Equities Market Gains N1.3tn in May on Sustained Investor Confidence


• Oil prices at three-week low on increased Nigeria, Libyan output

Goddy Egene and Ejiofor Alike with agency reports

The Nigerian equities market posted record gains in the month of May, growing N1.285 trillion or 14.4 per cent by market capitalisation on sustained investor demand for Nigerian stocks.

This came as oil prices fell to a three-week low wednesday on news that Libyan output was recovering from an oilfield technical issue, while sustained rise in Nigeria’s output was posing a challenge to efforts by the Organisation of Petroleum Exporting Countries (OPEC) to curb output.

The Nigerian stock market shrugged off its losses last year by posting the biggest gains in over three years last month on sustained investor demand, following improved foreign exchange management by the Central Bank of Nigeria (CBN).

The stock market, which lost 6.17 per cent in 2016, was still in negative territory at the end of April 2017, but witnessed a massive surge in May that also saw the Nigerian Stock Exchange All-Share Index (ASI) jump by 14.5 per cent.

Trading data for May showed that market capitalisation improved from N8.913 trillion at the end of April to N10.198 trillion yesterday, the last trading day of the month. Also, the ASI rose from 25,758.51 to 29,498.31.

Between January and the third week of April 2017, the market had shed N343 billion before the unprecedented rally that started in the last week of April and was sustained throughout the month of May.

Consequently, the market soared by 14.5 per cent in May, compared with a marginal growth of 0.9 per cent in April, 0.7 per cent in March and declines of 2.7 per cent in February and 3.1 per cent in January.

The road to the rally was triggered by the introduction of the new forex window for investors and exporters (I&E) by the CBN. Apart from the new FX window, analysts had also said investors were also responding to more favourable economic conditions, all signalling that Nigeria was likely to exit its biting recession by the third quarter of this year.

Before now, market analysts had linked the poor performance of the equities market in the last three years to weak macroeconomic conditions, inconsistent policies, weak corporate earnings, and portfolio realignment from equities to fixed income securities.

At the beginning of the year, they however raised hopes that the market would recover this year.

“Looking at the strong growth in the unaudited results that quoted companies released for the first quarter of 2017 and the improvement in the macroeconomic environment, we believe the market is ready for a recovery in 2017,” analysts at FSDH Research had said.

According to them, the increase in the supply of forex to meet the input requirements of manufacturing companies should increase production and revenue in the current financial year.

“The stability in the macroeconomic environment and strong earnings of quoted companies should attract the needed liquidity into the market. Consequently, the equities market should record a strong recovery in the year 2017,” they stated.

Commenting on the market rally, acting Managing Director, Afrinvest West, Mr. Ayodeji Ebo said Nigerian stocks were still trading at record lows, despite the significant rally in the past month.

According to him, a review of banks’ price to book (P/BV) and earnings multiples revealed that banks’ earnings remained upbeat in the past three years, notwithstanding the decline in share prices.

Ebo said: “In the past, foreign investors looked beyond cheap valuations and focused on FX illiquidity and economic challenges, as they had damped investors’ confidence.

“For instance, in 2014, GTBank traded around 2.6x and 9.4x P/BV and P/E respectively. Average P/BV and P/E for Tier-1 Banks at the time were 1.3x and 8.0x respectively.

“However, in 2016, GTBank’s P/BV and P/E dipped to 1.3x and 5.4x apiece on the aforementioned factors.

“Now, with the improvement in FX supply as well as the creation of the I&E window, I have observed improved mandates from FPIs (foreign portfolio investors).

“The market determined rates at the I&E window has translated into the FPIs receiving more naira value for every dollar inflow, giving them the ability to acquire more financial assets.

“As highlighted by the CBN, activity level at the window has been impressive as over $1 billion in transactions have been carried out, with the CBN supplying only about 30 per cent of FX at the window.

“The impact of the success recorded at the window has been evident in the performance of the NSE, as a number of stocks have rallied on the back of bullish sentiments and I believe there is further room for upside in some stocks,” he stated.

Meanwhile, higher supply from Nigeria and Libya, which are exempt from a production-cutting deal, has fuelled concerns that the OPEC-led output cuts to reduce global inventories were being undermined by producers outside the deal.

Global benchmark, Brent was down $1.63, or 3.1 per cent, at $50.21 per barrel, after touching $50.12 per barrel earlier yesterday, the weakest since May 10, while U.S. light crude traded at $48.31, down $1.35, or 2.7 per cent.

Reuters reported that both contracts were on track for their third straight monthly loss.

OPEC and other producers, including Russia, agreed last week to extend a deal to cut production by about 1.8 million barrels per day (bpd) until the end of March 2018.

But OPEC members – Libya and Nigeria – are exempt from the cuts, while U.S. shale oil producers that are not part of the agreement have been ramping up production.

Libya’s oil production has risen to 827,000 bpd, climbing above a three-year peak of 800,000 bpd reached earlier in May, the National Oil Corporation said, after a technical issue that hit the country’s Sharara oilfield was resolved.

Nigeria and Libya were exempted because their output had been curbed by conflict.

However, supplies from both nations staged a partial recovery in May, lifting overall OPEC output by 250,000 bpd to 32.22 million bpd.

The biggest increase came from Nigeria, where the Forcados production stream began loading cargoes for export.

The Forcados pipeline had been mostly shut, after it was bombed by militants in February 2016.

In Libya, the state oil firm said output had reached 827,000 bpd yesterday, around levels last seen in 2014.

But production is still half the 1.60 million bpd Libya pumped before the 2011 civil war.

While the exempt nations pumped more, those bound by output targets boosted compliance. Adherence by OPEC with the deal has been higher than in the past, reaching a record, according to the International Energy Agency (IEA).

Saudi Arabia and Russia said yesterday that cooperation between OPEC and non-OPEC producers would last beyond March.

“We want to institutionalise cooperation between OPEC and non-OPEC producers,” Saudi Energy Minister Khalid al-Falih said.