Cloudy investment climateTHE investment climate of the Nigerian Stock Exchange (NSE) last week remained very cloudy, as there were still uncertainties as to the definite direction of the equities market which, in the recent times, has greatly experienced value dip in prices of equities across board.The market appreciated marginally by an All-Share Index basis of just 0.4 per cent.It was a week during which investors were beginning to seek for answers to their questions, of why would a market adjudged to be the highest value-adding market in terms of return on investment would continue to go southward despite concerted efforts by the regulatory body (SEC) and the self regulatory body (NSE), to make the market return to profitability.Anxiety by investors became more heightened mid-week when the half year financial position of some listed companies released on the stock market especially that of Zenith Bank and Skye Bank, refused to brighten transaction as the market lost by an All-Share Index of 50 basis points. The market is already in its third week into the second half of the year.Many local and foreign institutional investors have noted that the Nigerian stock market has remained shallow, which according to analysts, makes the market face poor liquidity with average free float still hovering below 30 per cent.According to the Chief Executive Officer, Financial Derivatives Company, Mr. Bismarck Rewane, there is also lack of tradable financial instruments, as 'the lack of tradable asset classes and financial instruments contribute to an inefficient market with low price discoverability. If you build it, they will come.'What the market needs nowIn view of the high pulse of investors and stakeholders in the stock market, the market needs some positive news to build investors' confidence in that direction just as much is being done at the moment to create liquidity in the fixed income market, thereby driving investors away from the capital market.It would be recalled that the stock market was last week at its 3-month low, following a N252 billion loss in the value of equities since the beginning of the year.Head of research and investment at APT Securities and Funds Limited, Ibinabo Princewill said the successful recapitalisation of the rescued banks and half year results by companies would definitely boost investors' confidence in the market, especially as we expect economic activities to pick up in the third quarter.'We would also bear in mind that if inflationary pressures do not subside, the Monetary Policy Rate (MPR) is likely to be increased which could lead to a further tightening of liquidity to the detriment of the market.'A market consultant with Deloy Consulting Limited, Tunde Oyediran affirmed that there was need for government to intervene in the market. He noted that since all efforts put in place to revive the market had proved abortive, the only solution to the present situation in the market was government's intervention, which according to him, should be done urgently.'Government should come to our aid to save this market. They are the only one that has the solution to our problem. They should provide fund to cushion the margin loans of stock-broking firms the way they did in the banking sector. We don't have enough funds that will drive this market and that has been a serious problem to us and is inversely affecting the market', he said.Aside provision of fund, Oyediran added that another factor that would salvage the market was consistent policies from the financial market regulators; noting that policy inconsistencies from regulators, Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) were jeopardizing the growth of the market.He said unless both regulators came out with good policies, capital market would continue to suffer decline in fortunes.Why the lull in the market A recent report entitled: 'Nigerian Equities: A Review of First Half 2011' showed that the local bourse had remained unattractive and very expensive among its peers in Africa, South America, Eastern Europe and Southern Asia, ASEESA.A Dunn Loren Merrifield report prepared by a research analyst in the company of Tola Odukoya blamed the development on recent shift of focus from the equity market to the fixed income markets, particularly in sovereign and sub-national bonds.He warned that the expensive nature of the market was likely to hamper continuous inflow of funds into the country.He said that a comparative analysis of selected frontier markets indicated that the Nigerian market was more expensive than others such as Ghana, Botswana, Venezuela, Serbia and Bulgaria.According to Odukoya, in view of increasing globalisation, valuations of the Nigerian equity market appear unattractive especially when compared with other frontier markets given the All-share index: ASI's price to earnings, PE, ratio of 17x against other markets of 2.4% average.He said: 'With a PE of 17.5x, the NSE ASI appears expensive when compared with other emerging/frontier markets across ASEESA.''Our argument, therefore, is that with the increasing linkage among economies and globalisation of financial markets, the Nigerian market is in competition for capital with other financial markets that have similar characteristics and attract investors with the risk tolerance for frontier markets.''The resulting negative effect of these developments on the domestic investor inverse left only foreign investors and pension funds as the critical investors with any significant capacity to drive the market'Therefore, we argue further that the Nigerian equity market is currently trading at realistic levels, contrary to general expectations for the market to surge to levels last recorded during the market bubble days of August 2006 to March 2008', he said.Transactions last week at a glance The market opened Monday on a downward note, as price losses suffered by virtually all the blue chip companies resulted in market indices sliding further by 0.5 per cent. A further review of transaction in the day showed that 26 companies depreciated in price, compared to 14 that constituted the gainers' chart.Specifically, the All-Share Index dropped by 128.4 basis points or 0.5 per cent from 24,310.03 recorded on Friday to 24,181.57, while market capitalisation fell by N41 billion from N7,772 trillion to N7,731 trillion.Northern Nigerian Flourmills and CAP topped the day's losers' table with five per cent to close at N24.70 and N32.51 per share respectively, while Afribank followed with 4.76 per cent to close at N1.00 per share.IHS lost 4.75 per cent to close at N2.81 per share while Flourmills gained 4.74 per cent to close at N80.19 per share.C&I Leasing, Union Bank, Bank PHB shed 4.27, 4.18 and 3.80 per share respectively to close at N1.12, 2.29 and 0.76 per share. NEM and May & Baker also lost 3.70 and 3.68 per cent to close at N0.52 and N3.66 per share.Equity trading on the NSE Tuesday recorded 213.98 million shares or 7.92 per cent valued at N2.70 billion in 4,365 deals compared to the previous day's turnover of 230.92 million shares valued at N1.95 billion in 4,218 deals.The banking sub-sector was the most active on the sectorial analysis accounting for 67.61 per cent of the market turnover with 144.67 million shares valued at N827.38 million in 2,616 deals.Access Bank Plc enjoyed the most patronage in the sub-sector, trading 37.34 million shares valued at N239.39 million in 206 deals. Unity Bank Plc followed with the exchange of 36.13 million shares valued at N28.19 million in 24 deals and Zenith Bank Plc recorded 14.13 million shares valued at N199.81 million in 325 deals. The conglomerates sub-sector followed on the sectorial analysis, accounting for 8.66 per cent of the market turnover with 18.53 million shares valued at N663.48 million in 178 deals. UAC Nigeria Plc recorded the highest activity in the sub-sector, trading 16.10 million shares valued at N628.39 million in 59 deals. Transnational Incorporation Plc followed with the exchange of 1.29 million shares valued at N1.32 million in nine deals and Unilever Nigeria Plc recorded 759,224 shares valued at N19.90 million in 68 deals.However, equities value represented by the market capitalisation declined by 50.86 billion or 0.67 per cent to close at N7.530 trillion from N7.581 trillion at which it opened. Another key performance index, the All-Share Index depreciated by 0.67 per cent or 159.06 bases points to close at 23,552.84 points from 23,711.90 points. Wednesday's transaction witnessed gains in highly priced equities on the trading floor of the stock market, resulting in the all share index, recording a marginal increase by 0.66 per cent.The day's trading saw 25 stocks appreciating in price, while 14 others pitched their tent on the losers table.Review of activities in the day showed that corporate performance indices, the All-Share index of the Nigerian Stock Exchange, increased slightly by 154.63 basis points or 0.65 per cent, from 23,552.84 recorded when the market opened transaction in the day to 23,707.47, while market capitalisation rose marginally by N50 billion or 0.66 per cent, from N7.530 trillion to N7.580 trillion.On the price movement chart, Unilever Nigeria Plc led others on the gainers' chart with 5.00 per cent rise to close at N27.30 per share, while Dangote Sugar Plc followed, adding 4.95 per cent to close at N10.60 per share. First Bank Plc, GTAssurance and PZ Cusson Plc gained 4.93, 4.93 and 4.91 per cent to close at N12.13, N1.49 and N38.00 per share respectively.However, Oceanic Bank, Air Service Plc, Presco Plc and Sterling Bank Plc topped the day's losers table, shedding 5.00, 4.94, 4.70 and 4.26 per cent to close the day at N1.14, N22.50, N7.50 and N1.34 per share respectively. Riding on the appreciable value of equities on Thursday and Friday, the market closed the week high and with market capitalisation of N7.649 trillion and an All-Share Index of 23,925.72 basis point.
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