by UDEME EKWERE
The exit of foreign investors from the equities market, a wave of profit taking, as well as the depreciating value of the local currency have left stocks tumbling down, leading to noticeable decline in indices at the Nigerian Stock Exchange in the last three weeks, UDEME EKWERE writes on what the trend portends for investor confidence
The equities market of the Nigerian Stock Exchange has been on a steady decline in the last three weeks, culminating in the loss of N471bn within the period.
The steady descent in the market, which began towards the end of last month, spilled into the first two weeks of June, with the market capitalisation of the listed equities falling to N6.666tn on Friday.
This represents a loss of 6.6 per cent or N471tn compared to the N7.137tn, recorded three weeks ago.
The market capitalisation represents the aggregate value of all the companies or stocks quoted on the Exchange. It is obtained by multiplying the aggregate number of shares outstanding by the current price of each stock.
Similarly, the NSE All-Share Index fell by 6.6 per cent or 1,478.16 basis points to 20,902.95 points on Friday, down from 22,381.11 points recorded on May 18.
Experts, who spoke to our correspondent on Friday, said the decline was largely as a result of the exit of foreign investors from the equities market.
They added that other factors, including the depreciation of the naira in the last few weeks, had also contributed to the significant loss in the market within the last month.
Activities in the market had reached a peak for the year on May 4, with the All-Share Index hitting 22,665.99 points with a year-to-date increase of over 9.3 per cent, while the market capitalisation rose to N7.228tn on the same day.
However, following profit taking by investors after the release of impressive results by major companies, the market volume began a steep descent, shedding over N400bn in 21 days.
The NSE-30 Index, which measures the performance of the top 30 companies on the Exchange, also recorded significant decline in the period under review, as it fell by 6.3 per cent or 952.27 basis points from 1,016.30 points three weeks ago to 952.27 points on Friday.
Investigation by our correspondent showed that the Banking 10 Index was the hardest hit during the period, as it lost 6.8 per cent or 22.03 basis points on Friday to close at 300.93 points, down from 322.96 points recorded three weeks before.
A market analyst, who preferred to speak anonymously, told our correspondent that lately, some foreign investors had begun to sell off part of their shares, with some exiting the market completely.
The analyst added that it was likely that the investors were exiting to invest in their home countries because of the general global economic slowdown.
He said the situation in the market was likely to hamper plans by the management of the Exchange to hit $1tn market capitalisation by 2015, adding that if things continued at the current pace, it would be highly unlikely that the NSE would reach the mark in the next three years.
On his part, the Managing Director, Lambeth Trust and Investment Limited, Mr. David Adonri, said apart from the equities market, the bond market was also affected by the recent decline.
This, he said, was as a result of the fact that there were no further incentives to drive market growth compared to a month ago when the corporate performance of major companies led to increased buying of shares in the market.
He added that the weakening of the naira had also contributed to diversion of interest from the equities market to the treasury bills market, which had been recording better yields.
Adonri said, “The equities market has been bearish in recent times. Based on investors’ reaction to several impressive full year results that were released in April and early May, the All Share Index appreciated remarkably until recently.
“Without any further price sensitive information in the mould of good corporate actions to drive the market, it is not surprising that the recent macroeconomic liquidity squeeze is taking its full toll on the market.”
“Due to events in the Euro zone that have provoked flight of hot money from the Nigerian financial system, the monetary authorities, in attempting to defend the naira, have driven up interest rates, leading to asset migration from equities,” he added.
Adonri said although the recent monetary measure was at the expense of investors’ confidence in equities, price stability in the economy would take precedence, which was why the equities market continued to dwindle.
Analysts at Meristem Nigeria Limited, in their report on Friday, said even though the margin seemed to be on the high side, it was common to see some instability in the market at this time in the year.
They, however, noted that it was likely that activities would stabilise by July, as those who were involved in profit taking would return to take advantage of the general low prices of shares in the market then.
The analysts said in their report, “Impressive quarter to date return on many stocks induced an aggressive profit taking, which dragged the index below the 20,100 index points. In 2010 and 2011, similar decline was noticed at this period. Clearly, the full year earnings season is over; it is time for dividend-seeking investors to exit. The exit of this short-term profit-takers is a drag on the capital market between April and June.
“The exodus is not, however, expected to last long because there is always a rally in July as the first set of half year results hit the market (if they are good). If the 2012 first quarter performance is replicated by the companies, then expectation of half year result is rosy.”
The Managing Director, Crane Securities Limited, Mr. Mike Ezeh, said with the losses incurred so far, investors might have to excercise some caution before investing their funds in the market.
He said, “As a result of the losses, investors might be reluctant to further stake their funds in the market because of a consistent drop in prices in the last couple of weeks. All the investments they have made in the last two weeks have been a dismal failure and the likelihood is that they are going to hold back their funds going forward.
“This will in turn be a blow to the confidence, which has been regained as a result of all that has been put into the market by the different stakeholders.”
Written by NEWSTRAWL ONLINE UPDATE
Sodiq Oyeleke is a Media, Human Resources, Project Management and Public Relations Practitioner
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