Economy
Is Equity Market Rally Sustainable?
The performance of the Nigerian equity market as measured by The Nigerian Stock Exchange All Share Index (NSE ASI) has been impressive since the beginning of the year 2017.
As at the close of trading on July 27, 2017, the NSE ASI had appreciated by 38.59 percent Year-to-Date (YTD).
A review of the performance of 15 major equity market indices in other countries shows that the NSE ASI recorded the best performance of 37 percent as at July 26, 2017, closely followed by GSE All Share Index (Ghana) at 34 percent.
The International Monetary Fund (IMF) in its World Economic Outlook (WEO) Update July 2017 edition, states that equity prices in advanced economies remain strong, and are showing continued market confidence about company earnings.
It notes that markets are also optimistic about emerging market prospects as reflected in strengthening equity markets and some further compression of interest rate spreads.
It however cautions that oil exporters provide an exception to this pattern, because of the dwindling oil prices since March 2017.
The big question in the minds of investors and equity market analysts is if the strong growth in the equity market since April 2017 is sustainable or if there is a bubble waiting to burst.
Our review of the Price to Earnings (P/E) multiples of the top 10 most capitalised stocks on The Nigerian Stock Exchange (NSE) as at July 27, 2017 shows that the companies traded at higher P/E multiples in July 2017 than in July 2016 and in July 2015.
The average P/E multiple for the companies increased from 11.46x in July 2015 to 12.25x in July 2016 and to 27.06x July 27, 2017.
Nestle recorded the highest P/E multiple of 78.87x in July 2017 and 34.91x in July 2015 while Nigerian Breweries recorded the highest P/E multiple in 2016 at 30.7x.
Although a high P/E multiple may indicate that investors believe in the future earnings growth of the company, the current trend in the market shows that stocks are trading far higher than the historical level and a possible correction may be imminent.
The monthly analysis of the NSE ASI shows that the equity market rally started in April 2017. The equity market appreciated between April and July 27, 2017 by 45 percent while it depreciated by 4.15 percent between December 2016 and April 2017.
The equity market followed similar trend between April and June in 2016 and 2017. The equity market recorded negative performance both in January and February 2017 at 3.12 percent and 2.72 percent respectively, with investors’ outlook that 2017 might be another bad year for equity market investment.
However, the fortune of the market changed in March 2017 with a month on month appreciation of 0.74 percent, April 0.95 percent, May 15 percent, June 12 percent, and 12 percent as at July 27, 2017.
YTD, the top gainers in the equity market as at July 27, 2017 are: May & Baker 245.74 percent; Fidson Healthcare 172.66 percent; Stanbic IBTC Holdings 150.00 percent; UBA 124.44 percent; Beta Glass 99.01 percent; Cement Company of Northern Nigeria 94 percent; Airline Services 91.20 percent; Okomu Oil 85.24 percent; FBN Holdings 78.21 percent; and Presco 77.06 percent.
Some notable factors that are responsible for the market rally are: improved business and consumers’ confidence in the economy, consistent improvement in the Purchasing Managers’ Index (PMI), stability in the foreign exchange market leading to the inflow of foreign investors, particularly with the establishment of the Investors and Exporters’ Foreign Exchange Window and the prospect of improvement in corporate earnings.
While we note that the improvement in the macroeconomic environment in the last few months has sustained the rally in the equity market, we think profit taking is imminent on a few stocks that have recorded strong appreciation in their share prices.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange ended the first trading day of the week on a positive note, with a 0.39 per cent appreciation on Monday, May 25.
The positive vibe raised the market capitalisation of the trading platform by N10.11 billion to N2.571 trillion from last Friday’s N2.561 trillion, and lifted the NASD Unlisted Security Index (NSI) by 16.89 points to 4,298.17 points from the previous 4,281.28 points.
Business Post reports that the bourse recorded three appreciating securities and one depreciating stock at the close of transactions, with the sole price decliner being 11 Plc, which lost N23.43 to sell at N221.10 per share compared with the preceding session’s N244.53 per share.
Central Securities and Clearing System (CSCS) Plc gained N3.78 yesterday to trade at N74.85 per unit versus the previous price of N71.07 per unit, NASD Plc improved its price by N2.86 to N37.36 per share from N34.50 per share, and FrieslandCampina Wamco Nigeria Plc grew by 33 Kobo to N180.00 per unit from N179.67 per unit.
The volume of trades jumped by 153.1 per cent during the session to 59.2 million units from the preceding session’s 590,339 units, but the value of transactions fell by 37.9 per cent to N59.3 million from the N95.3 million achieved last Friday, and the number of deals contracted by 10 per cent to 27 deals from 30 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units traded for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 61.2 million units exchanged for N4.1 billion.
GNI Plc also closed the trading day as the most traded equity by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units valued at N6.5 billion, and Resourcery Plc with 1.1 billion units exchanged for N415.7 million.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited ended in the green territory on Monday after it chalked up 0.57 per cent on the back of renewed buying interest in financial equities.
The local stock exchange witnessed the insurance and the banking counters closing higher by 0.54 per cent and 0.08 per cent, respectively, amid profit-taking in the others. The energy index shed 1.77 per cent and the consumer goods sector depreciated by 0.26 per cent, while the industrial goods industry was flat.
At the close of business, the All-Share Index (ASI) went up by 1,412.65 points to 251,125.02 points from 249,712.37 points, and the market capitalisation soared by N906 billion to N160.983 trillion from N160.077 trillion.
Investor sentiment was bullish yesterday after Customs Street ended with 35 price gainers and 30 price losers, indicating a positive market breadth index.
Airtel Africa surged 10.00 per cent to N3,655.70, International Energy Insurance advanced by 9.68 per cent to N3.74, Sovereign Trust Insurance went up by 9.65 per cent to N2.50, Caverton rose by 9.63 per cent to N7.40, and VFD Group gained 9.55 per cent to close at N10.90.
Conversely, McNichols lost 10.00 per cent to finish at N7.20, The Initiates dropped 9.91 per cent to trade at N30.45, Learn Africa slipped by 9.69 per cent to N11.65, Zichis crashed by 7.93 per cent to N30.98, and May and Baker declined by 6.60 per cent to N46.70.
During the trading day, market participants transacted 629.4 million shares worth N40.9 billion in 82,434 deals compared with the 711.9 million shares valued at 29.1 billion traded in 62,386 deals last Friday, implying a decline in the trading volume by 11.59 per cent, and a rise in the trading value and number of deals by 40.55 per cent and 32.14 per cent, respectively.
Access Holdings was the busiest equity for the session with a turnover of 61.3 million units valued at N1.5 billion. Zenith Bank traded 37.9 million units worth N5.0 billion, Fidelity Bank sold 35.8 million units for N851.2 million, Japaul exchanged 24.7 million units valued at N90.9 million, and Tantalizers transacted 22.8 million units worth N103.2 million.
By Adedapo Adesanya
The Naira appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) by 54 Kobo or 0.04 per cent on Monday, May 25, to trade at N1,374.92/$1 compared to last Friday’s value of N1,375.46/$1.
However, it further depreciated against the Pound Sterling in the official market during the session by N6.01 to sell for N1,855.73/£1 versus the preceding session’s N1,849.72/£1 and lost N158.02 against the Euro to close at N1,755.06/€1, in contrast to the N1,590.04/€1 it was traded last Friday.
In the same vein, the Nigerian Naira weakened against the United States Dollar at the GTBank FX counter yesterday by N2 to quote at N1,383/$1 versus N1,381/$1, and gained N5 in the parallel market to settle at N1,385/$1 compared with the previous rate of N1,390/$1.
The performance of the domestic currency comes as the external reserves inched higher to $48.72 billion, indicating a complex mix of sustained FX demand pressures and modest reserve accretion.
The movement in the FX market underscores the continued tension between demand-side pressure and policy-driven attempts to stabilise the naira.
While recent monetary tightening measures by the Central Bank of Nigeria (CBN) have helped to moderate extreme volatility, market participants are struggling to navigate a landscape shaped by intermittent dollar inflows, import-related demand and shifting investor sentiment.
As for the cryptocurrency market, most tokens were up amid optimism of a near-term US-Iran peace deal, as Iranian negotiators arrived in Doha, Qatar, for talks.
The Strait of Hormuz has been largely blockaded since the US and Israel struck Iran on February 28, though traffic has partially resumed in recent days. The agenda would include the reopening as well as uranium control.
TRON (TRX) rose by 1.8 per cent to $0.3714, Cardano (ADA) added 1.2 per cent to trade at $0.2444, Bitcoin (BTC) improved by 0.9 per cent to $77,283.62, Binance Coin (BNB) jumped 0.8 per cent to $661.30, and Ripple (XRP) increased by 0.8 per cent to $1.35.
Further, Ethereum (ETH) grew by 0.7 per cent to $2,018.82, Solana (SOL) expanded by 0.6 per cent to $85.37, and Dogecoin (DOGE) appreciated by 0.6 per cent to $0.1001, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
-
Feature/OPED6 years agoDavos was Different this year
-
Travel/Tourism10 years ago
Lagos Seals Western Lodge Hotel In Ikorodu
-
Showbiz3 years agoEstranged Lover Releases Videos of Empress Njamah Bathing
-
Banking8 years agoSort Codes of GTBank Branches in Nigeria
-
Economy3 years agoSubsidy Removal: CNG at N130 Per Litre Cheaper Than Petrol—IPMAN
-
Banking3 years agoSort Codes of UBA Branches in Nigeria
-
Banking3 years agoFirst Bank Announces Planned Downtime
-
Sports3 years agoHighest Paid Nigerian Footballer – How Much Do Nigerian Footballers Earn