Penny stock investors lose as market down N350bn in February

Most retail investors who chased penny stocks in February were hurt from a record loss which pushed the Nigerian down approximately N350billion in the review month, mostly as some insurance counters failed to attract buyers, BusinessDay trend watch shows.
In January 2018, the Nigerian stock market printed a 16percent gain, outperforming peers across the global market. However, the first week of February 2018 was characterised by sharp volatility as jitters in the US stock market sent shock waves across the world.
Ahead of February equities trading, the Nigerian Stock Exchange implemented the new rules on par value and share price methodology which made many insurance equities worse-off as they warehoused 50kobo stocks.
The policy is expected to result in sharp depreciation of up to 37 listed securities which has not traded above 50kobo for a long time, especially insurance companies, according to Lagos-based United Capital research analysts.
In their early February daily insight, the analysts reiterated their view that the performance of the local equity market will stay broadly positive in 2018, “albeit with intermittent volatility” resulting from profit-taking, panic sales and market repricing. The analysts also expect changes in market dynamics to create opportunity for strategic re-entry for the patient, alpha-seeking investors.
Trading data show that the NSE All Share Index which had opened February at a high of 44,343.65 points fell to 43,330.54 points at the end of the review month, indicating a decline of 2.28percent. Also, the value of listed Nigeria equities decreased from February open level of N15.896 trillion to N15.550 trillion at the end of the review month.
At the recent BusinessDay economic outlook 2018, Bismarck Rewane, Chief Executive of Financial Derivatives Company said amateur investors will be major victims of a selloff at the stock market. He however insists Nigeria is a place for investors despite uncertainties ahead of an election year.
Michael Famoroti, economic research analyst at Vetiva Capital while explaining what reeling global markets mean for Nigeria noted that movement in the MSCI emerging and frontier market indices indicate emerging markets have already begun to suffer the effects of the global equity panic amid notable capital outflows.
Some penny stocks underperformed the NSE ASI with returns at 13.30percent as at February 28. The penny stock and their related price dips are: African Alliance Insurance lost 24percent of its value, ABC Transport (-28percent); AG Leventis (-18.6percent), Newrest Asl (-17.6percent); Cornerstone (-14percent); Courtville (-46.0percent); and Dunlop (-16percent).
Others are First Aluminum (-14percent); FTNCocoa (-20percent); Hallmark Insurance (-48percent); Lasaco (-34percent); Law Union & Rock Insurance (-2.6percent); Mutual Benefit (-4percent); Multiverse (-40percent); Royal Exchange (-34percent); Sovereign Trust Insurance (-16percent), Standard Alliance Insurance (-8percent); Unic Insurance (-52percent), and Unity Kapital (-26percent).
However against the backdrop of improving macroeconomic conditions as well as positive outlook for corporate earnings, Afrinvest analysts believe there is a compelling case for investors to sustain interest in the Nigerian equities market.
“Despite the rally in the market in 2017 and early trading in 2018, current undervaluation of the Nigerian market by valuation multiples and the proven historical valuation premium Nigerian market enjoys in period of boom suggest there are more miles to clock in the market rally”, according to analysts at Lagos-based Afrinvest West Africa.
There is also still relative underinvestment in equities from large pools of capital like the pension funds.
Pension Fund Administrators (PFAs) had an 8.9 percent (N672.2 billion) exposure to equities as at December 2017, out of total assets under management (AUM) of N7.5 trillion.
The NSEASI rose by 42.3percent in 2017 while PFAs assets in the asset class increased by 34.3 percent over the same period.

 
IHEANYI NWACHUKWU