Stakeholders caution, as Nigeria's market indicators attain new levels

September 13, 2012 / By Kingsley , Ighomwenghian / Daily Independent Stakeholders in the Nigerian financial industry, on Monday, expressed happiness at the robust activities in the various segments, just as they adduced different reasons for the growth in the markets indicators, while hoping that the growth seen is sustainable in the medium to long-term. Many readily link the growth in the nations stock index, as well as the increased volatility on the fixed income side, and the improvement in foreign reserves to the increased activities of foreign portfolio investors. The latest data posted on the website of the Central Bank of Nigeria (CBN) on Monday, shows that the nations foreign reserves rose to $39.848 billion on September 7, 2012, the highest level since 2010. This represents a $3.448 billion or 9.47 per cent increase in one month from $36.4 billion, and $5.396 billion or 15.66 per cent, when compared with the level, a year ago. Meanwhile, the benchmark All-Share index of the Nigerian Stock Exchange (NSE) jumped 1.12 per cent on Friday, the highest in 12 months, according to analysts at FSDH Securities Limited. This was helped by gains recorded through the week, resulting in an 11-day rally, following which the index closed 1,087.88 points or 4.58 per cent for the week, on the back of blue-chip gainsinvolving companies in the banking and fast moving consumer goods segments. While the blue-chip index, for example, rose 4.68 per cent; it was outpaced by the banking indexs 7.10 per

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cent rise, while the consumer goods and lotus II indices climbing 3.98 and 3.63 per cent up respectively. The growth in the equities and fixed income markets has also been linked to the planned inclusion of Nigeria in the JP Morgan Government Bond Index for emerging markets (GBI-EM) from October. There is also the ongoing restructuring of toxic loans owed by operators by the Asset Management Corporation of Nigeria (AMCON). By Monday however, the first sign of profit-taking was noticed, as capitalization fell by N53.236 billion, and the index by 167.23 points or 0.67 per cent owing to losses suffered by heavy weights like Dangote Cement; Flour Mills; and Zenith Bank.

Reactions On the rise in the nations foreign reserves, Edwin Ikhinmwin, a stockbroker and Chief Executive of Lagos-based Emi Capital Resources Limited, told our correspondent in a telephone chat on Monday that the prices of crude have been good at the international market. Beyond this, he noted that the reserves have also benefitted somehow from the noise that trailed the removal of subsidy on the price of premium motor spirit (PMS) by the Federal Government on January 1, this year. This, he believes, has resulted in a drastic reduction in the volume of under-the-table spending of the nations foreign reserves to pay for petroleum products that never landed in the countrys seaports, and yet huge billions of Naira was claimed by some oil marketers, conniving with dubious government officials. This has therefore
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resulted in a more prudent outflow of foreign exchange, he said, besides which nothing has changed considerably On the stock market index, Ikhinmwin agreed that among others, big time investors are reacting positively to a more attractive valuation, calling attention to the fact that only the prices of bluechips, particularly those managed by foreigners, are moving up, as a closer look at the market shows that the movement is not across board. The planned addition of Nigeria to the JP Morgan index has resulted in the rush by foreign portfolio investors to put Nigerian investments in their book. We will begin to see whether this is sustainable, he said, warning that the foreign investors could exit as easily as they entered, leaving the market gasping for breathe again. Many easily recall the near collapse of the Nigerian capital market between 2008 and 2010, when the ASI dropped from its all-time high of 66,371.20 points on March 5, 2008 to around 19,000 points. On that date too, the value of stocks on the NSE stood at a princely N12.64 trillion, helped by robust price gains and several new listings. Sadly however, analysts note, half of the companies listed within the period, currently trade at a par value of 50 kobo from as much as N13 (for some like CDMA operator- Starcomms). According to the September 10, 2012 edition of bond watch, by analysts at Dunn Loren Merrifield, Lagos-based fixed income and equities market group, there was high intraday volatility in the over-the-counter (OTC) market for trading bonds. This, according to the report anchored by Tolu Oduokoya and Jide Nwogwugwu, may not be unconnected with the presence of foreign investors in the market as portfolio managers and institutional investors reposition their respective portfolios.
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According the NSEs weekly report, trading at the OTC market yielded a turnover of 227.005 million units worth N227.196 billion in 1,034 deals, compared with 165.869 million units exchanged for N162.416 billion in 760 deals recorded in the preceding week ended August 31st, 2012. Explaining further in a phone chat on Monday, Odukoya told **Daily Independent,** that the planned inclusion of FGN bonds in the JP Morgan index is a key driver of growth in the fixed income market. He also noted that shares of companies in the nations stock market has over the past months remained underpriced, hence the interest of investors, many of who are foreign, at this time. He also linked the rise in the stock markets index, before Mondays slide, to the planned take-off of the market making initiative by the NSE on September 18. Ahead of this, the NSE, yesterday in Lagos, organised a marketwide interface to intimate stakeholders like experts in market making, securities lending, short selling, as well as participants such as settlement banks, pension fund administrators, insurance companies and listed companies, about the rules and operational guidelines for the programme. This, Odukoya believes, is responsible for the high market turnover, since the 10 market makers have already been assigned a portfolio of 20 stocks each, which would necessarily boost liquidity in the stocks. Although there will be profit taking, he believes the market will find a higher support level around the 22,000 points region, in the ensuing decline. The stock market has been over-sold, so investors are going back to take cheap assets, such that when they exit, it would be at a good profit margin, he stressed.
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Also, analysts at analysts at Partnership Investment Company Plc, an investment banking firm, in their analysis of last weeks activities in the nations financial markets, attributed the rise in foreign reserves pool to the reduced pressure on the Naira as well as rise in the price of Nigerias main foreign exchange earner. Prior to now, the Central Bank was expending the reserves to defend the Naira. On the equities side, Partnership Investment stressed that the surge in the NSE index is coming at a time of renewed interest by foreign investors in the nations financial markets. Foreign participation in Nigerias treasury bills and bond securities has allowed for huge foreign exchange inflow and boosted the Naira, the report added. For Olufemi Awoyemi, a chartered accountant, financial/market analyst and chief executive of Proshare Nigeria, a finance and investment portal, the current trend is expected, in a market dominated by foreign investors who constitute between 80 and 90 per cent of inflow. This, he argued, is because local investors are yet to sort themselves out of the chronic illiquidity postures while the incoming market making seems to be the only reasonable driver for such unrelenting rally we are witnessing on the bourse. Foreign investors continued to take advantage of most active and value stocks. They are bidding up prices before the marketmaking commences. Consequently, Awoyemi foresees a tight situation or a deadlock somehow in the market soon, because we have less pigs in the market to slaughter when it is time to offload, since the retail end of the market (the usual pigs) are almost dead- we shall see how

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the whole settings work out without forbearance and margin facilities in nearest future. For now, he continued, proprietary trading from domestic brokers is not active, as Nigerian retail investors remain wary and on the sideline (though, the indecision level dropped significantly) while retail shops are almost dead. Also, he agrees that the euphoria of market-making has been the only sound rationale we can point to as driver so far, although other incentives and concerted efforts from stakeholders in the market paved way for this. The increment in reserves, he agrees, may be of some help to those making investment decisions in the country, because it is an index foreigners consider along with other economic indicators to engage in bargain spree as we have observed. In an e-mailed response also, Idowu Ogedengbe, a stockbroker at Vintage Wealth Managers Limited, a Lagos-based firm also said because about 80 to 90 per cent of international trades rely on trade finance, actors in that market might have become more comfortable in opening credit lines with Nigerian companies on the back of the nations rising foreign reserves. In this regard, the prospects for an enhanced trade flow into the country might positively impact the nations capital markets thereby leading to a rise in the NSE ASI. The planned take-off of the market making initiative on the NSE, he agrees, may equally have triggered the improved performance of the market, prompting most investors waiting on the sidelines to enter the market in the expectation that the market should become more liquid and less volatile.

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AbdulRasheed Momoh, equities analyst at TWR Stockbrokers Limited, on Monday, expressed optimism that the market could rise to as high as 27,000 points, after some initial resistance. In a note to clients, he also warned that the recent rise may just be the markets last dance before entering the earnings season, and that it seems the market is being pumped up, or fattened up for the kill as the stock market is known as a discounting mechanism for future valuation and not a feedback mechanism for current valuations. As such, trying to line day to day economic numbers with what exactly is happening in the stock market typical ends in confusion for most people. Continuing his analysis, Momoh noted that in the NSE 30 Index, for example, less than half of the stocks broke their 5-8 years resistance levels, and another set are testing one-year level. My own momentum indicators, which are short-term, still indicate a positive trend, and the overall index is still below the middle of the trading ranges of the individual components. In his assessment, stocks like Access Bank; Chemical & Allied Products, a UACN subsidiary; Evans Medical, First Bank, Guaranty Trust Bank, agro-based companies- Okomu Oil Palm and Presco; and beer makers like International Breweries and Nigerian Breweries; Nestle and Zenith Bank have made 52 weeks highs. Others, he stressed, are still tagging along or below resistant levels. The biggest player Nestle is the only stock now above an all -time historical high of N550. NB, now N127.50, has an all-time high of N131.90, International Breweries at N14.39, has all-time high of N15.86; Okomu Oil (with a high of N38.00, closed at N35.00 last Friday).

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These few stocks have been leading the pack and I dont think they have the capacity to move the overall Indexes as they approach their five to eight- year resistant levels, except new ones come on board. For investor, shareholder-activist and National Coordinator of the Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu, many of the stocks on the rise today, are either value retaining companies with which shareholders preserve the value of their investment. The growth in the stock market indices, Nwosu believes, may also have been helped by the adoption by Nigerian companies of the International Financial Reporting Standard (IFRS), which he stressed, has resulted in provision of more financial information about companies and in the process, greater transparency. Conclusion While many still believe investors should not go yet on a spending spree on the back of recent improvement in stock prices, to avoid a report of the 2008- 2010 scenario, Nwosu wants the management of regulatory agencies- Securities & Exchange Commission and the NSE to be more alive to their responsibility of protecting unwary investors. According to the Partnership Investment analysts, the decline in demand for crude at the international market today should be a cause for concern. We envisage a positive outlook for the economy particularly with the growing interest of foreign investors in the Nigerian economy. Foreign Direct Investment (FDI) is expected to grow further as more foreign capital seeks outlets in emerging economies. Reforms in the ease of doing business and other regulatory
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impediments need to be carried out to enhance funds inflow, the report said. Despite such call for cautious optimism about the foreign reserves by analysts, Dr. Okonjo-Iweala, Finance Minister and Coordinating Minister for the Economy, in an interactive session with the Organised Private Sector projected that Nigerias reserves could rise to $50 billion by year-end. The highest level was $60 billion, during the administration of President Olusegun Obasanjo.

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Outlook tilts towards take-off of bearish run

THURSDAY, 13 SEPTEMBER 2012 08:38 IHEANYI NWACHUKWU

Following this weeks halt of 11-day market rally at the stock market, the outlook is now in favour of the bears, analysts have confirmed. After successive weeks of gains, profit-takers took charge of activities at the bourse leading the All-Share Index (ASI) and market capitalisation on a retreating path. Not only that, the daily volume, value and deals fell significantly when compared with the trading statistics recorded last week. Though, the return of foreign portfolio managers had triggered market rally recently, but analysts believe that declining yields on government bond is partly responsible for the renewed interest in equities, in addition to the current currency regime that limits exchange rate exposure. In their recent market outlook, analysts at Cowry Asset Management said they expect to see a mix of bargain hunting and profit taking as some investors would rather watch out for the outcome of the market-making billed to take off by September 18, 2012. Analysts at Meristem said, Much as we expected, the profit taking by investors started on Monday with the 67bps loss in the index. If we hold the historical perspective, our expectation will tilt towards the take-off of a bearish run as bargain hunting induces a profit-taking session. The bulls are going on recess; take profit on your portfolio. These analysts added: The longest consecutive gain the market recorded in the year so far is eight days, which was followed by a couple of days loss. Our expectation of dip in prices in the coming days will however not be sufficient to dampen the cumulative gains of the last 10 days. Of the 172 trading days in the year, the market recorded 80 trading loss days and 92 trading gain days. While our expectation of profit taking stands in the coming days, we are of the opinion that the rally in prices so far in the year is not a fluke as the
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fundamentals of the major quoted counters support the upward price movement. Banking stocks, for instance, with 2011FY attractive earnings currently trade at a trailing average P/E of 6.03x, an opportunity to accommodate further price ramp since share prices are still relatively low. Partnership Investment Company plc analysts said: With the bulls currently having a grip on the market and increased bargain hunting activities, the market is expected to maintain this trend in the coming week. Although profit-taking activities are expected, this may not be enough to significantly reverse the bullish run as the positive sentiments are expected to prevail. They added: Investors are advised to take positions in blue-chip stocks of interest, as the bulls are expected to maintain their grip for most part of the coming week. Risk appetite and return expectations should be major consideration for investment decisions. In their own view, analysts at Access Bank plc said: The buoyant mood in the market can be traced partly to the impressive H1, 2012 scorecards and attractive dividend payouts by most heavily capitalised stocks, especially in the banking sector. They expect market performance to thrive on renewed optimism with attendant impact on trading/speculative activities. Furthermore, the selected 10 market-makers are expected to commence operation on September 18, 2012. This may further boost confidence in holding equity investments as investors anticipate significant returns on investments, the analysts at Access Bank, added. SPONSORED BY : GTB Assect Management

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