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How Will the Market Fare in 2010?
- By Kayode Ogunwale
- Published January 18th, 2010
- StockWorld
- Unrated
How Will the Market Fare in 2010?
Last week, the Nigerian Stock Exchange (NSE) did a review of market performance in 2009 and speuchated on outlook for 2010 KAYODE OGUNWALE shed more light on the market performance.
Introduction
VIEWED from whatever perspective, the year 2009 could best be described as a transitional one for the exchange with investors still cautiously trading - thanks to the impact of the global financial melt-down on the market that has brought down the value of the market. Today most of the stocks listed on the exchange can be described as “penny stocks” as most of them are trading far below their intrinsic value.
Strangely, despite their sinking values, the companies have been declaring huge and appetising bonuses and dividends. This is what separates the Nigerian Stock Exchange from other markets. The fundamentals still are very strong.
The sluggish performance of the companies quoted on the exchange stem from the impact that the global economic crisis has had on Nigeria.
The NSE has reflected the impacts of the tightening in liquidity and the drying up of inter-bank lending on banks. The liquidity squeeze has great constraints on the market as many people who would have loved to take advantage of the low value of stocks cannot do so because of lack of funds. The impact of the recent Central Bank of Nigeria (CBN) stress tests for banks which declared eight banks failed due to large non-performing loan portfolios has continued to reverberate on the market.
Many investors in these banks were still sceptical about the intention of the CBN about these banks. Some allege that the CBN was merely playing out a script. This belief, to say the least, is making investors to be cautious about investing in the market. Similarly some analysts have predicted another wave of consolidation, with 23 banks potentially being reduced to 15, investors may find it wise to continue to hold back until the dust has settled and probably mergers and acquisitions in some of the banks have gone through.
The effect of the on-going sanitisation exercise in the banking Industry, no doubt, has combined forces with the problem of global financial meltdown to deal a deadly blow on the market. The banking sector is very significant to whatever happens in the market. This is not surprising as 70 per cent of the market volume is controlled by the sector in 2009 review. 10 of the 20 biggest companies on the NSE are banks and these 10 accounts for 45 per cent of market capitalisation.
Foreign Portfolio Investment in Nigeria
Despite price declines and the shunning of risky investments, foreign investors continued to demonstrate confidence in the Nigerian economy during the year. Following modest recoveries in international markets, some of the erstwhile foreign investors returned while new investors sought opportunities, considering, the key attributes of high returns, liquidity and safety of investments. Hence, despite the global recession, the market remained attractive to foreign investors and portfolio managers seeking cheap equities and high-yielding bonds.
According to Professor Ndi Okereke-Onyiuke, director general of the NSE in review of market performance in 2009 the Interim statistics show purchases (inflow) by foreign investors during the year 2009 to be in excess of N214.741 billion, representing 31.32 per cent of the aggregate turnover, which an increase, when compared with the N153.457 billion recorded in 2008. concurrently, total sales (outflow) during the year were in excess of N195.583 billion, culminating in a net inflow of N19.158 billion, a reversal of the net outflow of N480.5 billion in 2008.
The Strength of the Market
The director general spoke in similar vein when she reviewed the performance of the market in 2009 and gave an inkling of how the market would play out in 2010. She gave the assurance that the nation’s stock market would surely witness a rebound. According to her, despite the declines in some key market indicators, the fundamentals of the nation’s stock market remained strong as indicated by strong corporate earnings and growth potentials of the listed companies. She thereby urged investors to come back and invest in the market. “Let me advice investors not to allow the ongoing market corrections to becloud their judgment on the myriads of opportunities available in our capital market. I will advise investors to work with duly licensed market operators now in identifying genuine opportunities to make good investments”.
Efforts of the NSE at Ensuring That the Market Remains on Top
The NSE has been approached by Bloomberg to co-brand all the newly-created indices, i.e., NSE-30 and the 4 sector indices. The Bloomberg branding will further enhance the profile of these indices and thereby give institutions the confidence to create products based on these indices, knowing that they will be displayed to a global investor base via the Bloomberg screens worldwide. The arrangement will also develop a revenue stream for the Exchange in due course. The contracts are currently under review and it is expected that these will be signed in the coming weeks. Constant review of its policy on disclosure by listed companies has expanded investors’ access to information. For instance, listed companies are now obliged to include forecast in their periodic financial reports to the exchange. Also, it has consistently kept a tab on enforcement of corporate governance code by its listed companies. In addition, the exchange is investing heavily on Information and Communication Technology (ICT) and capacity building to remain competitive at global level.
Conclusion
Despite the dwindling fortune of the market, the fundamentals of the market are still very strong as demonstrated by its listed companies’ strong dividend payout, earnings per share, bonuses, among others. It has been repeatedly said that the market is like a virgin land yet to be fully tapped as many of its listed stocks are still at growing stage, yet to reach the peak. Until the effects of present meltdown, Exchange has consistently outperformed many developed markets in the critical area of Return on Investment (ROI) in dollar terms as adjudged by the International Finance Corporation (IFC) and Standard & Poor. It is agreed by investors both within and without the country that the stocks on the exchange provide an excellent way to reduce portfolio risk by reducing volatility and enhancing return as the small caps companies are largely untapped and the entire stock currently trading below intrinsic values.
Last week, the Nigerian Stock Exchange (NSE) did a review of market performance in 2009 and speuchated on outlook for 2010 KAYODE OGUNWALE shed more light on the market performance.
Introduction
VIEWED from whatever perspective, the year 2009 could best be described as a transitional one for the exchange with investors still cautiously trading - thanks to the impact of the global financial melt-down on the market that has brought down the value of the market. Today most of the stocks listed on the exchange can be described as “penny stocks” as most of them are trading far below their intrinsic value.
Strangely, despite their sinking values, the companies have been declaring huge and appetising bonuses and dividends. This is what separates the Nigerian Stock Exchange from other markets. The fundamentals still are very strong.
The sluggish performance of the companies quoted on the exchange stem from the impact that the global economic crisis has had on Nigeria.
The NSE has reflected the impacts of the tightening in liquidity and the drying up of inter-bank lending on banks. The liquidity squeeze has great constraints on the market as many people who would have loved to take advantage of the low value of stocks cannot do so because of lack of funds. The impact of the recent Central Bank of Nigeria (CBN) stress tests for banks which declared eight banks failed due to large non-performing loan portfolios has continued to reverberate on the market.
Many investors in these banks were still sceptical about the intention of the CBN about these banks. Some allege that the CBN was merely playing out a script. This belief, to say the least, is making investors to be cautious about investing in the market. Similarly some analysts have predicted another wave of consolidation, with 23 banks potentially being reduced to 15, investors may find it wise to continue to hold back until the dust has settled and probably mergers and acquisitions in some of the banks have gone through.
The effect of the on-going sanitisation exercise in the banking Industry, no doubt, has combined forces with the problem of global financial meltdown to deal a deadly blow on the market. The banking sector is very significant to whatever happens in the market. This is not surprising as 70 per cent of the market volume is controlled by the sector in 2009 review. 10 of the 20 biggest companies on the NSE are banks and these 10 accounts for 45 per cent of market capitalisation.
Foreign Portfolio Investment in Nigeria
Despite price declines and the shunning of risky investments, foreign investors continued to demonstrate confidence in the Nigerian economy during the year. Following modest recoveries in international markets, some of the erstwhile foreign investors returned while new investors sought opportunities, considering, the key attributes of high returns, liquidity and safety of investments. Hence, despite the global recession, the market remained attractive to foreign investors and portfolio managers seeking cheap equities and high-yielding bonds.
According to Professor Ndi Okereke-Onyiuke, director general of the NSE in review of market performance in 2009 the Interim statistics show purchases (inflow) by foreign investors during the year 2009 to be in excess of N214.741 billion, representing 31.32 per cent of the aggregate turnover, which an increase, when compared with the N153.457 billion recorded in 2008. concurrently, total sales (outflow) during the year were in excess of N195.583 billion, culminating in a net inflow of N19.158 billion, a reversal of the net outflow of N480.5 billion in 2008.
The Strength of the Market
The director general spoke in similar vein when she reviewed the performance of the market in 2009 and gave an inkling of how the market would play out in 2010. She gave the assurance that the nation’s stock market would surely witness a rebound. According to her, despite the declines in some key market indicators, the fundamentals of the nation’s stock market remained strong as indicated by strong corporate earnings and growth potentials of the listed companies. She thereby urged investors to come back and invest in the market. “Let me advice investors not to allow the ongoing market corrections to becloud their judgment on the myriads of opportunities available in our capital market. I will advise investors to work with duly licensed market operators now in identifying genuine opportunities to make good investments”.
Efforts of the NSE at Ensuring That the Market Remains on Top
The NSE has been approached by Bloomberg to co-brand all the newly-created indices, i.e., NSE-30 and the 4 sector indices. The Bloomberg branding will further enhance the profile of these indices and thereby give institutions the confidence to create products based on these indices, knowing that they will be displayed to a global investor base via the Bloomberg screens worldwide. The arrangement will also develop a revenue stream for the Exchange in due course. The contracts are currently under review and it is expected that these will be signed in the coming weeks. Constant review of its policy on disclosure by listed companies has expanded investors’ access to information. For instance, listed companies are now obliged to include forecast in their periodic financial reports to the exchange. Also, it has consistently kept a tab on enforcement of corporate governance code by its listed companies. In addition, the exchange is investing heavily on Information and Communication Technology (ICT) and capacity building to remain competitive at global level.
Conclusion
Despite the dwindling fortune of the market, the fundamentals of the market are still very strong as demonstrated by its listed companies’ strong dividend payout, earnings per share, bonuses, among others. It has been repeatedly said that the market is like a virgin land yet to be fully tapped as many of its listed stocks are still at growing stage, yet to reach the peak. Until the effects of present meltdown, Exchange has consistently outperformed many developed markets in the critical area of Return on Investment (ROI) in dollar terms as adjudged by the International Finance Corporation (IFC) and Standard & Poor. It is agreed by investors both within and without the country that the stocks on the exchange provide an excellent way to reduce portfolio risk by reducing volatility and enhancing return as the small caps companies are largely untapped and the entire stock currently trading below intrinsic values.
