Apathy, Rising Cost of Living Retard Equities Recovery

NSE_Building

The Nigerian equities market maintained its downward trend last week fuelled by rising cost of living and investors’ apathy following several

The Nigerian equities market maintained its downward trend last week fuelled by rising cost of living and investors’ apathy following several prediction that the market environment will remain unstable in the new year as a result of the debt crisis in Europe.
The market had the previous week showed some signs of recovery after it emerged that banks and some blue chip stocks would report strong corporate results despite a very turbulent financial year.

However,  those rays of hope could be maintained  last week as trading resumed on Monday on a poor note. It  return the  positive  territory the next day but  again declined on Wednesday.   The market remained green on Thursday and  Thursday.
However, the three days gains notwithstanding, the market closed the week weaker with major indicators going southward.

Trading statistics released by the Nigerian Stock Exchange (NSE) showed that the Exchange’s benchmark All-Share Index or ASI depreciated by 15.02 points or 0.1 per cent to close on Friday at 20,877.64 while the market capitalization of the 186 First -Tier equities dropped to N6.58 trillion.

However, the NSE- 30 Index appreciated by 6.12 points or 0.7 per cent to close at 942.24. The previous week,  the NSE-ASI and NSE-30 Indices appreciated by 0.4 per cent each.
In the same vein, two of the four sectorial indices appreciated during the week, compared with one that so appreciated during the preceding week.

The NSE Consumer Goods Index appreciated by 0.17 points or 0.02 per cent to close at 1,676.71 while the NSE Banking Index appreciated by 12.46 points or 4.5 per cent to close at 283.45. However, the NSE Insurance Index depreciated by 5.86 points or 4.7 per cent to close at 119.78 and the NSE Oil/Gas Index depreciated by 12.29 points or 5.5 per cent to close at 212.75.
A further analysis of the NSE numbers revealed that investors sold a total of 1.613 billion shares worth N15.1 billion made in 17,444 deals, in contrast to a total of 1.323 billion shares valued at N10.1 billion exchanged last week in 15,973 deals.

The Financial Services sector accounted for 1.2 billion shares valued at N4.431 billion traded in 9,934 deals. The Consumer Goods sector followed with for 126.632 million shares valued at N4.54 billion traded in 3,427 deals.

The banking subsector of the Financial Services sector was the most active during the week (measured by turnover volume); with 948.21 million shares worth N4.3 billion exchanged by investors in 9,312 deals.

The volume of shares sold in the banking subsector was largely driven by activity in the shares of UBA Plc, Fidelity Bank Plc and First Bank of Nigeria Plc. Trading in the shares of the three banks accounted for 617.5 million shares, representing 65.1 per cent, 51.5 per cent and 38.3 per cent of the turnover recorded by the subsector, sector and total turnover for the week, respectively.
 
Gainers and Loser
The price movement chart of the NSE 25 equities that appreciated in price during the week, higher than the 20 of the preceding week.  Two equities from the Consumer Goods sector led on the gainers table. As in the preceding week, Nestle Nigeria Plc led on the gainers’ table with a gain of N10.00 or 2.3 per cent to close at N440.00 per share while Nigerian Breweries Plc followed with a gain of N1.93 or 2.1 per cent to close at N120.00 per share.

Other price gainers’ in the top 10 category include:d Nigerian Aviation Handling Company Plc (N1.23), Flour Mills of Nigeria Plc and Guaranty Trust Bank Plc (N0.90  each), Berger Paints (Nigeria) Plc (N0.85), Lafarge Cement WAPCO Nigeria Plc (N0.82 ), First Bank of Nigeria Plc (N0.65 ), UAC of Nigeria Plc (N0.49) and Access Bank Plc (N0.37 ).

Conversely, 40 stocks depreciated in price, lower than the 42 of the preceding week. Guinness Nigeria Plc led on the price losers’ table, dropping by N10.00 to close at N220.00 per share while MRS Oil Nigeria Plc followed with a loss of N7.98  to close at N48.07 per share.

Other price losers in the top 10 category included: Dangote Cement Plc (N4.04), Conoil Plc (N3.00), Oando Plc (N2.80), Julius Berger Nigeria Plc (N2.39), Cadbury Nigeria Plc (N1.38), Vitafoam Nigeria Plc (N0.89), Chemical & Allied Products Plc (N0.72 ) and Ashaka Cement Plc (N0.49 ).
 
Instability in Capital Market
Meanwhile, the equities market may be heading further southward if prediction by global head of blue chip companies is anything to go by.

This is because sixty-four per cent of global Chief Executive Officers (CEO), who participated in a survey conducted by PricewaterhouseCoopers (PwC), last week predicted instability in the capital market in 2012.

According to the survey, 56 per cent of the respondent also complained about the activities of regulators, identifying their operations as “over regulation”.

PwC said about   48 per cent of the 1,258 CEO surveyed worldwide believed the global economy would decline even further in the year. PwC said only 15 per cent believed   the global economy will improve in the next 12 months.

“However, 57 per cent of Africa Chief Executive Officers, according to the survey, are very confident over the next 12 months -the highest percentage in any region, and the only region to register a percentage increase in 'very confident' responses from last year, “PwC said.

The report also explained that 64 per cent expect instability in the capital market in the next 12 months with 56 per cent complaining about over regulations.

PwC, explained that by comparison, global confidence is down year -on-year, “But   40 per cent of global CEOs are very confident of revenue growth over the next 12 months, compared to 47 per cent last year.”

Also, 60 per cent of CEOs in Africa cited 'regulatory changes' as influencing strategy change, a higher percentage than anywhere else.

Reacting to the report, Managing Partner, PwC Nigeria, Ken Igbokwe, said,  "CEO confidence is decidedly down as they deal with the aftershocks to the recession. CEOs are disappointed with the course of the global economy and the pace of recovery. The optimism that had been building cautiously since 2008 has begun to recede.”

He added, "The ongoing debt crises in the European Union, along with other lingering economic uncertainties, have deflated confidence in business growth around the world.  Even the fast growing economies of Asia and Latin America are not immune to the realities of continued economic stagnation, belying the notion that the global economy has decoupled.  CEOs all around the world are concerned about the health of the global economy. The good news is that the long cycle of the slowdown has taught CEOs how to manage their businesses with ever greater efficiencies."

Igbokwe added that CEOs now believe they were better prepared to deal with an economy defined by volatility in global markets, weak demand in developed economies, and uncertainty in the emerging markets adding that African CEOs in particular are confident they can deliver revenue growth despite the difficult conditions.

Delay in Forbearance for Brokers
In a related development, the huge debt overhang that has delayed the recovery of the market is yet to be resolve as THISDAY checks revealed last week that the deconstruction of   debts owed to banks by stockbroking firms was delaying the plan by the Ministry of Finance to grant forbearance.

Debt deconstruction is the breaking down of debt into components and their analysis on how they were incurred.

Market sources said  that the debts were being deconstructed to know the ones that really went into stocks buying and those that were used by market operators outside the market.

“There is a debt deconstruction being carried out now to determine the debt owed by the brokers. This will enable the regulators know the debts that were genuinely incurred for stockbroking activities and those diverted into other usage. Once this is done, it would be clear to know those that would benefit from the forbearance,” the source said.

The source added that while the government was committed to a quick recovery of the nation’s capital market, officials were trying to be very careful and not to set bad precedence by allowing a blanket forbearance.

The apex regulator of the Nigerian capital market, the Securities and Exchange Commission (SEC) had last year embarked upon on a verification of indebtedness of stockbroking firms to banks through margin loans.

SEC had written to stockbrokers to know the status of their margin loans after the Asset Management Corporation (AMCON) had bought over N2 trillion toxic assets from banks.

In its letter then, SEC had said it was working on a report on the impact of the establishment of the AMCON on the capital market.

"Consequently, we are hereby requesting you to furnish the Commission with relevant information on whether or not your liability in form of margin loans/overdraft facilities obtained from banks to leverage trading have been taken over by AMCON," SEC said in the letter.
The regulator added that the brokers should also include a copy of their management account as at May 2011.
 
Stockbrokers Advise NSE
In another development, dealing member firms of the NSE during the week under review advised the management of the Exchange that appointment of market makers should be based on merit and their capability to deliver.
  The NSE is expected to license some operators as market makers as part of the strategies to increase    investor confidence, deepen the market and address the problem of lack of liquidity in the market.

A market maker is a dealing firm who maintains firm bid and offer prices in a given security by standing ready to buy or sell that security.
THISDAY had reported that the exchange might license 10 market makers in the first instance.

But speaking on the development, stockbrokers said the NSE should ensure that those to be appointed were based on merit.

Apart from ensuring that the market makers have the capability to perform the role, some of the brokers also stated that the regulators should ensure that rules guiding market making were well enforced.

Besides, one of the brokers, who is the Managing Director of Investment Centre Limited, Mr. Ifeanyi Odunwa, specifically said the management of the Exchange should work out a guarantee scheme with some banks that should give financial support to market makers in nation’s capital market.

He noted that for the exchange to succeed with market making, it should work with the Central Bank of Nigeria (CBN) and put in place a guarantee with selected banks that will solidly finance the market makers expected to be licensed.

“NSE, through the CBN should work out some kind of guarantee  with selected banks that will solidly finance the market makers expected to be licensed otherwise the current  illiquidity will persist in our market,” Odunwa said.

Apart from  the N2 billion capital base stipulated for prospective market makers, they are also expected to  maintain some daily cash float of N10 billion.