2018 expectations: Capital market seeks much improvement in performance

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By Ebenezer Adaramodu

Owing to the positive performance of the Nigerian capital market in 2017 despite slight infractions, the stock market is looking forward to seeing more improvement in 2018.

This report couldn’t come at a better time than this as it documents the expectations of market operators for the year under review.

The previous year (2017) showed different shades of bearish and bullish run in the stock market – this was previously documented by the Nigerian NewsDirect through a review survey of how the market fared.

With the NSE All-share index at an average positive of 3.49, the market growth was driven by surge trading on some blue chip companies that include Dangote Cement Plc, Nestle Nigeria Plc, Guaranty Trust Bank Plc, Zenith Bank Plc and Presco Plc.

Although, the market didn’t trade very well in the first quarter (Q1) of 2017 as it declined by 5.1 percent but it recorded a growth of 23.2 percent in the first half (H1) of the year and 7.01 percent growth in third quarter (Q3) of 2017.

Now, the outlook for 2018 is to see more improvement on how stocks are being transacted by investors on the floor of the Nigerian Stock Exchange (NSE) and to see that these stocks yield positive return.

Finance analyst for Arthur Stevens, Mr. Azeez Balogun, reacted to the positive market performance in 2017 and he affirmed that such will continue in the next year.

“We expect more better performance in the stock market in 2018. What the quoted banks on the floor of the stock exchange did was quite impressive. The par value of insurance company will also come into play in the first quarter of the year 2018” he said.

In order to achieve palpable improvement in the stock market in 2018, there are factors that need to be considered.

Investors’ appetite

Investigation by the Nigerian NewsDirect revealed that over 40 percent of listed stocks on the floor of the NSE were deserted by investors over poor corporate governance and weak government policies.

This happened at a time when there was domestic and global macro economic challenges, and while some stocks deprecated in prices, 40 per cent stocks were not traded, remaining at the same price for the second consecutive year.

Although, investors in the market gained 43.34 per cent of their investment given the growth in NSE All-Share Index that has appreciated to 38,522.14 basis points in 2017 from 26,874.62 basis points it opened this year.

Interest of the investors in the stock market is still the key for a perceptible improvement in the year under review.

New market policies

The market will experience new set of market rules at the start of the year as the Exchange will begin the implementation of new pricing rules that will remove the stopgap that has supported stocks at their nominal value.

The new rules will effectively remove the current rule and allow shares of quoted companies to trade for as low as one kobo on the trading floor.

Change in prices of Insurance stocks

Investors also dumped many insurance stocks on the floor of the NSE as their prices remained flat for the second consecutive year but this will change as par value comes into trading of stocks.

Royal Exchange Assurance Plc, Sovereign Trust Insurance Plc, Standard Trust Assurance Plc, Standard Alliance Insurance Plc, Unic Insurance Plc, Unity Kapital Assurance Plc and Universal Insurance Company Plc were among the insurance stocks that traded and closed for the second consecutive year at N0.50 per share.

Par value is the nominal value of a share as stated in the Memorandum of Association of the company while price floor means the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.

Government favourable policies

The implementation of government’s policies will aid better market performance which will encourage more investors to trade in the market.

The Director General of Debt Management Office (DMO), Pat Oniha said the Federal Government through her agency and Ministry of Finance has put N750bn for capital project.

“Last year we raised N4.5bn to reduce debt service but through the Ministry of Finance, we have raised and put in place N750bn for capital project,” she said.

On a final note, if the government implements the 2018 budget at the earnest, the economic growth of the nation will in turn lift the market performance as seen in 2017 when the nation exited recession with a Gross Domestic Product (GDP) of 0.55 percent.

It is expected that economic growth will be stronger in 2018 and this is expected to impact positively on the stock market.  However, the impending general elections, mean that some foreign portfolio investors may unwind their positions on the NSE in late 2018 and return after the elections. This could lead to a drop in share prices and slowdown in the performance of capital market.

Capital Market in 2017

The NSE posted impressive performance in 2017. For instance, year to date, the index returned about 40% and market capitalization reached a peak of N13.2 trillion.

This performance is largely the outcome of recovery in key macroeconomic indicators and a boost to investor confidence during the year. For instance, equities became the preferred asset class for portfolio investors in Q3-2017. According to the National Bureau of Statistics (NBS) Q3-2017 report, $4.1 billion was imported into the country out of which $2.1 billion was portfolio investments.

The trend was driven by improved macro-economic outlook and the enhanced  investor sentiments. These were driven by the policy reforms such as the creation of the Investors and Exporters window and increased dollar liquidity. Also, the headline inflation maintained a downward trend. The improved economic performance also played a significant role.

 

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