Nigeria’s brighter economic prospects fail to lift stock market on first trading day

Nigeria’s brighter economic prospects fail to lift stock market on first trading day

Stock traders on Customs Street, Lagos, started the year on a pessimistic note, despite some of Nigeria’s top economist forecasting a far better 2017 for the  economy, on the back of a steep rise in crude oil prices in the international market. Higher crude oil prices have been known to have a positive correlation with the performance of the Nigerian stock market over the years.

After closing in 2016 down 6.17 percent, the Nigerian Stock Exchange (NSE) All Share Index (ASI), which measures average change in the prices of listed companies, opened this year with a loss of 0.96 percent, shaving N88billion off the value of listed stocks.

The All Share Index closed at 26,616.89 points against 26,874.62 points at the close of trade last year. The value of Nigeria’s listed stocks, which opened this year at N9.246trillion, declined to N9.158trillion.

Nigerian Breweries led the losers in the market, dropping -5.99% to close at N142 per share. Also among the top five losing companies were; BetaGlas (down -1.32%), GTBank (down -0.7%), Cadbury (-0.51%) and ETI (-0.51%).

Five other companies made the top gainers chart on the first day of trading. These are; Stanbic IBTC (0.74%), UAC-PROPERTY (0.13%), UACN (0.09%), United Capital (0.08%) and FNBH (0.05%).

Only 12 stocks recorded any positive gains in the day’s trading, while 22 stocks declined.

All the key sectors on the stock exchange declined in value on the first day of trading. The NSE 30 index was down -1.24%. Also the banking index was down -2.38%, Consumers Goods index was down 1.99%, Industrial Goods (-0.18%) and Oil and Gas (-0.49%).

“Generally, for 2017, we expect equities to respond sporadically to information flows on health of the Nigerian economy and its polity. To put it succinctly, we do not expect a spectacular performance in the first half (H1) of 2017. However, risks to our expectations remain smart execution of 2017 budget, resolution of the foreign exchange conundrum and recovery in government fiscal stability in 2017,”said Saheed Bashir, head of research at Meristem Securities Limited.

“Until there is fresh information to drive new expectations, we expect equities to trade sideways in January 2017,” he said.

Analysts say the loss in the ASI on the first day of trading   is an indication that stock investors have failed to price-in the forecast of positive 2017 outlook for Africa’s biggest economy, even as oil price soared.

Oil prices hit 18-month highs on Tuesday, the first trading day of 2017, buoyed by hopes that a deal between OPEC and other big oil exporters to cut production, which kicked in on Sunday, will drain a global supply glut.

Brent crude, which is mostly used in forecasts about Nigeria, jumped more than two percent to a high of $58.37, up $1.55 a barrel on Tuesday and its highest since July 2015.

But analysts at Afrinvest research explained that the loss in the market on the first trading day is due more to profit taking by investors than any pessimistic outlook for the market.

“Given the uptrend witnessed in the Benchmark index towards the tail end of 2016, Tuesday’s negative close can be linked to profit-taking in counters which had previously appreciated. We expect sentiment to remain weak in the interim, as equities work-off the breath-taking rally of the previous month”, the analysts added.

The uncertainty built around foreign exchange (FX) availability, tightened monetary policies, in addition to some tough fiscal policies, had weakened investors’ confidence towards investment in Nigerian equities, analysts say.

Research analysts at Lagos-based Dunn Loren Merrifield said in their Tuesday equity note, that, “While there are no incentives for investors to take on new risks, going forward, we are of the view that the market will continue to see more of speculative trading.”

But Ayodele Akinwunmi, Head, Research and Strategy at FSDH Merchant Bank, said investors are wary of developments in Nigeria’s macro economy “and are not buying into stocks. We think the corporate results will be unimpressive, as there were foreign exchange issues that blighted firms.

“As a result of  slow economic activity of last year, we do not expect a miracle to turn the results of companies around when they release audited 2016 financial results”, he noted.

Interestingly, while the Nigerian stock market disappointed, other  markets across the globe climbed on economy optimism, as crude oil price advance.

The S&P 500 Index added 0.8 percent to 2,256.76 at 10:03 a.m in New York, halting its first three-day slide since the election. The index finished 2016 with a 9.5 percent gain.

The Dow rose 132.18 points Tuesday, to 19,897.05. The Stoxx Europe 600 Index climbed 0.9 percent, poised to cap a 20 percent advance from its February 2016 low that would meet the definition of a bull market.

“Equities are making a very positive start to 2017,” said Michael Van Dulken, head of research at Accendo Markets in London, in a note to clients. “Investors have clearly retained their pre-Christmas bullishness, preferring to focus to the positives, rather than dwell on political uncertainty.”

Iheanyi Nwachukwu & Bala Augie

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