IS THE STOCK MARKET RECOVERY SUSTAINABLE? BY SYLVESTER AKELE Reports from the stock market in the last few months have shown that it is on the part of recovery in spite of occasional downturns, a normal market phenomenon. In the last five months of 2013, the 34.6 percent growth experienced in the All-Share-Index (ASI) as it rose from 28,078.80 at the beginning of the year to close at 37,794 at the end of May has been of significant interest to market watchers. By June 18, the stock market experienced a downturn as its loss streak by 0.16 per cent brought ASI to 37,024 points. Stock market capitalization dropped to N11,894 trillion. Coming from an all-time low of N4.6trillion in 2009 during the unprecedented downturn and N6.7trillion a year ago. The market has indeed made strides. Is the recovery sustainable and what factors have come to play in the recent past? The stock market is an integral part of the economy. Reports say that there have been strong macro-economic fundamentals which have positively impacted on the market. Cross Domestic Product has continued to look upwards. According to the National Bureau of Statistics, the Nigerian economy grew by 7.40% in 2011 and 8.1% in 2012. Inflation is looking downwards while exchange and interest rates have been relatively stable. Strong regulatory oversight by the Securities and Exchange Commission and The Nigerian Stock Exchange as well as the introduction of new rules and regulations, improved transparency and disclosure standards as well as market incentives are said to have contributed significantly to stability and growth. These efforts and other reforms have helped to restore some investor confidence. Perhaps more than any other factor, the fundamentals and performance of many listed companies, particularly banking stocks, were impressive in 2012. Earnings of quoted companies improved. An analysis of market performance showed that it was impressive in the first quarter while the momentum slowed down in April. However, increased demand engendered by favourable sentiments lifted the market by 13 per cent in May alone. Consequently, the market appreciated by 34.6 per cent. In the first five months of the year, many individual stocks outperformed the ASI and other sectorial indicators. Evans Medical Plc, for instance, recorded a growth of 256 per cent. McNichols recorded 179 per cent while Livestock Feeds Plc, Wema Bank Plc, Cement Company of Northern Nigeria Plc, appreciated by 179 per cent, 128 per cent and 103 per cent respectively. Other stocks among the top 10 that fetched investors good capital appreciation in five months include: Cadbury Nigeria Plc. (91 per cent); United Bank for Africa Plc. (86 per cent); ABC Transport Plc, (84 per cent); PZ Cussons Nigeria Plc, (82 per cent); Forte Oil Plc. (81 per cent); Presto Plc (76 per cent); Lafarge Cement WAPCO Nigeria Plc. (67 per cent); Julius Berger Nigeria Plc and International Breweries Plc. (62 per cent). Many stakeholders believe that market recovery is here and sustainable. They point to the positive macro-economic indices which they claim will dictate the trend of the stock market. Others are quick to point out that the market was on its own in 2008 when it crashed as it bore no relationship with the macro-economic indices. In 2008, there was obviously regulatory failure, which overlooked Margin Trading that enabled many banks to have bloated share prices arising from unregulated loans to investors. When the bubble burst, investors were on their own. Under the present dispensation, banks are not allowed to lend for the purchase of their stocks. The SEC has also just released a margin list of 32 securities that qualify as marginable securities as well as profile of investors that may participate in Margin Trading. They include:- Ashaka Cement Plc; Cadbuny Nigeria Plc; Conoil Nig. Plc; Custodian and Allied Insurance Plc; Dangote Cement Plc; Dangote Flour Mills Plc; Dangote Sugar Refinery Plc; Fidson Healthcare Plc; and Flour Mills Nigeria Plc. Others are: Glaxo Smithklin Consumer Plc;Guiness Nig. Plc; Honeywell Flour Mill Plc; International Breweries Plc; Julius Berger Plc; Lafange Cement WAPCO Plc; Livestock Feeds Plc; Mansand Insurance Plc; Mobil Oil Nigeria Plc and National Salt Company Nigeria Plc. The list also includes:- Nestle Nigeria Plc; Nigeria Aviation Handling Company Plc; Nigerian Breweries Plc; Oando Plc; Okomu Oil Palm Plc; PZ Cussons Nigeria Plc; Presco Plc; Seven-Up Bottling Company Plc; Total Nigeria Plc; Trans National Corporative Plc and UACN Property Development Plc; Unilever Nigeria Plc; and UAC of Nigeria Plc. The regulators have also strengthened enforcement or rules and regulations as well as introduced Market Makers. According to reports, the choice of securities is founded on the principles of risk-based supervision. Fears in the market are that even though bank securities are not included in the list of marginable securities, it may indeed be possible that lending to investors and stockbrokers for margin trading on some securities could be subtly encourages. It is this that the regulatory authorities, the Central Bank of Nigeria and the Securities and Exchange Commission will have to watch closely, to prevent the bloating of share prices of some companies. There is no doubt that much of what has been done so far is a foundation for sustaining the recovery, if the regulators ensure strict adherence to the rules. According to Ifuero Osamwonyi, a Professor of finance at the University of Benin, the Nigerian stock market will continue to recover. He believes that the fundamentals are good and that this is the time to invest. One stockbroker 1 spoke with is not as optimistic as Prof. Osamwonyi. He believes there is still some manipulation going on. “A few people in collaboration with some foreign investors bring money to the market and make others to follow suit. Thereafter, they take profit. They crashed the market before and they are it again. Are the share price increases directly related to the company fundamentals?, he asked. There is no doubt that the fortunes of the stock market have improved since 2008. Regulators have taken measures after bitter lessons of the downturn. Fundamentals and macro-economic indices are reported to be favourable to recovery. It is not a difficult prediction to make that the recovery is sustainable all things being equal. But if investors are expecting the kind of boom of pre-2008, that is a mirage. It is also a mirage to expect that there will be no fluctuations and cycles in the market. There will always be upturns and downturns. It is left for the investor to know when to enter and exit the market. Mr. Akele, CEO Soakel Consulting Ltd., Wrote from Abuja.
Posted on: Mon, 08 Jul 2013 08:53:35 +0000
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