- Stock Market Surges 12% in Three Weeks on Rising Investor Confidence in FX Window
From being the worst performing market among its emerging market peers, the Nigerian equities market has made record gains for three weeks in a row, surging by 11.9 per cent, following renewed demand for stocks by foreign portfolio and domestic investors on the back of introduction of the new foreign exchange window for investors and exporters by the Central Bank of Nigeria (CBN).
In a bid to boost liquidity in the forex market, the CBN introduced the window last April that allows market participants to determine the exchange rate of the naira on a willing buyer, willing seller basis.
But to promote liquidity and professional market conduct, the central bank may from time to time participate in the market.
Transactions under the new window include invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees, consultancy fees, software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including “miscellaneous payments” as detailed under Memorandum 15 of the CBN Foreign Exchange Manual.
CBN, however, excluded international airlines ticket sales’ remittances.
Following the introduction of the new window for investors and exports, the Nigerian Stock Exchange (NSE) All-Share Index has spiked by 11.92 per cent in the last three weeks, from 25,189.27 to close at 28,192.46 last Friday, while market capitalisation gained N1.03 trillion or 11.81 per cent, from N8.716 trillion to N9.741 trillion.
The volume and value of trading also witnessed unprecedented gains, as investors traded 5.742 billion shares valued at N48.848 billion in 158,346 deals in three weeks.
A breakdown of the market’s performance showed that in the week ended April 28, 2017, the index rose by 2.26 per cent to close at 25,758.51, while market capitalisation closed at N8.913 trillion. Investors exchanged 1.33 billion shares valued at N9.671 billion in 16,300 deals.
The second week of the bullish trading saw the index rise by 1.85 per cent to close at 26,235.63, just as market capitalisation closed higher at N9.069 trillion. In the week, which ended May 5, investors also exchanged 1.154 billion shares worth N10.439 billion.
However, the market made record-breaking gains last week when the index surged by 7.46 per cent to close at 28,192.46, while market capitalisation rose to N9.741 trillion. Equally, the volume of trading jumped to 3.255 billion shares valued at N28,738 billion in 25,370 deals.
With the gains recorded last week, the year-to-date performance of the Nigerian bourse swung into the positive territory, appreciating by 4.9 per cent.
Commenting, analysts at Cordros Capital Limited said they sensed improved investor appetite for risk assets on the Nigerian bourse, judging by market activity in the past three weeks, and more specifically the spike in the number of deals and the volume of shares traded last week.
They linked the performance to reduced apprehension in the macroeconomic environment, impressive full year 2016 and 2017 first quarter (Q1) results of highly capitalised companies, as well as increased confidence and liquidity in the forex market.
Supporting this assessment, analysts at Afrinvest (W.A) said foreign investors’ appetite for Nigerian assets had waned significantly on the back of the currency crisis, which in turn had fundamentally weakened macroeconomic environment, dragged corporate earnings, and impacted negatively on the equities market.
“However, in April, investor sentiment strengthened following the commencement of the Investors’ & Exporters’ (I&E) FX window which signalled a possible return of flexibility in forex rate determination, though multiplicity of rates at the official window is still a concern.
“Additionally, recent improvements in global oil prices above the $45/b mark, improvement in domestic production currently above 2.0mbpd, fiscal responsiveness – including the release of the EGRP (Economic Growth and Recovery Plan), the successful issuance of US$1.5 billion Eurobond, passage of the 2017 budget, and improvement in the manufacturing PMI, suggest a possible rebound in economic activities from Q2 2017,” they said.
Afrinvest explained that the NSE benchmark index recorded a decline on only two trading days since the launch of the FX window while appreciating 11.9 per cent post-launch, with YTD returns improving to 4.9 per cent last Friday.
Meanwhile, the CBN yesterday assured market participants of its continued intervention in the interbank FX market.
The Bank said that it was determined to ensure that the gains made in recent weeks, with respect to the stability of the exchange rate, were not eroded.
While explaining that the central bank did not make major interventions throughout last week because there was forex glut in the system, a CBN source said that the Bank would continue to make the necessary interventions to ensure the stability of the naira.
The source further disclosed that the windows established by the CBN for small and medium enterprises (SMEs) as well as for investors and exporters were yielding the desired results by providing access to forex and easing pressure on the market.
Speaking on the matter, CBN spokesman, Isaac Okorafor reiterated the Bank’s commitment to ensure that there is enough supply of forex to genuine customers to achieve the forex rate convergence in the market.
The CBN, in its economic report for January which was released at the weekend, also indicated that Nigeria’s forex inflow through the Bank fell by 23 per cent to $2.61 billion in January 2017, compared with $3.21 billion in the preceding month.
But the report stated that the FX inflow recorded in the month under review recorded an increase of 96 per cent, relative to the inflow in the corresponding period in 2016.
Clearly, the significant increase in FX inflow was one of the factors that emboldened the CBN in its interventions in the market since February this year, resulting in a 27 per cent appreciation of the naira on the parallel market.
According to the report, despite the gradual recovery of oil prices in January 2017, external sector performance was weak during the month, mainly due to reduced inflow through the Current Account.
Also, inflow through the Capital and Financial Account was constrained, on account of low expectations of the increased flexibility of the naira exchange rate and the gradual increase of interest rates in developing countries.
However, the drop in inflows relative to the preceding month was attributed to the fall in other official receipts during the month under review.
“Aggregate outflow through the CBN, at US$1.06 billion, declined by 28.1 per cent and 37.4 per cent below the levels in the preceding month and the corresponding period of 2016, respectively.
“The development was due largely to the decline in interbank utilisation. Overall, a net inflow of US$1.55 billion was recorded through the CBN, in contrast to the net outflow of US$1.92 billion in the preceding month.
“Aggregate foreign exchange inflow into the economy was US$4.75 billion in January 2017. This represented 39.3 per cent and 11.6 per cent declines below the levels at end-December 2016 and the corresponding month of 2016, respectively.
“The development relative to the preceding month reflected the decline in inflow through both the Bank and autonomous sources. Inflow through the CBN and autonomous sources accounted for 54.9 per cent and 45.1 per cent, respectively.
“Non-oil sector inflow, at US$1.99 billion (41.9 per cent of the total), fell by 26.0 per cent, below the level in the preceding month. Autonomous inflow, also declined by 51.7 per cent, below the preceding month’s level.
“Aggregate foreign exchange outflow from the economy, at US$1.23 billion, declined by 31.4 per cent and 35.8 per cent, below the levels in the preceding month and the corresponding month of 2016, respectively.
“Thus, foreign exchange flows through the economy, resulted in a net inflow of US$3.52 billion in the reviewed month, compared with US$6.02 billion and US$3.45 billion in December 2016 and the corresponding month of 2016, respectively,” it added.
Furthermore, the report showed that improvement in domestic production recorded in the preceding month was sustained in the reviewed month, following reduced disruption to oil production by militants and repairs of previously damaged oil installations.
It pointed out that the exemption of Nigeria from the production-cut agreement by OPEC and 11 non-OPEC countries also provided the opportunity to ramp-up production.
“Consequently, Nigeria’s crude oil production, including condensates and natural gas liquids stood at an average of 1.57 million barrels per day (mbpd) or 48.67 million barrels (mb) in the reviewed month.
“This represented an increase of 0.03mbpd or 1.95 per cent above the average of 1.54mbpd or 47.74mb recorded in the preceding month. Crude oil export stood at 1.12mbpd or 34.72mb, representing an increase of 2.75 per cent, compared with 1.09mbpd or 33.79mb in the preceding month.
“Allocation of crude oil for domestic consumption remained at 0.45mbpd or 13.95mb during the reviewed period.
“To accelerate the rebalancing of the global oil market, the production adjustment agreement between 11 non-OPEC oil producers with 13 OPEC member countries took effect from Jan 1, 2017.
“Consequently, there was a marginal price increase in global oil prices due to the gains of the cooperation.
“The average spot price of Nigeria’s reference crude, Bonny Light (37° API), rose from US$54.10 per barrel in December 2016 to US$55.10 per barrel in January 2017, representing an increase of 1.85 per cent.
“UK Brent at $54.41/b, Forcados at $54.81/b and the WTI at $53.35, exhibited similar trends as the Bonny Light,” the report stated.
Nevertheless, federally-collected revenue (gross) at N424.92 billion in January 2017, was lower than both the provisional monthly budget estimate and the receipt in December 2016 by 46.4 and 15.3 per cent, respectively, the report revealed.
The shortfall in federally-collected revenue (gross) relative to the preceding month’s level was attributed to the decline in receipts from both oil and non-oil revenue sources.
Gross oil receipts at N212.32 billion or 50.0 per cent of total revenue fell below the provisional monthly budget estimate and December 2016 collection by 27.9 and 16.2 per cent, respectively.
The decrease in oil revenue, relative to the provisional monthly budget estimate, was attributed to the decline in crude oil/gas export receipts, due to pipeline vandalism and emergency repairs.
Also, consistent with the tight monetary policy stance of the Bank, the report showed that the banking system’s net claims on the economy fell at the end of the first month of 2017.
At N26.624 trillion, aggregate domestic credit fell by two per cent at end-January 2017, in contrast to the 2.8 per cent growth at the end of the corresponding period of 2016.
The development reflected the decline of 10.9 per cent and 0.03 per cent in net claims on the federal government and credit to the private sector, respectively.
Following the 20.8 per cent decline in direct loans to the federal government by the CBN, particularly the 21.3 per cent decline in Ways and Means Advances, the banking system’s credit to the government declined in January 2017.
Relative to the level at end-December 2016, net claims on the federal government fell by 10.9 per cent at end-January 2017, in contrast to the 18.2 per cent growth at the end of the corresponding period in 2016.
SEC To Ban Unregistered CMOs From Operating By Month End
The Securities and Exchange Commission (SEC) says it will stop operations of Capital Market Operators (CMOs) that are yet to renew their registration on May 31, 2021.
This was contained in a circular signed by the management of SEC in Abuja on Monday.
On March 23, SEC had informed the general public and CMOs on the reintroduction of the periodic renewal of registration by operators.
The commission noted that the reintroduction of the registration renewal was due to the need to have a reliable data bank of all the CMOs registered and active in the country’s capital market.
“To provide updated information on operators in the Nigerian Capital Market for reference and other official purposes by local and foreign investors, other regulatory agencies and the general public, to increasingly reduce incidences of unethical practices by CMOs such as may affect investors’ confidence and impact negatively on the Nigerian Capital Market and to strengthen supervision and monitoring of CMOs by the Commission,” SEC explained.
According to the circular, the commission said CMOs yet to renew their registration at the expiration of late filing on May 31, would not be eligible to operate in the capital market.
It explained that CMOs were required to have completed the renewal process on or before April 30, however, the commission said late filing for renewal of registration would only be entertained from May 1 to May 31.
SEC also said that asides from barring the CMOs who failed to comply accordingly, their names would be published on its website and national dailies.
It added that names of eligible CMOs would be communicated to the relevant securities exchanges and trade associations.
A Threat to Revenue As Nigeria’s Largest Importer of Crude, India slash Imports By $39.5B
Nigeria’s revenue earning capacity has come under threat following the reduction of importation of crude oil by India.
India, Nigeria’s largest crude oil importer, reduced crude oil imports by $39.5bn in April, compared to the same time the previous year, data from India’s Petroleum Planning & Analysis Cell showed.
According to the Indian High Commission in Nigeria, India’s crude oil imports from Nigeria in 2020 amounted to $10.03bn.
This represented 17 percent of Nigeria’s total crude exports for the year according to the Nigerian National Petroleum Corporation, as quoted by OilPrice.com.
As Nigeria’s largest importer of crude oil, lockdowns in India’s major cities from the COVID-19 surge in April had ripple effects on Nigeria’s oil sales.
The NNPC was prompted to drop the official standard price of its main export streams, Bonny Light, Brass River, Erha, and Qua Iboe, by 61-62 cents per barrel below its April 2021 prices. They traded at $0.9, $0.8, $0.65, $0.97 per barrel respectively, below dated Brent, the international benchmark, as Oilprice.com showed.
India had been buying the not-too-light and not-too-heavy Nigerian crudes that suited its refiners.
Reuters reported that the Indian Oil Corporation’s owned refineries were operating at 95 percent capacity in April, down from 100 percent at the same time the previous month.
An official at the IOC was quoted as saying, “If cases continue to rise and curbs are intensified, we may see cuts in refinery runs and lower demand after a month.” Hundreds of seafarers risked being stuck at sea beyond the expiry of their contracts, a large independent crude ship owner reportedly told Bloomberg.
India reportedly bought more American and Canadian oil at the expense of Africa and the Middle East, reducing purchases from members of the Organisation of the Petroleum Exporting Countries to around 2.86 million barrels per day.
This squeezed the group’s share of imports to 72 percent from around 80 percent previously, as India’s refiners were diversifying purchases to boost margins, according to Reuters.
India also plans to increase local crude oil production and reduce import expenses as its population swells, according to Bloomberg.
A deregulation plan by the Narendra Modi-led government to boost national production to 40 million tonnes of crude oil by 2023/2024, an increase of almost eight million tonnes, had already been initiated.
According to Business Today, an Indian paper, the country currently imports 82 percent of its oil needs, which amounted to $87bn in 2019.
Invest Africa and DLA Piper Partner to Support ESG Best Practice in African Renewable Energy Projects
The global law firm, DLA Piper, has partnered with Invest Africa, the leading trade and investment platform for African markets, to support the development of ESG best practice in African renewable energy projects.
Clear Environmental, Social and Governance (ESG) targets and measurements have become an increasingly important part of fundraising as investors seek to align their portfolios with sustainable growth. For a continent boasting ample natural resources, this presents a significant opportunity for Africa’s green energy sector. However, renewable does not always equal sustainable and developing and articulating ESG metrics can pose a significant challenge to projects as they prepare investment rounds.
The project will assemble experts from the worlds of impact investment, development finance and law. Across a series of online meetings, participants will discuss strategies to improve ESG practices in African renewable projects from both a fundraising and operational perspective.
Amongst those speaking in the inaugural session on Thursday 13th May are Cathy Oxby, Chief Commercial Officer, Africa Greenco, Dr. Valeria Biurrun-Zaumm, Senior Investment Manager, DEG, Orli Arav, Managing Director – Facility For Energy Inclusion (FEI) – Lion’s Head Global Partners, Beatrice Nyabira, Partner, DLA Piper Africa, Kenya (IKM Advocates) and Natasha Luther-Jones, Partner, Global Co-Chair of Energy and Natural Resources, International Co-Head, Sustainability and ESG, DLA Piper.
Veronica Bolton-Smith, COO of Invest Africa said, “Africa is particularly vulnerable to the impact of climate change despite contributing very little to global emissions. As the price of renewables fall, they will form an ever more important part of Africa’s electrification. In this context, it is essential that projects be given the tools to apply best practice in ESG not only from an environmental perspective but also in terms of good governance, fair working conditions and contribution to social inclusion. I look forward to working closely with DLA Piper on this important topic.”
Natasha Luther-Jones, Global Co-Chair Energy and Natural Resources and International Co-Head Sustainability and ESG at DLA Piper also commented, “Climate change is one of the biggest challenges companies, and people, face today and when we look at its reduction – whether that be in how we power our devices, what we eat or how we dress, where we live or how we work – all roads come back to the need to increase the amount of accessible, and affordable, clean energy. However, renewable energy companies are not automatically sustainable as sustainability is a focus on all ESG factors, not just environmental. We know the need for renewable energy is only going to continue to rise, and therefore so will the number and size of renewable energy companies. The additional challenge is to make sure they are truly sustainable organisations and that’s what we’re excited about discussing during the webinar.”
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