is  Triton Group ,a global  conglomerate, spread across the  countries.  It was founded in 1995 in Nigeria. Globally, the   group have  around 900 employee and   current revenue is $ 600 million. Its subsidiary, Seafood products Limited, is  involved  in aquaculture, which  is  seen as the fastest growing food-producing industry in the world, and has great potential in Nigeria. Its  Project Director,Seafood products Limited,Mr  Yashpal Jain  said aquaculture holds the promise of reducing the need to catch wild fish having  having  established  successfully  aquaculture  practice in India and Ghana.

    In Ghana, he said the  company  has   240 grow out cages and 48 nursery cages with a capacity of 2,400 metric tonnes (MT) of Tilapia, with  complete infrastructure such as hatchery, ice plant, processing shed, cold store .

    In addition to this, he said  the  company  has established  state of art tilapia hatchery with a capacity to produce 18 million fingerlings.

    Keen  to  reproduce  it  success in Nigeria,  the  company  is coming up with good-aquaculture-practice fish farms   for  Lagos,Oyo ,Ekiti, and Ogun states.

    Apart from  the  proposed  fish  farms helping  to  alleviate pressure on declining wild fish stocks, aiding, economic development, employment, and the preservation of precious groundwater resources, he  said  local  farmers  will  have  access to reliable local source of fingerlings, quality feed, and technical know-how, by attending demonstration farms, to help them improve their efficiency and profitability.

    Because  of  aquaculture,  he   said  fish is the cheapest source in Egypt for animal protein, cheaper than poultry, cheaper than beef and goat meat.

    Tilapia, for example, retails for the equivalent of approximately US$1.20 to US$2.40 per kilo in Egypt, while beef and goat can cost up to approximately US$12 per kilo.

  • Nigerian stocks drop in world’s worst performance

    Nigerian stocks drop in world’s worst performance

    Nigerian stocks fell for the biggest three day decline since August 2006 as oil prices traded near $50 a barrel and investors sold their holdings following a rally late last year.

    The Nigerian Stock Exchange (NSE) All Share Index retreated 4.2 per cent  by the close in Lagos, the most among 93 global indexes tracked by Bloomberg.

    The gauge, down 16 per cent this year, rose 20 per cent between Dec. 17 and the end of the year as investors were attracted to the low prices, according to Ayodeji Ebo, head of research at Afrinvest West Africa Ltd.

    “We’re now seeing profit-taking. The confidence in Nigeria is still not there. The macroeconomics are weak and oil prices are plunging,” Ebo said by phone from Lagos yesterday.

    Brent crude fell below $50 a barrel yesterday before trading 0.1 per cent higher at $51.15. Oil is down 54 per cent since the end of June. Nigeria, Africa’s largest crude producer that relies on oil for almost all export earnings, increased interest rates to a record 13 per cent in November to protect the naira.

    The currency depreciated 10 per cent against the dollar in the past three months, the most among 24 African currencies tracked by Bloomberg.

    Banks were among the worst performers. Shares of Zenith Bank Plc, the country’s second-biggest lender by assets, weakened 9.7 percent, the most since October 2008. Guaranty Trust Bank Plc, the largest bank by market value, dropped by the same amount.

  • The good and bad stocks of 2014

    The good and bad stocks of 2014

    The immediate past year saw a major reversal for the stock market. With average return of -16.14 per cent, quoted equities loss a whooping N1.75 trillion during the year.  Aggregate market value of all quoted equities closed 2014 at N13.226 trillion as against its opening value of N11.477 trillion for the year.

    The All Share Index (ASI), the value-based common index that tracks prices of all quoted equities on the Nigerian Stock Exchange (NSE), indicated average full-year return of -16.14 per cent, implying that an average investor lost some 16 per cent of the opening value of his portfolio.

    Sectoral review indicated that most investors recorded higher losses than the average benchmark. All the major group indices at the Exchange, with the exception of the NSE Oil and Gas Index, closed on the negative. The NSE 30 Index, which tracks the 30 most capitalised companies, recorded a full-year return of -18.03 per cent. The NSE Banking Index, which tracks the most active sector, recorded average loss of 21.53 per cent. The NSE Consumer Goods Index, which tracks large manufacturers of fast moving consuming goods, recorded above-average return of -17.88 per cent.

    The NSE Lotus Islamic Index, which tracks Islamic compliant ethical stocks, recorded average loss of 21.63 per cent. Meanwhile, NSE Insurance Index recorded the lowest loss of -2.11 per cent while the NSE Industrial Goods Index posted average return of -15.98 per cent. The Oil and Gas Index rode on the back of gains by Forte Oil and Seplat Petroleum Development Company to retain a positive average return of 11.84 per cent.

    The performance in 2014 contrasted sharply against the exceedingly bullish performance in 2013. Investors pocketed some N4.25 trillion in capital gains in 2013. The 2013 business year set the stock market on a new high with average full-year return of 47.19 per cent, its best performance since 2007.

    Aggregate market capitalisation of all quoted equities on the Nigerian Stock Exchange (NSE) closed 2013 at N13.226 trillion as against its opening value of N8.974 trillion for the year. This represented a whooping increase of N4.252 trillion.

    The main index at the NSE, the ASI recorded full-year return of 47.19 per cent rising from its opening index for the year of 28,078.81 points to close the year at 41,329.19 points.  The performance in 2013 significantly surpassed the much applauded return in 2012 when equities posted average return of 35.45 per cent, equivalent to capital gains of N2.44 trillion.

    Stock-by-stock analysis of the 2014 pricing trend showed that Caverton Offshore Support Group, upstream oil and gas services company that was listed during the year, recorded the highest loss of 63.26 per cent. Champion Breweries followed with a loss of 58.7 per cent while National Salt Company of Nigeria placed third with a loss of 58.51 per cent.

    Other top losers included UACN Property Development Company, with a loss of 50 per cent; Jos International Breweries, -53.91 per cent; Dangote Flour Mills, -55.61 per cent; Flour Mills of Nigeria, -54.94 per cent; United Bank for Africa, -51.69 per cent, Academy Press, -53.73 per cent and UAC of Nigeria, which recorded full-year return of -49.25 per cent.

    The Nation’s check indicated there were 61 stocks with above-average loss. Meanwhile, 18 stocks recorded double-digit positive return during the period. Premier Breweries recorded the highest capital appreciation of 392.2 per cent. It was followed by Ikeja Hotel with a gain of 374.36 per cent. Forte Oil placed third with a gain of 133.15 per cent. Seven-Up Bottling Company trailed with full-year return of 131.65 per cent while Beta Glass recorded a gain of 92.52 per cent.

    With the New Year starting with a loss of N241 billion on Monday, the market is still suffering from the hangover of the previous year. Analysts were less optimistic about the prospects of the stock market in 2015. Analysts said equities will remain on the downtrend in the months ahead as quoted companies grapple with macroeconomic challenges and investors gauge the continuing impact of the declining crude oil price and political transition on the economic outlook.

    Investment pundits said quoted equities would in the immediate months continue on the downward trend, although share prices may recover in the latter months of the year.

    Analysts at Bismarck Rewane’s Financial Derivatives Company (FDC) in their latest review stated that quoted equities would struggle with local and global challenges this year, leaving the market mostly on the negative in the first half.

    “The stock market may be in for a prolonged stay in the bear territory due to mounting global and domestic uncertainties. In 2015, a lower return trajectory is anticipated since the market is in for a bumpy ride and some companies would be left behind,” FDC stated.

    According to analysts, the stock market is expected to dwindle further all through the first half and subsequently bounce back in the second half of the year.

    Analysts noted that the likely increases in the United States and euro zone interest rates raises the threats of capital flow reversal and erosion of funds from the equity markets, which, in addition to growing macroeconomic risks, may result in a series of adjustments and prompt a cohesive movement of sectors and stocks prices.

    “The year 2015 is expected to be a mixed year for the equities market as the outcome of a plethora of external and internal events unfold. A possible interest rate hike in the United States and the possibility of a sustained period of low oil prices are significant risks. The outcome of the 2015 elections would also determine investors’ participation and sentiments. The anticipated loosening monetary stance of the Central Bank of Nigeria (CBN) post elections will also have its impact on price and currency stability,” FDC stated.

    They pointed out that returns in 2015 will depend on selecting the right companies in the right sectors, rather than relying on a broad-based approach that depends on the gathering momentum of the overall market position.

    They said the performance of the market might be coloured by the general elections starting on February 14.

    According to analysts, in addition to the global oil market dynamics, the prospects of the Nigerian economy in 2015 hinges on the electoral calendar, and this will mainly determine the macroeconomic outlook during the year.

    “With stocks currently trading at their multi-year lows, we expect an upward trend in the beginning of the year. The anticipated loose monetary stance will be expected to channel additional liquidity to the stock market. However, Investors sentiment will be weighed down by political tensions leading to the 2015 general elections. The tension between the Peoples Democratic Party (PDP) and its major opposition All Progressive Congress (APC) is expected to lead to a lull in the equities market as investors, mostly foreign evaluate the electoral process and outcome whilst fearing post-election violence. Foreign portfolio investors are expected to remain wary of the local bourse until the elections are concluded and possible violent fallouts curbed,” analysts pointed out.

    They noted that with oil prices projected to trend between $50-$70, the global crude price will be negative for the Nigerian economy and in turn the capital market, with the oil stocks expected to bear the brunt of declining oil prices given the thinning out of the sectors profitability.

    Besides, analysts noted that as the US economy gains traction, there could be an increase in interest rates in 2015, which is expected to have a negative effect on emerging and frontier economies. This will lead to heavy portfolio reversals, as investors will opt for safety and security in a much developed market. This may lead to a selloff in local equities as foreign investors exit. However, this may be cushioned by increased participation of local investors as stocks become increasingly attractive.

    “The state of security in the country especially in the north eastern part of Nigeria continues to be worrying. Its effect continues to weigh on the profitability of consumer goods companies as consumer spending in these areas remains weak. It has also in-creased the cost of doing business in these areas. Profits that will be declared, if any, in the financial year 2014 by most companies are likely to be below investors expectation. Most sectors; banking, consumers, oil and gas, conglomerates will not be insulated,” analysts said.

    Analysts said the macroeconomic outlook will likely change significantly depending on the outcome of the general elections pointing out that 2015 will be distinctly divided into different phases including pre-election phase, handover phase and post-election phase.

    In the pre-election phase, policymaking will be overshadowed by political campaigns and the elections in this period. As a result, most macroeconomic indicators are likely to be influenced by speculative market activities to hedge any unfavourable outcome. The intensity of political activities towards the election could increase security concerns and result in the hike of consumer prices, dampen economic output as well as growth. This is likely to have negative impact on investors’ confidence and increase dollar demand pressure.

    Analysts noted that the immediate period after the elections would still be overshadowed by concerns as parties debate the election results. These challenges will likely affect the macro environment and policies options while the level and intensity of uncertainties will heighten the level of insecurity in most part of the country. Hence, movement and transport of goods and services become difficult leading to an uptick in the inflation rate to above 10 per cent and poor economic output. Investors’ confidence is likely to also decline and lead to an increase in currency pressures as the naira slides to N190-195/$ at the interbank market.

    “In general, the Nigerian macroeconomic environment is expected to be mixed and highly influenced by developments in the global oil and financial markets. However, the medium and long term prospects of the Nigerian economy depend on developments in the oil section, political events as well as enforcement of tax compliance to boost revenue,” analysts stated.

    One of the positives apart from the obvious that the Nigerian economy has to be less dependent on oil is that prices in the stock market may have hit rock bottom. Current stock prices appear attractive at the moment, but we advise cautious investing with a focus on long term value as opposed to speculating and searching for short term gains. We also expect some volatility over the coming months until after elections. A return to normalcy, the stability in oil prices and the Naira will return some calm to the markets.

  • NSE mulls change in pricing methodology for quoted stocks

    The Nigerian Stock Exchange (NSE) plans to change the base price for any stock at the stock market from the current par-value based system to a general minimum price level of one kobo.

    Quoted companies on the main board of the Exchange are currently not allowed to trade below their nominal value or par value of 50 kobo. But under a new amendment to the stock market rules, the management of the NSE has proposed a change in the minimum pricing level from 50 kobo to one kobo.

    According to the new par value rule, notwithstanding the par value of a company, the price of every share listed on the Exchange shall be determined by the market, except that no share shall trade below a price floor of one Kobo per unit.

    Par value is the nominal value of a share as stated in the Memorandum of Association of an issuer while the price floor means the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.

    The draft rule has already been approved by the management of the Exchange, but the Exchange will, as part of the rule-making process, allow for comments over the next two weeks.

    The NSE had earlier institutionalized a dual pricing model that categorises and prices stocks according to their initial or subsisting share prices.

    The NSE is grouping stocks into “Group A” and “Group B” stocks. As a “Group B” security, a trade of 10,000 shares will lead to a change in the published price of the stock.

    According to the categorization, for purposes of calculating price movements and price limits, equity securities traded on the Exchange shall be classified as: “Group ” -consisting of equities with a primary market maker that are not classified in Group B; and “Group B”- consisting of equities with a primary market maker, that are priced above N100 per share for at least four of the last six months; or new security listings that are priced above N100 at the time of listing on the Exchange.

    The “Group A” stocks now included Dangote Cement, Nigerian Breweries, Nestle Nigeria, Seplat, Lafarge Africa, Guinness Nigeria, Forte Oil, Total Nigeria and Mobil Oil Nigeria Plc.

  • Global stocks ease over rate scare

    Global equity markets eased on Wednesday on a few poor corporate results and the release of Bank of England minutes that hinted at an early interest rate hike, but minutes from the Federal Reserve showed no desire to bring forward plans to raise rates.

    The Fed said it has been surprised by how quickly the United States (US) labour market is healing yet the recovery has to be more convincing to change its view on when to increase rates.

    Stocks on Wall Street rebounded after the release of the Fed minutes, suggesting investors believe there will be no change in monetary policy, while US Treasuries prices fell.

    “The Fed remains dovish. However, one eye is looking towards improvements in labor markets. Potentially a rate increase might come slightly sooner or the increases might come faster than expected,” said Putri Pascualy, credit strategist For Pacific Alternative Asset Management Company, In Irving, California.

    Wall Street pushed higher, but MSCI’s all-country equity index was 0.04 percent lower. The Dow Jones industrial average rose 68.78 points, or 0.41 percent, to 16,988.37. The S&P 500 gained 5.71 points, or 0.29 percent, to 1,987.31 and the Nasdaq Composite added 3.167 points, or 0.07 percent, to 4,530.681.

    Earlier in Europe, the FTSEurofirst 300 index of leading European shares closed down 0.07 percent at 1,346.02.

    A warning from brewer Carlsberg that profits would fall this year due to deteriorating conditions in Russia rattled European investors.

    A cut in its full-year sales forecast by Lowe’s Companies also unnerved investors, though the world’s No. 2 home improvement products retailer also posted better-than-expected second-quarter results.

    Reuters reported that Sterling and UK bond yields rose after the surprise tilt toward higher British rates, while the U.S. dollar advanced to its highest against the euro since last September.

    The Fed minutes come ahead of Fed Chair Janet Yellen’s widely anticipated address to the annual gathering of central bankers in Jackson Hole, Wyoming, on Friday.

    With US and global stock indexes trading close to all-time highs, investors await a reaffirmation of the accommodative monetary policies that have helped spur a global rally.

    “The next leg up is going to come from what we hear on Friday from Yellen,” said Phil Orlando, chief equity market strategist at Federated Investors in New York. “The market has been a little bit on tenterhooks,” he said.

    The dollar broke through resistance at $1.3300 and last November’s high of $1.3295 per euro to trade as high as $1.3275. It also climbed to a 4-1/2-month high against the yen. It was last up 0.4 percent versus the euro at $1.3266.

  • U.S. stocks fluctuate on mergers

    UNITED States stocks fluctuated, erasing an earlier loss, as merger activity offset concerns over crises abroad and weaker home-sales data before a Federal Reserve policy decision.

    Tesla Motors Inc. rose 2.3 percent on a report it reached an agreement on a battery plant.

    Trulia Inc. jumped 19 per cent as Zillow Inc. agreed to purchase the company for $3.5 billion.

    Family Dollar Stores Inc., a discount store chain, soared 24 percent after Dollar Tree Inc. agreed to buy it.

    The Standard & Poor’s 500 Index added 0.1 percent to 1,980.53 at 2:03 p.m. in New York, erasing an earlier drop of as much as 0.6 percent. The Dow Jones Industrial Average rose 30.37 points, or 0.2 percent, to 16,990.94. Trading in S&P 500 stocks was in line with the 30-day average during this time of day.

    “The market has been very benign,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $250 billion.

    “Economic news has been just fine. Earnings have been fine. You got a little bit geopolitical fear out there. We’re still on track and as long as wars in the rest of the world don’t upset the upper card, the second half of this year continues to look like it’s going to be a gradually improving year.”

    Stocks slumped earlier in the day as fewer Americans than forecast signed contracts to buy previously owned homes in June, a sign residential real estate is struggling to strengthen.

    An S&P index of homebuilder shares dropped 1.6 percent to the lowest level since May.

    Outside the U.S., international pressure mounted on Israel to end its three-week offensive in  the Hamas-controlled Gaza Strip, with President Barack Obama and the United Nations Security Council demanding an immediate truce.

    In Europe, President Vladimir Putin faces intensifying U.S. and European sanctions aimed at forcing him to help end the separatist war in neighboring Ukraine. The Obama administration said it had satellite photos showing Russia firing across the border at Ukraine forces.

    The S&P 500 ended little changed last week as investors weighed corporate earnings. The gauge closed 0.5 per cent below its all-time high of 1,987.98 reached July 24. The index has rallied about seven per cent this year, as the economy shows signs of recovering from a 2.9 per cent drop in the first quarter amid renewed pledges from the Fed to continue stimulus.

  • US, emerging stocks fall on concerns over Iraq conflict

    US, emerging stocks fall on concerns over Iraq conflict

    United States (US) stocks slumped the most in three weeks and oil climbed to an eight-month high as violence escalated across Iraq. Treasuries rallied on signs the US economic recovery remains uneven.

    Bloomberg reported that the Standard & Poor’s 500 Index slipped 0.8 per cent and the Nasdaq Composite Index tumbled one per cent. West Texas Intermediate oil rose two per cent to $106.53 a barrel, the highest level since September.

    The yield on 30-year Treasuries dropped six basis points, the most in two weeks, to 3.41 per cent. The S&P GSCI (SPGSCI) gauge of 24 commodities jumped 1.6 per cent, the biggest increase in three months. Natural gas futures climbed the most in almost four months, while gold and silver advanced at least one per cent.

    A surge in violence across northern and central Iraq, three years after US troops withdrew, has raised the prospect of a return to sectarian civil war in OPEC’s second-biggest oil producer. US energy shares rallied while Delta Air Lines Inc. and United Continental Holdings Inc. slumped more than 5.9 per cent. American retail sales rose less than forecast in May while jobless claims increased last week, reports showed yesterday.

    “The Middle East may not matter as much as it used to for global energy markets, but the collapse of democracy in Iraq and the risk of extremists being the dominant political force in the region is already making some commentators question how long the US ‘hands-off’ policy will really be maintained,” Kit Juckes, global strategist at Societe Generale SA in London, wrote in an e-mailed note yesterday.

  • Global stocks fall from record highs

    Global stocks fall from record highs

    Stocks retreated from recent highs on Wednesday while the euro was pressured by rate differentials and oil prices rose on fears of disrupted supply from Iraq.

    Stocks on Wall Street opened lower in broad selling. Analysts, however, saw no threat to the recent strong trend.

    “There’s a bid underneath this market, and anytime we’re lower it isn’t long before buyers materialize, which should allow us to keep grinding higher until the next earnings season,” said Chris Bertelsen, chief investment officer of Global Financial Private Capital in Sarasota, Florida.

    The Dow Jones industrial average dropped 97.10 points, or 0.57 per cent, at 16,848.82. The Standard & Poor’s 500 Index was down 7.39 points, or 0.38 per cent, at 1,943.40. The Nasdaq Composite Index .IXIC was down 6.87 points, or 0.16 per cent, at 4,331.13.

    Reuters reported that MSCI’s global stocks gauge fell 0.3 per cent after earlier flirting with a record high. The FTSEurofirst 300 index lost 0.5 per cent, weighed by a profit warning from German airline Lufthansa LHAG.DE.

    Japan’s Nikkei .N225 gained 0.5 per cent after MSCI’s decision to keep South Korea and Taiwan indexes in the emerging markets classification guaranteed Japan will retain its status as the only developed market in the region.

    In a cautious note, the World Bank late on Tuesday cut its global economic growth forecast for 2014 to 2.8 per cent from 3.2 per cent due to the impact of the Ukraine crisis and a harsh United States (US) winter. The bank was, however, confident economic activity was shifting to a stronger footing.

    Benchmark US Treasury yields retreated from a one-month high hit early in the session, though the 10-year Treasury note US10YT=RR was up 3/32 to yield 2.624 per cent.

    The euro hovered near a four-month low versus the dollar, down 0.12 per cent at $1.3531 EUR=, under pressure due to a widening yield gap between euro zone bonds and their peers.

    Speculation that the US Federal Reserve could raise interest rates sooner than previously expected has supported the dollar and put pressure on the euro this week.

    “Against the dollar, we will see a slow grind toward the $1.35 level, where there will be some support from sovereign players,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.

    Oil markets watched the unfolding crisis in Iraq as militants who seized Mosul, the second-biggest city, advanced into an oil refinery town.

    “We already have Libya out, Iran’s exports are low, and there is no prospect of an immediate return for either of them,” said Bjarne Schieldrop, analyst at SEB in Oslo.

    Brent rose 0.4 per cent to $109.98 while US crude also added 0.4 per cent to $104.75. Palladium rose one per cent to hit a more than 13-year high, underpinned by a five-month strike in South Africa.

  • Sanusi assures on reserves as stocks decline worldwide

    Sanusi assures on reserves as stocks decline worldwide

    The Central Bank of Nigeria (CBN) Governor Mallam Sanusi Lamido has assured that it has adequate reserves to keep defending the naira as the slumping currency prompted a selloff of the country’s stocks, with the all-share gauge posting the world’s worst performance at the weekend.

    “There is a great need to defend the currency because we don’t want volatility,” Central Bank of Nigeria Deputy Governor Sarah Alade said by phone from Lagos at the weekend. “Whenever there is need to intervene, we will do so.”

    The naira strengthened 2 percent to 162.13 per dollar as of 4:05 p.m. in Lagos, snapping three days of losses. The currency weakened 0.4 percent last Thursday to 165.36 per dollar, the lowest level since Bloomberg started compiling data in 1999.

    The Nigerian Stock Exchange All-Share Index (NGSEINDX) fell 1.6 percent by the close in Lagos, bringing its weekly decline to 4.9 percent, the most since June.

    Stocks, bonds and currencies from developing nations have been sold since the start of stimulus reduction by the Federal Reserve last month.

    Equities in Nigeria, Africa’s biggest oil producer, fell 6.2 percent this year, compared with a 4.7 percent decline in the MSCI Emerging Markets Index. The naira has retreated 1.1 percent this year while foreign reserves that Africa’s biggest oil producer uses to bolster the local currency dropped to $42 billion this week, the lowest since October 2012.

    “All of these things are causing panic,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., told Bloomberg in phone. “For an international investor, if the currency is going to devalue, it will affect his own returns.”

    The naira has also been falling since the central bank last month removed the weekly limit of $250,000 that may be sold to a bureau de change. The central bank sells foreign currency at twice-weekly auctions to shore up the naira. It also sells dollars directly to lenders at irregular intervals.

    The central bank may increase cash reserve requirements for lenders to hold government deposits for the second time this year to 100 percent from 75 percent, Governor Lamido Sanusi said at a conference last Thursday in Lagos. It will probably raise the requirement on private funds to 15 percent from 12 percent, Sanusi said. The regulator raised the deposit level to tighten liquidity while keeping its benchmark lending rate at a record high of 12 percent.

    “To protect the naira over the next six months, we believe that the CBN will continue to use the CRR as its first policy option, rather than raising interest rates,” Kato Mukuru and Ronak Gadhia, Africa equity analysts at London-based Exotix Partners LLP, said in an e-mailed note at the weekend. “Reserves of $42 billion, and import cover of some 10 months, give plenty of ammunition to support the naira in the near term.”

  • Stocks lose allure with highest valuation to bonds

    Rising Treasury yields and the biggest equity market rally in 16 years are leading one measure of stock valuations to the most bearish level since 2011.

    Profits as a percentage of the Standard & Poor’s 500 Index’s price, known as the earnings yield, totalled 5.76 per cent last week, compared with the 2.86 per cent payout on 10-year Treasuries, according to data compiled by Bloomberg. At 2.9 percentage points, the gap, which narrows as equities get more expensive relative to debt, is the smallest since March 2011.

    The last time spreads between bond and earnings yields were this compressed, the S&P 500 posted its biggest retreat of the bull market, falling 19 per cent between April and October 2011. The index hasn’t lost 10 per cent since then. Wall Street strategists have forecast the weakest share advance in almost a decade for 2014, as a reduction in Federal Reserve bond purchases pushes up Treasury yields from 1.75 per cent at the end of 2012.

    “We are due for a correction,” said Peter Sorrentino, who helps manage about $14.8 billion at Huntington Asset Advisors in Cincinnati and is buying options to protect against a decline in the stock market. It’s not a question of if, but how bad.”

    Stocks fell the first three days of January, the longest stretch to start a year since 2005. The S&P 500 has lost 0.3 per cent so far in 2014, compared with a 0.7 per cent gain for government notes, data compiled by Bank of America Merrill Lynch and Bloomberg show. Yields on 10-year Treasuries will rise more than 0.55 percentage point by the end of the year, reaching 3.43 per cent, according to the average of 64 economists surveyed by Bloomberg. The S&P 500 slipped 0.2 per cent to 1,839.14.

    The index posted a 30 per cent gain last year, beating government debt by 33 percentage points, the widest margin since at least 1978, according to data compiled by Bank of America Merrill Lynch and Bloomberg. U.S. bonds fell 3.4 percent, the first drop since 2009.

    Analysts are the most bearish on individual companies since at least 2004 just as valuations for stocks from Alcoa Inc. (AA) to Tyson Foods (TSN) Inc. have risen to an almost four-year high. Last year’s rally helped push the S&P 500 earnings yield down about 1.3 percentage points as Treasury rates climbed the same amount, narrowing the gap by the most in four years, data compiled by Bloomberg show.

    Stock earnings yields and bond rates are both valuation measures, showing how much owners are getting back in profits or interest payments on the money they invested. Income generated by S&P 500 companies hasn’t fallen below Treasury rates for more than 11 years.

     

    The advantage for stocks was close to its most bullish level ever in 2012, according to data compiled by Bloomberg.

     

     

     

    “At this point, equities are so highly valued that it’s very hard to assume that there’s going to be much more rotation” from bonds to stocks, Daniel Alpert, founder and managing partner at New York-based Westwood Capital LLC, said in a Jan. 6 Bloomberg Radio interview with Tom Keene. “Cash is a wonderful place.”

    Walter Todd, chief investment officer at Greenwood Capital Associates LLC, says he’s keeping more new money in cash than he did three to six months ago as he braces for a decline in equities. Thornburg Investment Management Inc.’s Jason Brady is buying bonds more aggressively, while Huntington Asset Advisors’ Sorrentino is selling call options, a bet stock gains will be limited, to finance the purchase of protective puts.

    U.S. pensions, which control $16 trillion, shifted out of equities and into bonds in the third quarter at the fastest rate since 2008, latest data compiled by the Federal Reserve show.

    Comparing earnings and bond yields is similar to an indicator known as the Fed model, derived by U.S. economist Edward Yardeni from a July 1997 report by the central bank. Critics such as AQR Capital Management LLC founder Clifford Asness have contended the technique doesn’t work because inflation affects stock valuations and interest rates differently.

    Earnings for New York-based Alcoa represent about 3.2 percent of the stock price, down from 12.2 percent at the start of 2012, data compiled by Bloomberg show. The largest U.S. aluminum producer reported last week that fourth-quarter profit missed analysts’ forecasts, sending the shares down 5.4 percent the next trading session.

    Tyson Foods, the largest U.S. meat processor whose shares climbed the most in 27 years last year, has an earnings yield of 6.4 percent, almost half what it was a year ago, according to data compiled by Bloomberg.

    Shares of Harris Corp. (HRS), the Melbourne, Florida-based communications equipment company, will slip about 15 percent this year after rallying 43 percent in 2013, analysts estimate. The pessimism comes after the earnings yield slipped to 7.2 percent from 11.7 in April and as profits are forecast to drop 3 percent, data compiled by Bloomberg show.

    “For prices to keep going up, you need better and better news,” Brady, a money manager who helps oversee $95 billion at Thornburg, said in a Jan. 8 telephone interview from Santa Fe, New Mexico. Brady manages funds invested in both equities and credit. “This market is very vulnerable.”

    Smaller spreads are nothing to be concerned about because the relationship still favors equities, and corporate earnings will keep the rally going, according to Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion.

    “It suggests stock returns won’t be as outstanding relative to bonds,” Ward said in a Jan. 7 interview. “But stocks will remain the only game in town.”

    S&P 500 profits will expand 9.5 percent in 2014, up from last year’s 5.1 percent, according to analyst estimates compiled by Bloomberg. Improving economies around the world will also help push up stock prices, Ward said. Economists forecast the U.S., Japan and the euro area will all grow this year, the first time all three have expanded since 2010, data compiled by Bloomberg show.

    The Fed, which has held its benchmark lending rate at zero since December 2008, said on Dec. 18, 2013 that it would cut its monthly purchases by $10 billion to $75 billion, citing an improving economy. The U.S. trade deficit shrank more than forecast in November, as orders for long-lasting goods climbed by the most in 10 months, reports showed. While job creation in December was less than economists forecast, the unemployment rate fell to 6.7 percent from 8.1 percent at the start of 2013.

    Stock investors may have already reaped the benefits of this year’s economic growth, according to Todd, who oversees about $950 million at Greenwood Capital in Greenwood, South Carolina.

    Gross domestic product will expand 2.6 percent this year and pick up to 3 percent next year, according to 78 economists surveyed by Bloomberg. While that’s faster than the 1.7 percent projected for 2013, Wall Street strategists aren’t betting it will boost the S&P 500 by much. The index will expand 5.8 percent in 2014, the smallest projection to start a year since 2005, data compiled by Bloomberg show.

    “There’s no question that economic growth is ramping,” he said in a Jan. 7 phone interview. “But how much of that is already discounted in the market? For the longest time, it was the economy that was hard to call, but now it’s the market’s reaction that’s the question.”