The Nigerian capital market in 2015 looks bright against the backdrop of the negative return last year, expected tight macroeconomic condition in 2015 and the fiscal and monetary policy adjustments which are expected to moderate the market’s performance and investors’ return in 2015. This is reflected in the views of the stakeholders who spoke to LEADERSHIP on the outlook of the market in 2015, OLUSHOLA BELLO writes.
The Nigerian Stock Exchange (NSE) ended 2014 as one of the worst performing exchanges as the market capitalisation of the listed equities fell by N1.749 trillion from N13.226 trillion at the start of the year to N11.477 trillion.
As at December 24, data compiled by the CNNMoney using benchmark year-to-date (YTD) performances of exchanges showed that the NSE ranked 72 out of 74 exchanges considered with the NSE All-Share Index (ASI)at 20.67 per cent negative.
A separate report published on December 24 by the United Kingdom (UK) Telegraph ranked Nigeria number three among the worst performing stock markets of 2014, with Columbia and Russia occupying the second and first spots, respectively.
The performance was in sharp contrast to that of 2013 which the exchange ended as one of the best performing exchanges in the world with the NSE ASI YTD return of 41 per cent. The year is starting with the expiration of the tenure of the director-general of the Securities and Exchange Commission (SEC), Ms Arunma Oteh. The reappointment of Oteh or appointment of a new director-general and the extension of the recapitalisation of capital market operators which has given relief to the stockbroking houses will dictate the pace for many market developments.
Against the negative performance of the stock market in 2014, capital market stakeholders have forecast a better performance and growth in the entire market in 2014. According to a stockbroker with Calyex Securities Limited, Mr Tunde Oyediran, if the stock market direction tends to be positive the fears we are experiencing now would have been allayed.
“There is an empirical evidence that supports that the year following the devaluation of a country’s currency would experience upswing in their capital market. The banking sector, which has been battered, will lead the recovery. They often give over eight per cent dividend yield, hence, they will attract more patronage in the first quarter,” Oyediran said.
To get a stable capital market, the managing director of APT Securities, Garuba Kurfi, said, “There was need for strong Nigerian investors’ participation in the Nigerian stock market to enhance stability and development of the economy.The market has been stable from inception up to 1999 when 90 per cent participants are local investors and most of them don’t borrow to invest and they are resilient to the changes. From the year 2000, after bank consolidation, with margin lending into the capital market and with the entry of foreign investors, we never got it right.
“Our economy like most global market is sensitive to global development, but if we have a strong participation by domestic investors in our economy, it will help to make our economy much more stable,” Kurifi said.
He said that capital market operators should ensure further development of domestic investors’ confidence in stocks because it was critical for long-term stability, arguing that Nigerian investors are the ones that have a long-term stake in the economy and should be encouraged at all times.Speaking on market direction in 2015, the chief operating officer, Investdata Limited, Mr Ambrose Omodion, said, “The market in 2015 look very dicey as factors militating against the market now will likely remain in the new year as the bottom of the oil price remains out of sight for now. Coupled with the lack of positive economic numbers in the heat of political uncertainty as the general elections draw nearer, the market has continued to give in to sales pressure as many players exit the market to hold cash even at the wrong time.”
He pointed out that “the recent austerity is just a sign of what should be expected in 2015 as the nation’s major export has lost value in price which is likely to keep our reserve down even after the election. But all hope is not lost as foreign investors are sitting on the fence, waiting for the outcome of the election, to jump back into the market as devaluation has made the market more attractive to them because with small dollar, they will continue to control market transaction.”
According to him, investors should invest in companies that depend less on imported materials, companies that had done backward integration. While the general secretary of the Shareholders Association of Nigeria, Mr Adeleke Adebayo, said that the stock market will stabilise in second quarter 2015.
“There are three issues affecting the market: the election, which at the end of the first quarter 2015 would have been resolved; the falling price of the crude oil in the international market, which by March 2015 would be stabilised with the 2015 budget which will be presented based on the bench mark price of oil; and lastly the expectation of end year results of companies which, if turned positive, would boost market performance in 2015,” he said.
According to the managing director of Highcap Securities Limited, Mr David Adonri, the economy is moving into 2015 from a position of weakness, therefore, one can also see the capital market entering 2015 from a position of weakness.
“If in 2015 the macro economy improves in terms of the stability of the naira, notwithstanding that the crude oil price may decline, and if the fiscal and monetary authorities are able to come up with policies that can stabilised the macro economy, this will lead to price stability, cape inflation at single digit, and then we can see the equity market recovering appropriately.”
He explained that “the good thing is this doldrum in the macro economy has not adversely affected the banks. I think the banks are very stable and there is no sign of distress in the sector which means that the economy has the capacity to overcome this current challenge in 2015.”
He noted that the challenge the market is having is investors with short term investment. Generally, there are sectors, like the manufacturing and industrial sectors, that, irrespective of economy challenges, still performed well and are less import-dependent. Those sectors will continue to perform well, although they may slow down. The downstream oil and gas that are not into crude oil export, banks, because of the tight monetary policy, may express decline in their bottom lines but will be still strong enough to attract positive response from investors. As it is now, the market is a buyer market.
Adonri, however, said that the increase in capital requirement is no longer tenable and visible because the situation in the market now has seriously affected the capital of market operators and as such that policy ought to be cancelled so as not to further cause panic in the market. He called on the market regulators to ensure the enforcement of other policies that have been put in place.
Speaking on companies that investors should invests in, Kurfi suggested building materials, arguing that the coming in for the first time of about 17 governors will trigger capital expenditure as they may embark on various infrastructure thereby accelerating the building material profitability.
“The conglomerate sector like Unilever, PZ, Cussons, Nestle, etc, will likely do well. The insurance sector won’t be left out this year as a lot of transformation had been going on in the sector,” he said.
Lending his voice, Omordion also added that investors should look at the financial sector, targeting the ones with less off shore borrowing, hospitality industry, building industry, construction, healthcare and consumers goods. He noted that Seven Up, Mobil, Cement Company of Northern Nigeria (CCNN) Plc, Transcorp, Forte Oil, Stanbic IBTC, ETI, Zenith, GTBank, Fidson, Nigerian Breweries, and Dangote Sugar would post strong earnings in 2015 going by their earnings.
However, analysts have noted the the rising confidence in the market and increased liquidity as a result of the activities of institutional/foreign investors will also serve as positive catalysts for the market in 2015.They noted that the factors that may impede progress in the capital market include the uncertainty hovering over the political landscape, unfavourable policies from regulators or government and security concerns.
Source : Leadership