By GBENGA AGBANA

Monday, 10 Jan 2011

The commencement of operations by the Asset Management Corporation of Nigeria and its purchase of banks‘ toxic assets have rekindled hope that investors in the nation‘s capital market, who have had to endure monumental losses in recent times, may likely reap good dividends this year, GBENGA AGBANA writes

 

The 5.59 per cent growth in the All-Share Index of the Nigerian Stock Exchange in the first trading week of 2011 has triggered optimism among investors that they may enjoy significant capital gain this year.

However, this is not without a caveat. Uncertainties in the socio-political milieu, if not properly handled, can prove a stumbling block.

Experts have attributed the renewed optimism by investors in the stock market to the planned purchase of the toxic assets of banks by the Asset Management Corporation of Nigeria.

Confidence had returned to the stock market early last year after the crash of 2008 and 2009 in which investors lost about N3.3tn and N1.97tn, respectively. The first quarter of 2010 ended with about 34 per cent growth in the ASI, but the trend was reversed in the second and third quarters, as the bulls and bears struggled for supremacy.

At the close of trading last week, the ASI appreciated by 1,399.34 points to close at 26,169.86; while the market capitalisation of the 201 first-tier equities increased to N8.36tn. The NSE-30 Index appreciated by 65.31 points or six per cent, to close at 1,147.26.

Further analysis of the performance of the market last week indicated that all the four sectoral indices appreciated.

For instance, the NSE Food/Beverage Index appreciated by 24.66 points or 3.14 per cent to close at 803.13, while the NSE Banking Index rose by 31.32 points or 7.82 per cent to close at 430.40. The NSE Insurance Index appreciated by 6.23 points or 3.7 per cent to close at 174.57 points, while the NSE Oil/Gas Index appreciated by 17.92 per cent to close at 356.77.

The volume of trading also appreciated as 2.12 billion shares valued at N22.45bn changed hands in the period under review, up from 684.14 million shares worth N4.94bn exchanged in the preceding week.

According to a report by Afrinvest West Africa Limited, the ASI closed the first week of the year with a 565 basis points gain, which was recorded across various sub-sectors.

The report indicated that the banking sub-sector was upbeat throughout the week, contributing positively to both market turnover and the index. At the end of the week, all stocks that traded in the sector recorded gains.

Afribank Plc topped the price gainers‘ list, while Spring Bank Plc gained 18 per cent, followed by Union Bank, Bank PHB, Diamond Bank, Access Bank, Skye Bank and Intercontinental Bank, which all recorded points in excess of 14 per cent.

In the building materials sector, CCNN did not follow the market trend and subsequently lost 8.7per cent. On the other hand, Ashaka Cement Plc and Dangote Cement Plc both rallied and recorded gains in excess of three per cent each, while Lafarge WAPCO Plc gained marginal points.

There was also a rally in the breweries sub-sector, as Nigerian Breweries Plc and Guinness Nigeria Plc witnessed a surge in their respective prices and subsequently closed with gains of five per cent and eight per cent respectively. International Breweries Plc, however, shed 2.7 per cent.

The banking sub-sector was the most active in the period with 1.61billion shares worth N16.97bn, driven by activity in the stocks of Zenith Bank Plc, Access Bank Plc, Fidelity Bank Plc and Guaranty Trust Bank Plc.

Our correspondent gathered on Saturday that the toxic assets of the banks would be bought at prices higher than the prevailing prices in the stock market currently, which is encouraging some investors to take positions on the stocks of banks in order to enjoy capital gains in the near future.

On the growth in the market indices last week, the Managing Director of Partnership Investments Limited, Mr. Victor Ogiemwonyi, said it was a signal that the market had stabilised.

He said, ”The stock market showed positive growth for the year 2011. This is a clear demonstration that the market has stabilised. This, and the AMCON takeover of the impaired loans, were good news that investors reacted to. Though we will continue to have volatility for sometime, the market is set to do better than last year. The only risk is the uncertainty of the elections. Once we get over that hurdle, the market will experience rapid growth.”

The Managing Director, Rewards Investments and Services Limited, Mr. Henry Olayemi, also attributed the growth recorded in the market in the review period to the move by AMCON to buy the toxic assets of banks.

He said, ”Perhaps, it is the expected salutary effects of AMCON may have on the market. Buying up the toxic assets will dry up supply and the normal way that market forces will respond is for prices to go up. There may be another reason for institutional investors to close their books and take positions, which is equity switching.”

AMCON has already commenced the purchase of the toxic assets of the banks, a situation that will encourage them to increase lending and enhance the liquidity of the stock market.

For instance, Oceanic Bank International Plc announced on Friday that it had received over N200bn from the sale of its assets to the corporation, just as it disclosed that it had opted for a national commercial banking licence in compliance with the revised banking model outlined by the Central Bank of Nigeria.

With a network of over 370 branches across the six geo-political zones of the nation and quality service delivery, the bank‘s management expects to continue to delight its customers and other stakeholders in the new dispensation.

The board of directors of the bank, had in compliance with the ”Regulation on the Scope of Banking Activities and Ancillary Matters, Number 3, 2010,” as released by the CBN, resolved to apply for a national commercial banking licence under a stand-alone operating model. The bank expects to comply with the CBN guidelines within the designated time frame prescribed in the new regulation.

Source: Punch