2017 rewards stock investors
The Nigerian equities market opened the year 2017 surrounded by lots of economic uncertainties. The economy battled recession, investor confidence was shattered by inconsistent policy responses and militancy in the Niger-Delta region threatened oil production and the market’s near-term recovery.
Broadly reflecting performance across global equities, the Nigerian stock market has impressed equity buyers with the Year-to-Date (Ytd) return well in excess of 40percent.
As investors prepare to wrap-up the year, it is worthy to note that developments in the global oil market, liquidity level in the foreign exchange (FX) markets, positive GDP growth rate, record realignments in fiscal and monetary policies impacted stock trading on Customs Street with resultant impact on equities pricing.
Despite earlier scaled-back of expectations on a number of listed companies’ earnings, the performance of some of analysts’ stock picks for year 2017 also impressed.
Also, the Nigerian equity market rallied this year as some foreign investors returned to the bourse following partial liberalisation of Nigeria’s foreign exchange market. This development also buoyed greater participation of Pension Fund Administrators (PFAs) in the market.
With implementation of the multi-fund structure extended until early-2018, many market watchers expect even more PFA participation in the near-term to provide support for the equity market.
Investors are now basking on gains following a bullish 2017 which pushed equity market value higher by N4.55trillion.
Amid this development, many stock buyers will continue to search for more value stocks to place their monies next year.
The Market Capitalisation which opened this year at circa N9.15trillion rose to N13.709 trillion as at December 22, 2017, which implies N4.55trillion gain. The All Share Index (ASI) which opened at 26,616.89 points rose to 38,522.14 points in the review period. The Year-to-Date (ytd) return stood at 43.34percent as at December 22.
In the ten months to October 2017, foreign investors played catch-up in stocks trading race at the Nigerian bourse as domestic investors moved and took the sparkle off them.
Both the domestic and foreign buyers in the market have gained from recent rally after the market which was in negative territory as at early May now surged, driven largely by the offshore investor response to the FX window for investors and exporters (NAFEX).
Analysis of equities transactions in the first ten months of this year shows circa N932.63billion (N546.72billion in 2016) worth of stocks trading were accounted for by domestic investors; while in same ten-month period ended October 31, 2017 foreigner investors accounted for N850.98billion (N444.38billion in 2016). In the review period in 2017, while foreign inflow stood at N507.86billion, foreign outflow was N343.12billion.
Further breakdown of the record value of trades by domestic investors shows N321.75billion worth of stocks were traded by domestic retail investors while N610.88billion worth deals were by domestic institutional investors.
Furthermore, increased equities value came within the backdrop of National Pension Commission (PenCom) regulations prescribing a new multi-fund structure for Retirement Savings Account (RSA) that encourages greater equity exposure.
In the third-quarter (Q3) to September 30, 2017, the Nigerian Stock Exchange (NSE) achieved about 130.33percent increase in average daily value of stocks traded on its platform.
This was valued at N5.72billion ($18.71) million compared to N2.48billion in the corresponding period of 2016, according to the NSE Q3 fact sheet. In the 52-week period to September 2017, the average daily transactions at 3,999 rose by 13.43percent against 3,525 in Q3’16.
Though buoyed by ‘Santa Rally’ analysts expect the equity market to stay upbeat into 2018 as economic fundamentals continue to improve on the backdrop of the recent oil rally.
“Unlike the previous year, 2017 has been a stellar year for global equity markets as major equity benchmarks across the world are set to close the year in the green. In Nigeria, it has been a story of recovery in the broader economy and the domestic equities market is no exception with the benchmark index (NSEASI) set to outperform peers in the global and emerging market region as YTD return is currently above 40percent”, research analysts at Lagos-based United Capital noted in their daily insight themed “2017, A tough act to follow”.
According to United Capital, “Over 2017, three major factors spurred positive sentiments on the local bourse; the introduction of the Importers & Exporters’ (I&E) FX Window in mid-April which helped stabilize volatility and liquidity in the FX market, pulling-back foreign investors who have been waiting on the sideline; improved macro fundamentals as Nigeria exit recession, boost to external reserves, brokered peace with militants amid oil price rally and improvement in ease of doing business; and strong corporate earnings results.”
Going into 2018, they see scope for further uptrend as a stable outlook in the oil market, expansion in the local economy, enhanced corporate earnings and less aggressive monetary policy vis-a-vis lower yield environment, drive demand for equities higher. “However, uncertainties associated with a pre-election year may constrain market momentum,” the analysts noted.
“The recent positive developments in the Nigerian economy and the financial markets indicate that the equity market should record another rally in fourth-quarter (Q4) 2017.
“The stable macroeconomic environment was the major driver of the positive performance in the equity market and we expect this to continue in Q4 2017”, FSDH research analysts said in their October weekly insight.
“The NSE has benefited from a ‘sweet spot’. The oil price is off the floor, reserves accumulation has been impressive and the Federal Government has made some positive steps on deficit financing,” according to Gregory Kronsten-led team of analysts at Lagos-based FBNQuest.
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