Investors Reap Higher YTD Returns from NSE

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  • Campared with S’Africa, Kenya Exchanges,

By Bamidele Famoofo

Year to date, the Nigerian Stock Exchange has outperformed its leading peers in Africa and by implication; this means investors are enjoying good returns on their investment in Nigeria.

Statistics sourced from Bloomberg puts the year-to-date (YTD) returns on the NSE as at Thursday, October 5, 2017 at 33.11 per cent while in one year, investors have enjoyed mouth-watering 2,846.49 per cent returns on their investment.

On the other hand, the Johannesburg Stock Exchange (JSE), reputed to be the biggest and oldest stock exchange in Africa, has offered less to investors when compared to the NSE. JSE Limited, which ALSI closed on Thursday at 12,317.00, offered investors 12.53 per cent YTD returns and 13.32 per cent in one year.

In Kenya, investors at the Nairobi Stock Exchange, which ALSI on Thursday, closed at 160.97, have only been able to get YTD return on investment of 20.72 per cent while in one year, returns stood at 22.50 per cent.

It would appear that the Nigerian equity market is fulfilling the prediction of the Chief Executive Officer of the Nigerian bourse, Mr. Oscar Onyema, who, when speaking on the 2017 outlook for the market, said investors should expect a positive performance in 2017.

According to Onyema, who is the current President of African Securities Exchanges Association (ASEA), the capital market is a subsector of the Nigerian economy and the World Bank has projected it will recover from its recession in 2017 with a modest growth of 0.6 per cent.

Onyema noted that the positive forecast by the World Bank and the initiatives put in place by the NSE, was enough reasons for investors to be optimistic about recovery of the market in 2017.

But notwithstanding the optimism of the NSE boss at the close of the 2016 fiscal year, the market began on a negative note in 2017 as the NSE All-Share Index fell by 5.1 per cent to close lower at 25,516.34 in the first quarter. The market capitalisation shed N426 billion to close Q1 at N8.829 trillion, from N9.255 trillion.

Explanation offered by analysts for what led to the market’s poor performance in first quarter was a combination of many factors. They include the decision of investors to drift to fixed income securities, exit of foreign investors due to foreign exchange (forex) challenges and poor corporate results engendered by difficult operating environment.

The Chief Executive Officer, APT Securities and Funds Limited, Kasimu Kurfi, argued that the last quarter in the market in 2016 experienced scarcity of foreign exchange, which led to the devaluation of naira. He also pointed out that when there was scarcity of foreign exchange, it denied foreign investors the access into the country, which definitely will affect the market negatively.

Kurfi added that President Muhammadu Buhari’s ill health also contributed to the poor performance of the market as there was not any clear information from the presidency about the president health. “There were uncertainties and our market doesn’t work with uncertainties because the more the uncertainty, the more the market misbehaves. Another factor is the economy itself, which closed on a negative note in the last quarter of 2016, when the economy dropped into recession.” Turnover at the exchange in the first quarter of 2017 was less than N2 billion on the average per day, and that contributed to poor performance of the market, which also took its toll on the All-Share Index.

But after the lull in stock market activities, which dovetailed from 2015 to first quarter in 2017, a progressive turnaround has been seen beginning from second quarter of 2017, when the All Share Index (ASI) recorded a growth of 2.29% ,gaining 7,371 basis points from end of first quarter, 2017. The ASI closed at 33,177 basis points in the second quarter while market capitalisation on the floor of the NSE also appreciated by same margin, gaining N2.5 trillion between March and end of the second quarter, 2017 and closing at N11.45trillion.

Though growth has not been steady since the beginning of the third quarter till date, YTD returns remained positive at over 30%. ASI rose by 7.20 per cent from 33,117.48 on June 30, 2017 to 35,504.62 on August 31, 2017. Market capitalisation improved by 6.90 per cent to N12.24 trillion from N11.45 trillion during the same period. Relative to end-December 2016, capital market indices rose by 32.10 and 32.30 per cent, respectively.

Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria, at their last meeting held in September, attributed the new lease of life the stock market in Nigeria is enjoying at the moment to growing investor confidence, due to improvements in foreign exchange management.

According to the MPC, total foreign exchange inflows through the Central Bank of Nigeria (CBN) rose by 1.98 per cent in August 2017, compared with the previous month. Total outflow increased by 7.03 per cent during the same period, as a result of increased international remittances, inclusive of public sector and JVC payments, which rose by 58.59 per cent in the period under review.

Specifically, the committee noted the success of the Investor and Exporters’ (I &E) window of the foreign exchange market and traced this not only to foreign investor confidence but also to the zeal and commitment of Nigerian exporters, who have demonstrated preference for the window to the parallel market. The committee observed that the I&E window had increased liquidity and boosted confidence in the market with over US$7.0 billion inflow in the last five months.

The committee promised to continue to introduce policies that will improve the confidence of foreign investors in the country’s macroeconomic management regime.

Meanwhile, analysts at Cordros Securities Limited have attributed the market’s poor performance in the last two months in the just-concluded third quarter of 2017, to the absence of any fundamental news in the market but are optimistic that the sizeable gains YtD left some legroom for profit-taking in the market.

Foreign Investors

The recently released Foreign Portfolio Investment (FPI) report for August by the NSE shows that investors’ participation in Nigerian bourse rebounded significantly.

Total FPI transactions increased by 244 per cent to N208.34 billion from N60.50 billion recorded in the previous month, reflecting improving confidence in the I&E FX window from the offshore community. More precisely, foreign inflow during the month was at a high of N165.47 billion (from N38.44 billion in July), compared to outflow of N42.87 billion, resulting in net inflow of N122.60 billion (compared to N16.38 billion in July).

Consequently, foreign share of total trade in the local market increased to 52 per cent, overtaking the locals for the first time since June 2016. The same report shows that institutional investors accounted for 79.3 per cent of total local trades, from 60 per cent in July.

“The negative performance for the review month was notwithstanding the improving macro environment, as shown by the recently-released September PMI data, signalling that both manufacturing and non-manufacturing activities expanded for the sixth and fifth consecutive months respectively, to 55.3 and 54.9”, the NSE disclosed.

Barring any unforeseen circumstances, it is expected that investors in the stock market in Nigeria will continue to take profit, even as corporate companies begin to churn out their last quarter results, which investors are expected to latch on.