Since the beginning of the year, indices in the equities section of the capital market have been upbeat, with capitalisation rising to N10.66tn on Friday. In this piece, Udeme Ekwere examines the market drivers and ways to sustain them.

For Pius Oyeniran, 2012 started like any other year with so much expectation. However, as regards his investments in the Nigerian Stock Exchange, Oyeniran was not particularly excited. This was chiefly as a result of the huge losses he had recorded on his investments since the market downturn in March 2008.

While speaking to our correspondent, Oyeniran said he had lost close to 75 per cent of his total investments between 2008 and 2010. This was due to various challenges in the market, including the global meltdown, the banking crises and the take-over of three banks by the Federal Government.

He expressed worry over the deepening losses in the market, adding that it was essential that government and regulators did everything they could to ensure  the market picked up.

Oyediran said, “The problem is that I cannot even sell the shares I have in the market because their prices are ridiculously low; on the average, most of the shares have lost over 85 per cent of their value and are now trading at their nominal values.

“I think the Federal Government and the capital market regulators should put their heads together and come up with ways to salvage our markets and our investments which we have suffered over the years.”

When our correspondent bumped into Oyeniran three weeks ago at the NSE, he was full of smiles and seemed to be a different person.

Oyediran said, “The market has been improving, some of my investments have been picking up. I am glad that the regulators and government made some effort towards improving the market, and today, we have seen some significant improvement in the market. We hope the concerned stakeholders will continue in their efforts to improve activities.”

Like Oyeniran, some investors have recorded significant increase in their portfolio as some stocks have gained as much as 100 per cent over their prices at the beginning of the year.

For instance, the price of Wema Bank Plc has gained about 183 per cent this year alone, rising from about 50 kobo to close at N1.34 per share. Unity Bank Plc, another banking stock, has recorded a year-to-date gain of 82 per cent.

Forte Oil Plc has recorded a 116 per cent year-to-date appreciation in its share price, hitting a year-high of N17.54 per share from a low of N7.73 per share.

Other stocks that have recorded impressive year-to-date gains include Cement Company of Northern Nigeria Plc with 110.75 per cent and Eterna Plc with 109 per cent.

Prestige Assurance Plc, Aiico Insurance Plc and Wapic Insurance Plc have recorded year-to-date gains of 101 per cent, 96 per cent and 94 per cent respectively, while Julius Berger Nigeria Plc and Royal Exchange Plc have gained 93 per cent and 86 per cent in that order.

Analysts at Meristem Nigeria Limited explained in their report said that investors were expectant in 2013, owing to some reforms that were carried out by the regulators in the year 2012, including the commencement of market making and securities lending.

They added that the expected announcement of the full-year results of most companies had also kept the interest of investors in the market, adding that the major market indicators had responded to these activities positively.

They said, “The year 2013 came with sustained optimism for the equities market, owing largely to investors expectations.  From the first trading day of the year, the market responded to these expectations as prices have rallied significantly till date.

“Analysis of return profile shows that 88 stocks have traded positive year to date, 97 stocks traded flat while only 13 stocks have lost. The market mood has remained unflinchingly positive and is yet to retract to profit taking. We believe the market is fundamentally driven in expectation of impressive full year earnings and we recognise the inflow of large funds into the equities market which may also be driving price movements.”

The analysts from Meristem explained that stocks following the cleanup of their balance sheets, stocks from the banking sector had recorded significant gains, which had gone a long way to increase activities in the market.

They said, “It must be stated that most stocks that have appreciated significantly are stocks with attractive fundamentals particularly the banking stocks. In line with our earlier projections, we expected the performance of the banking stocks to drive the index northward. This has been the case as the financial services sector has contributed significantly to the current market return.

“Conversely, some stocks have rallied significantly whose companies’ fundamentals are not really attractive. We believe these stocks benefited from the huge liquidity inflow.”

On their part, analysts from Vetiva Capital Management Limited said that although the rally in the market, which began towards the last quarter, was broad-based, the clean up in the financial sector had helped to boost activities in the market.

They said, “Interestingly, the NSE Index is back to its November 2008 level. The rally has been broad-based, though with more focus on the financial sectors, which remain attractive on strong forward earnings growth. Reflecting improved activity level, the market traded a daily average of N4.88bn last past week, which is two times the previous year’s level.

“We expect positive sentiment on upcoming earnings season and new fund inflows to keep the equity market afloat, informing our outlook of a mild positive return, while financials, especially the mid-caps, are expected to further dominate gains this week.”

The Chief Executive Officer, Proshare Nigeria, Mr. Olufemi Awoyemi, said that the gains recorded in the market so far might be sustainable, noting that some policies had been working in the market’s favour.

He explained that the fact that the Nigerian market had been attractive to foreign investors was also an important factor that would drive the market in the next few months.

He said, “Currently, the macro-economic indicator for the country is on the upside and market valuations indicate that value resides in the equities on the bourse at its current prices. As we have seen from the last quarter and the beginning of this year, the equities market is continuing its impressive run as investors are positioning ahead of corporate news.

“And so, I will say that the positive factors for the Nigerian market include foreign participation; anticipation of positive corporate financial results; new reforms and policies by NSE like Market Making and Short Selling; low valuation of quoted companies; clean up of the banking sector and reforms in the insurance industry, pension funds and Sovereign Wealth Fund.”

The Managing Director, Lambeth Trust and Investment Company Plc, Mr. David Adonri, stated that even though there had been pockets of profit-taking in the market, investors remained upbeat.

He explained that there was a lot of liquidity in the system, which was likely to boost activities in the equities section of the capital market.

He said, “About N150bn worth of Treasury Bills matured into the system, and so we have a lot of cash lying around in the system, and some of this might drain into the equities market, so we expect to see some stability and a little bit of bullish trend in the next few weeks.”

Source: Punch (By Udeme Ekwere)