2019: Stock Market Heads for another Negative Performance

Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema

Goddy Egene writes that hampered by politic risk, challenging economic environment, investors’ shift to emerging and frontier markets, the Nigerian stock market is recording another negative performance in 2019

The stock market is closing 2019 with second consecutive decline having dipped by 17.8 per cent in

2018. The stock market had performed negatively in 2018 due political risks, oil price volatility and rising global yields.

Although the negative performance was expected to continue in 2019, but no one was sure of the magnitude of the decline. As at Monday, the Nigerian Stock Exchange (NSE) All-Share Index, which is the major gauge for the market, had declined by 16.9 per cent.

The Chief Executive Officer of Nigerian Stock Exchange (NSE), Mr. Oscar Onyema had given a preview of how that market was likely to performance in 2019.
According to him, sentiments in the first half of the year would be driven by uncertainty in oil prices as well as the 2019 general elections.

“Accordingly, we anticipate volatility in equities markets in the first half of 2019, with enhanced stability post-elections. We believe swift approval and implementation of the 2019 budget will have a positive impact on companies’ earnings as well as consumer spending. Therefore, we expect a return of primary market activities during the year with an uptick in market activity during the second half of 2019,” he said.

On their part, analysts at Afrinvest (W.A) had said the market would be shaped by four factors including post-election stability, new listings, macroeconomic indicators and corporate earnings.

According to Afrinvest, historically, foreign investors have been the major participants in the Nigerian equities market. But however, in 2018, domestic investors contributed the bulk in terms of market activity due to the exit of foreign investors from the domestic market.

“In 2019, we expect foreign investors to return to the Nigerian market after the conclusion of the elections and as such anticipate an improvement in performance. Furthermore, given current pricing of the market, which we believe is attractive –even more attractive in dollar terms –we expect foreign investors to take advantage of this whilst domestic investors will react accordingly,” the investment banking firm said.

The analysts added that given the sustained drive to increase product offerings in the market by regulators, coupled with the expected improvement in sentiment, they anticipate some new listings either by way of rights or Initial Public Offering (IPO) in 2019.

“While the only IPO was for Skyway Aviation Handling Company Plc (SAHCO), although there were broad expectations for the listing of MTN Nigeria (MTNN) shares on the Nigerian Stock Exchange; however, this plan was stalled and is now expected in 2019. Given the pedigree of MTNN, which is a subsidiary of the South African company MTN Group and the biggest telecommunications operator in Nigeria, a listing of this magnitude is expected to drive interest and activity in the market, as well as boost market capitalisation,” they said.

On macroeconomic indicators, they said factors including oil prices, external reserves and FX liquidity will remain major considerations for investors in 2019 and the outlook on these indicators remain largely positive and should support market activity.

“FX liquidity which is another factor that investors will keenly consider in deciding to invest in Nigeria, shows no signs of being significantly pressured given the appreciable levels of reserves,” they said.
They said after the conclusion of the elections, investors will place a premium on investment decisions based on fundamental analysis of companies as opposed to speculative trading.

“Hence, we believe that performance of corporates will be a major consideration in 2019. Our expectation for corporates’ performances varies across sectors, with our optimistic expectations tilted towards the Banking sector, especially the Tier-1 players that have historically demonstrated resilience amidst tougher operating conditions. We also anticipate improved performances from Consumer Goods companies –as economic conditions improve –and Oil & Gas companies –as earnings are projected to be buoyed by increased oil production and prices,” they said.

As expected the 2019 general elections played a major role in the performance of the market as both foreign and domestic investors traded with caution. While investors had hoped the elections would that the elections would hold as scheduled, the presidential election was postponed by a week. This heightened anxiety among investors, frustrated them and extended anxiety, a development that made the Nigerian Stock Exchange (NSE) All-Share Index, to decline from a year’s high of 32,715.20.

“The economic consequences of this decision will be felt significantly, as what was supposed to be a smooth process is now mired in lengthened uncertainty and controversy, thereby shaking investor confidence and somewhat eroding the renewed interest from both foreign and domestic investors,” analysts had said on the postponement.

“We expect the postponement to directly lead to a reversal in the market with jittery investors quickly withdrawing from the market while others wait on the sidelines,” they added.

However, after the elections, the market was expected to rally as investors were expected to have put the elections uncertainties behind them. However, revise was the case as delay in the appointment of ministers to drive the economic policy made most investors to remain on the sidelines. While the market declined by 4.6 per cent in the first half (H1) of the year the delay in appointment of ministers caused had negative impact on the market declining by 6.8 per cent in the first month of the second half(H2) of the year.

However, the listing of MTN Nigeria Communications in May and Airtel Africa Plc in September brought some respite to the market. But for the listing of MTN Nigeria Communications Plc and Airtel Africa Plc, which added over N3.8 trillion, the capitalisation of the equities market would have been below N10 trillion.

Besides, the Central Bank of Nigeria (CBN)’s policy that policy banning local corporates and individuals from investing in treasury bills helped to prevent the market from a major decline towards the end of the year.
Apart from the listing of MTNN and Airtel that was a major positive development in the market during the year, Access Bank Plc and Diamond Bank Plc merged, leading to delisting of the shares of Diamond Bank Plc from the NSE.
First Aluminium Nigeria Plc, Dangote Flour Mills Plc, Newrest ASL Nigeria Plc, Great Nigeria Insurance Plc, Fortis Microfinance Bank Plc and Skye Bank Plc were delisted from the market.
Commenting on the market performance in 2019, analysts at Vetiva Capital Market Limited said the NSE ASI experienced a slow start to the year, mostly due pre-election uncertainty.

“Further to this, a general risk-off sentiment towards Emerging and Frontier Markets further hampered investment activity not only in Nigeria, but across Sub-Saharan Africa and the Middle East. In Nigeria, despite the merger of Access Bank and Diamond Bank at the end of first quarter (Q1) driving some interest in the Banking sector, the resultant activity did not filter into the broader equity space over time, as the market closed Q1’19 in the red. Overall, the most positive period for the year followed the listing of MTNN, which drove the market into positive territory in May,” they said.

The analysts added that H2 saw further tepid activity in equities, despite an influx of domestic liquidity spurred by the CBN’s restriction of OMO trading to just banks and Internationals.
According to them, pension funds managers (PFAs) and investors seeking alternative investment channels flocked to the equity capital market, but only to bellwether stocks in robust sectors.

Analysts expect this trend to largely continue in 2020, however, driven by regulation, they expect capital restructuring in the insurance sector to induce more equity raising in 2020.
“Looking forward, foreign investor participation in Emerging and Frontier markets is likely to increase (even across equities), although the bulk of inflows will generally be to the Fixed Income space, amid dovish policy stances from developed economies and weaker global prospects. However, Nigeria is unlikely to be the main destination for investors, as comparable frontier markets currently present more attractive prospects.

Finally, due to the restriction on OMO activity, analysts foresee further inflows into the equity market from PFAs. However, given the PFAs cautious approach to equity investments in previous years, expectations are not overly optimistic. Although, the mooted reconstitution of the Pension Commission (PENCOM) board, could be a driver for investment growth, should the board reintroduce a minimum exposure to equities,” they added.

A stockbroker and Managing Director of Garba Kurfi of APT Securities and Funds Limited said the market did not badly especially in view of the successful listing of MTN and Airtel especially Airtel which was in computation of either listing in NSE or JSE but we have succeeded.

However, he said the market is likely to close in negative with about 16 per cent repeating last year’s given a total of over 30 per cent for the two consecutive years 2018 & 2019 just a repeat of 2015 & 2016.

“We are hopeful 2020 will repeat 2017 when NSE ASI gained over 42 per cent. The coming year is likely to repeat because of the following: our stocks are trading below the fair value compared with other frontier markets. Our earnings ratio of about six times compared eight to 10 times in the frontier markets; the current Loan to deposit ratio (LDR) crashed the interest in the money market from 15 per cent to about seven per cent encourage high networth individuals to capital market; the crash of TBs rate from 15 per cent to about six per cent also move investments from money market into capital market.The signing of budget for 2020 in 2019 give the hope of capital execution ( CAPEX) which will have multiplier effect on the economy. All these give the hope of better performance in 2020,” Kurfi said.

Also speaking on the performance of the market, a shareholder activist, Mr. Moses Igbrude, who is member of Independent Shareholders Association of Nigeria(ISAN) rated it mixed grill. According to him, some companies paid good dividends especially the banks even with the challenging economic environment.

“Even with this performance the stocks prices were generally poor and extremely under value throughout this 2019. Many companies have delisted from the exchange because of environmental factors and government policies. Federal government policy instability, insecurity, port congestion multiple taxation, infrastructural deficiency, high cost of funds all contributed to poor performance.

I am appealing to the FG to take the capital market serious because it is the barometer to measure the economy of any nation by providing necessary support through good policies that can impact the economy, policies that will enhance infrastructural development, improve power stability, eliminating ports congestion by opening up other ports in other parts of country. Harmonise all taxes for easy payment. A situation where tax consultants will slam five to seven years of over N100 billion tax on a company in order for the company management to negotiate is not idea in modern society. Government and companies should be partnership in progress,” he said.

Igrbude also said the government should address the liquidate problem in the economy by providing tax incentives as well as finding strategy to reduce the high cost borrowing.

“FG policies should focus on how to stimulate local production and encourage exports and Export Expansion Grant(EEG) scheme should be sincerely implemented,” he said.

On his part, Mr. Boniface Okezie of Progressive Shareholders Association of Nigeria, said the market has seen one of its worst performance in many years now.

According to him, while government was yet to find solutions to economic challenges, it has also not helped the market by leaving the executive management of the apex regulatory body of the capital market, Securities and Exchange Commission (SEC) in an acting capacity.

“We cannot continue to have an acting Director General (DG) for SEC. The government is not taking the issue of capital markets serious. Those running our economy must also give it serious attention and less politics.

Government should position the economy to better the life of Nigerians so that they can earn better, then think of saving and invest. That is the way the capital market can be improved upon. If ordinary citizens do not jobs, how can they able to earn a living so that he can save and talk of investing in the capital market.

Let the government do the right thing. They know it but they have employed politics in everything without putting proper person to occupy a sensitive position like DG of SEC it is very important for the recovery of the market. Whether we like it or not there is no short cut in this business, you can’t sow yam and expect to reap cassava,” Okezie said.