Nigeria’s Equity Market Contracting, Despite Economic Rebound


Even with a promising take-off in 2018, it appears the Nigerian equity market may not meet the return expectations of investors by the end of the year. Bamidele Famoofo reports

Investors and operators in the Nigerian Stock Exchange (NSE) were exited at the close of the 2017 financial year, when it was rated the second best performed market in Africa with All Share index growth of 42.3 per cent. According to capital market analysts, the unprecedented increase the NSE All Share index recorded at the close of 2017 represented the second highest year-on-year return in 10 years.

Director General/Chief Executive Officer of NSE, Mr. Oscar Onyema, attributed the performance, in part, to the central bank’s monetary policies that resulted in increased liquidity in the foreign exchange market.  Another factor, which he said was responsible for the recovery of the market, was change in the macroeconomic overhang of the commodity down cycle.


Though the euphoria was sustained in the first month in 2018, the trend could not continue beyond January, as the equity market in February recorded loss. The ASI dipped by -2.28 per cent, the largest monthly loss since February 2017 (-2.72%) to 43,330.54 points. Of the 20 sessions during the month, nine closed negative (-8.93%), while 11 ended positive (+6.72%).

The loss suffered during the month (-2.28%) wiped away some of the gains recorded in January (+15.95%), causing the year-to-date return to moderate to 13.3 per cent.

A review of the performance of the market by the NSE in the period showed that it ranked among the least performing markets on the back of contagion effects of downturn in global markets.

“Insurance sector proved to be the only one in positive region and this may be attributed to the impact of revised price floor. Total turnover declined by 46% month-on-month (MoM), while liquidity indicators (market depth and breadth) also waned within the period with a Daily Average Value Traded (DAVT) of N5.3billion,” NSE noted.

 Worsening Fortunes

Proceedings in the equity market remained bearish, as the ASI inched lower for the fifth consecutive session by 0.25 per cent to 40,150.55 points on Wednesday, May 23. Accordingly, the month-to-date loss increased to 2.71 per cent while the year-to-date gain dropped to 4.99 per cent, the lowest since January 8.

All major sectoral indices closed lower – Consumer Goods (-0.47%), Insurance (-0.30%), Banking (-0.17%), and Industrial Goods (-0.10%) – save for the oil and gas index, which rose by 0.08%. Notable stocks included UACN (-8.52%), AIICO (-4.62%), ACCESS (-0.46%), CAP (-2.87%), and MRS (+4.87%), respectively.

Other notable performances were sighted in some tier 1 banking stocks – FBNH (+0.94%), UBA (+0.89%), and GUARANTY (+0.23%) – wherein gains resurfaced, with particular reference to FBNH, which halted eight consecutive sessions of losses. Also, Ikeja Hotel remained investors toast, as it continued to record significant gains since the lift of the suspension on its shares on Monday.

Market breadth remained negative, with 28 losers and 15 gainers, led by UACN (-8.52%) and IKEJAHOTEL (+9.80%) shares, respectively. Total volume of trades decreased by 5.18 per cent to 266.7 million units, valued at NGN4.67 billion (+14.23%), and traded in 3,721 deals.


Major drivers of activities during the month, according to analysts, include investors booking profit on previously accumulated gains. The second reason they gave for the declining performance of the market was the effect of activities in the global markets. For instance, it is believed that the United States markets rout sparked selloffs in global markets and dampened appetite in Nigeria.

Analysts at Cordros Securities Limited explained that the downturn, which started in February, was not peculiar to Nigeria.  “Global equity markets, after a bullish start to the year, U.S. equity retreated, with the DJIA and S&P 500 declining by 4.28% m/m and 3.89% m/m, respectively, in February following a significantly pressured first half of the month. Activities during the month – arguably Wall Street’s wildest month since 2008 – reflected a sharp contrast to what January offered. Investors largely ignored positive narratives about global economic growth, and jettisoned earlier optimism about corporate performance, which was hinged on the expected impact of the U.S. tax reform bill. Earlier in the month, the Dow tumbled 12 per cent in just 14 days,” analysts at Cordros Securities Limited said.

2018 Outlook

Despite persisting selloffs and continued sessions of sideways trading, analysts said still-positive macroeconomic fundamentals remain suggestive of gains in the equity market in the long term.

Earlier in the year, FSDH Research said its outlook of the equity market remained positive in 2018 as it expected the macroeconomic environment in Nigeria to strengthen further.

FSDH Research said, “We expect a strong rally in the first half of the year 2018. The quarterly analysis of the equity market in the last seven years shows that it appreciated consistently in Q2. We attribute the appreciation in Q2 to the release of the Full Year earnings and corporate actions during the period. ”

But performance in the market close to end of May is far from the expectations of stock analysts on the platform of FSDH Research.

Meanwhile, FSDH Research believes the following factors will drive the market: increase in crude oil price at the international market and increase in local production; expected drop in the yields on fixed income securities, leading to portfolio realignment towards the equity market  Improvements in the external position of the country through increase in external trades and capital inflows; increase in the external reserves providing further stability for the foreign exchange market; improved corporate earnings and actions; and increased participation of the foreign portfolio investors.

FSDH Research says it expects the equity market to grow by 27.43 per cent in 2018, lower than 42.3 per cent achieved in 2017. “Looking at the developments in the international and in the domestic markets, we expect the equity market to grow by 27.43% in 2018,” it said.

Afrinvest Securities Limited also says its forecast for the performance of the benchmark index in 2018 is largely positive as its scenarios (bear, base, bull) all signal appreciation in the benchmark index.

According to Afrinvest Securities, “Finally, to make a call on market performance for 2018, we adopted a blend of both valuation methodologies. Based on the foregoing, we arrived at an ASI projection of 45,811.73 points for 2018, which is a 19.8% appreciation from 38,243.19 points in 2017. Our bear case (+7.7% to 41,189.9 points) and bull case (+32.7% to 50,749.10 points) also follow the same trend and further buttress the consensus view of positive market performance in 2018.”

It, however, warned that the macro space will determine overall market performance, saying, “We opine that barring any major shocks in the FX market, corporate fundamentals will be a key determinant of overall performance as shown below.”

Growth Drivers

Analysts at Afrinvest Securities Limited said they envisaged that market performance will be largely determined by earnings fundamental of corporates; stability in the FX market and other macro indicators; and funds flow dynamics to emerging and frontier markets. It stated, “Our analysis of market trend over the past 10 years makes a case for a possible repetition of history. As noticed in 2012 and 2013, the periods following the global economic crisis, sentiment in the local bourse strengthened, which drove the ASI 35.4% and 47.2% northwards in the respective years. In a similar situation, as the economy rebounded from the slump – 2014 to 2016 – in 2017, we expect market sentiment to wax stronger in 2018.

“In our scenario analysis for the market performance in 2018, we employed a blend of relative valuation in which we benchmarked our market valuation against multiples for peers in the MSCI frontier market index and absolute valuation based on price forecasts for our coverage universe, which is about 86.0% of the entire market.”