… Loss attributed to hike in rates in US, positive sentiments in Europe
Stakeholders in the nation’s capital market are presently searching for the formula that is required to revive local and foreign investors’ interests in equities following another dismal performance by stocks in the week that just ended. From 16 percent market returns in January 2018, which amounted to over N2 trillion gains in market capitalisation, the Nigerian stock market closed last Friday at -1 percent year to date.
The All Share Index (ASI) of the NSE closed last week Friday at 37,862.53 points as against 38,928.02 points a week before. This amounted to a loss of 1,065.49 points week to date, and that translated to -2.74 percent returns week to date and -1 percent year to date.
Consequently, the market capitalisation of listed stocks ended the week at N13.72 trillion compared with N14.10 trillion a week before, translating to a loss of N385.98 billion in just a week. Thus the market capitalisation closed week to date at -2.74 percent and 0.78 percent year to date.
At present, only the NSE Pension, Insurance, Premium and Banking closed in the positive territory. By last week Friday, the NSE Pension Index returned 7.39 percent; Insurance, 7.23 percent; Premium, 5.61 percent and Banking Index, 1.23 percent.
When these returns are compared with the benchmark interest rate, which is the Monetary Policy Rate at 14 percent, it is certain that investors will look elsewhere for other investible assets.
Furthermore, when compared with the same market about this time last year, the nation’s equity market then had posted 19.53 percent returns year to date, while the NSE Banking, Pension, Industrial and Premium Indexes gained by 40.90 percent; 38.98 percent; 25.30 percent and 20.52 percent respectively.
Meanwhile, analysts have attributed the downward movements in market performance in Nigeria’s equity market to hike in rates in the United States and positive sentiments in the European Union (EU).
“Foreign and local investors are withdrawing from the market because of hike in rates in the United States and positive sentiments in Europe. Those developed markets have better financial structures, breadth and depth than ours. The general feelings are that, with hike in rates, they would rather invest in those markets than ours”, said Fola Abimbola, an analyst with CSL Stockbrokers.
“Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
“In view of realized and expected labour market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2 percent inflation’, FOMC press release states.
“Apprehension that the forthcoming general elections may not be peaceful is another factor,” Abimbola added.
Meanwhile, the market has presented opportunities for retail investors to come in following the slide in prices of equities which means more units will be bought given the same level of investible funds now compared with same period January this year.
“This is the best time for retail investors to come in as there are some good stocks that they can buy because when the market picks up those stocks will be out of reach of retail buyers”, Abimbola suggested.
He encouraged investors to look at consumer goods stocks particularly Dangote Sugar, Flour and Flour Mills of Nigeria.
