Exit From Recession Spurs N1.05tn Stock Market Investment

• Exit From Recession Spurs N1.05tn Stock Market Investment

With the exit of the Nigerian economy from recession in the second quarter of this year, investors’ positive sentiment towards the stock market has received a boost, STANLEY OPARA writes.

After the country exited its 18-month economic recession in the second quarter of this year, the confidence of local and foreign investors has made a huge leap, which is evident in the equities market gaining N1.05tn so far.

The Nigerian Stock Exchange market capitalisation, which was N11.452tn as of the end of June this year, has moved up by over nine per cent to close at N12.502tn on Friday.

The progression was also evident in the NSE All-Share Index, which rose to 36,320.93 basis points from 33,117.48 basis points.

The National Bureau of Statistics released the second quarter 2017 Gross Domestic Product report on September 5, which showed that the economy grew by 0.55 per cent year-on-year.

The growth was largely driven by improvement in the oil and non-oil sectors, which grew by 1.6 per cent and 0.5 per cent year-on-year, respectively in the second quarter.

In their outlook for the year, analysts at Meristem Securities Limited projected that the country’s equities market would close 2017 positively. In a special market report entitled, ‘In Murky Waters…Wading through Uncertainties’, the analysts predicted that the lead index of the NSE would gain 3.49 per cent.

Though the stock market posted weak numbers in the first half of the year owing to subsisting macroeconomic uncertainties, the analysts anticipate a modest recovery towards the tail end of the year.

The report read in part, “However, we note that market recovery is partly hinged on stability in the foreign exchange market and moderation in exchange rate gap between the interbank and parallel markets. Based on our mix of methodologies, we arrived at a 2017 index level of 27,812, 50, indicating a +3.49 per cent potential market return by December 31, 2017.”

Speaking on Nigeria’s exit from recession and the fate of quoted companies, the Managing Director/Chief Executive Officer, Guinness Nigeria Plc, Mr. Peter Ndegwa, in an interview with our correspondent, said as a big player in the manufacturing sector, the operating environment had not been all that friendly.

He said, “One of the critical things we need to consider as far as the operating environment is concerned is the GDP, which has started to grow in the second quarter. This is good news as there are signs that the economy is coming out of recession. Again, we need more quarters of positive GDP growth in order to see this reflecting in the consumers’ pockets.

“At the moment, the costs of buying commodities are still going up. So, we can see consumers holding back on spending, reducing frequency of purchases, or spending less anytime they purchase, or going for lower-priced brands. If you look at the other Key Performance Indices, one of which is inflation, it is in double digits; food inflation is about 20 per cent. So, consumers are not in great shape yet.”

The Chief Executive Officer, NSE, Mr. Oscar Onyema, said while the national economy relapsed into recession in 2016 with a contraction of 2.06 per cent, the NSE ASI dropped to its lowest in four years at 22,256.32 basis points.

At the start of the first quarter of this year, he said the market had started showing signs of a rebound that was sustained through the second quarter.

According to the NSE boss, the capital market remains a very reliable forward indicator of economic direction, which is facilitated through market feeds of information.

He said a major drive seen in the current market was being stimulated by local investors, who were embracing market data better than they used to, thus spurring informed investment decisions, among other dividends.

Onyema stated, “Our efforts in improving investors’ education and enhancing the investors’ experience are yielding positive results. The NSE ASI is arguably the best performing index year-to-date in Africa in comparison to major indices in the same league.

“Considering the fact that our market closed the previous year on a negative note, the NSE ASI is up by 32.05 per cent year-to-date. Notably also is the fact that we have witnessed an unprecedented local participation in our market within the last one year.”

The Managing Consultant, CITC Global Consulting, Mr. Tayo Orekoya, said though the country marginally exited economic recession, the corporate result released by quoted companies on the NSE showed that the economy was gradually getting out of the woods post-recession.

He stated that Nigeria had a cause to celebrate as things were beginning to look up despite the economic unease of the past year evident in the degree of forex fluctuations and infrastructural decadence, among other challenges.

“So, despite the challenges that have been there, our companies are returning value to their stakeholders. We need to celebrate them, and we know that they deserve to be celebrated,” Orekoya said.

He called for policy consistency in the country’s financial market, adding that past experiences had shown that when the regulatory framework was right, other thing would fall in place; thus, charting the path for growth.

According to him, the regulators should ensure that the market continues to consolidate on the current gains and ensure consistent education about the capital market operations to the investing public so that confidence can be fully restored.

He said the market needed to attract more capital through fresh listings, stressing that there were lots of indigenous companies that should be encouraged to list on the NSE, especially now that the market was fast rebounding.

“We need to do this to further deepen our market. The more depth the market has, the better it is for the listed firms, investors and the economy at large. Our regulators must encourage this consciously. With this, we can be sure of sustaining current gains seen in the market,” he said.