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Taking Advantage of Bearish Stock Market

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Nigerian Exchange Limited - Investors King
  • Taking Advantage of Bearish Stock Market

The Nigerian stock market is going through a bear run that is sending shiners down the spines of many investors. Operators and regulators are not equally spared of the anxiety that the market has brought.

Specifically, the market has dipped by about 27.3 per cent from its peak in January, to record low last week.

In all, the market year-to-date decline worsened to over 15 per cent last week, aggravating the anxiety among some investors who have short term focus. The Nigerian Stock Exchange All-Share Index (NSE ASI) closed at 32,327.59, while market capitalisation ended at N11.802 trillion, compared with 38,243.19 and N13.619 trillion at the beginning of the year.

However, for investors whose strategy is long term, the current state of the market is a very good opportunity to buy more stocks and await the rebound. The good thing about what is happening in the market is that it is not caused by weak market fundamentals. Investor sentiments remained weak despite improving economic fundamentals signifying potential growth for companies.

Reasons for market decline

According to analysts at Afrinvest (W.A), a Lagos based investment banking firm, while some of the factors that have pressured the performance of the market in recent times have dissipated, risk factors such as, increasing incidences of trade protectionism, rising treasury rates in advanced economies and systemically important central banks as well as emerging market (EM) frailties still linger and are impacting negatively on the Nigerian market. Apart from this external factors, the political uncertainties are major internal factors affecting the market.

Analysts had said general elections uncertainties would make investors to adopt cautious trading in equities.

“In line with historical trend, investors tend to reduce exposure to risky assets in the year leading up to general elections and this is similar to the situation in Nigeria. The one thing investors detest is “uncertainty” and as such, this downside risk is expected to worsen as 2019 general elections draw closer,” they said.

Emerging Market Link

Emerging markets (Ems) have been in a turmoil since early 2018 with massive sell-offs seen across asset classes. This was initially prompted by the reaction of foreign investors to rising yields in advanced economies, but lately, trade protectionism and emerging country-specific risk factors are featuring prominently. Most notably, Turkey and Argentina have been significantly affected, with the Turkish Lira depreciating 40 per cent against the dollar so far, while inflation levels have exacerbated to 17.9 per cent, highest level since 2003.

Similarly, the Argentinian Peso has lost 52.0 per cent against the greenback YTD, as EM sell-offs impacted the economy severely, propelling the monetary authority to raise benchmark rate to 60 per cent on the 30th of August 2018.

According to analysts, massive funds outflows from EMs have affected currencies of other countries such as Indonesia, South Africa, Thailand, Russia and India amongst others, while the MSCI EM index – which captures stocks with large and middle size capitalisation representation across 24 EM countries – had declined by 8.8 per cent as at the of August 31, 2018.

In opinion of Afrinvest, the contagion effect of emerging and frontier market routs resulted in a moderate slowdown of portfolio investments into Nigeria in first half (H1) of 2018.
“Sadly, this is expected to continue impacting sentiments as foreign portfolio participation in domestic equities remains feeble. Furthermore, persistent sell-offs, especially in H2:2018, cannot be dissociated from increasing political and policy risks, which historically define election cycles in Nigeria.

“Nonetheless, we do not expect these to have substantial impacts on the broader macroeconomy given the relative stability in external economics (particularly steady and positive outlook in oil market) and the commitment of the Central Bank of Nigeria (CBN) in achieving a stable foreign exchange market,” Afrinvest said.

Brokers Raise the Alarm

Stockbrokers said the activities, actions and utterances of some politicians is heating up the system and preventing investments from the stock market.

Speaking under the aegis of Association of Stockbroking Houses of Nigeria (ASHON), the brokers for the umpteenth time, strongly appealed to the political class that rather than indulge in unwholesome activities, actions, attitudes and destructive utterances, they should support all efforts aimed at creating the much-needed enabling environment for accelerated economic growth and development .”

According to brokers, the unguarded activities and unrestrained utterances of our politicians are heating up the polity with dire consequences on the economy as a whole and the capital market in particular.

“Perhaps we may remind the political class that uncertainties and all sorts of insecurities that currently pervade our country affect investors’ sentiments, asset valuations, market and country risk profile and portfolio allocation decisions. In recent times, trading statistics on the securities markets in Nigeria have been reflecting investors’ apathy to unprecedented level of tension that portends likely breakdown of law and order in the 2019 general elections,” they said.

ASHON explained that it is an unassailable investor-behaviour that bad news trigger market panic and investors over react to such news, adding that innocent investors watch helplessly as their investments are plundered by the bearish market exacerbated by prevailing uncertainties in the polity created by the political class.

“As the country’s economic barometers, the securities markets in Nigeria have continued to reflect investors’ apprehensions to instability in the political and economic landscape through all their indices. This has largely accounted for the inability of our market to fully recover from the effects of the 2008 financial crisis , notwithstanding the efforts made by the regulators and operators to fully revive the market. There is clear and present danger if the trend continues,” it said.

The stockbrokers said foreign portfolio investors and their indigenous counterparts have embarked on massive sell down of shares and other financial instruments with attendant effect of gross erosion of values despite stellar performances of many listed securities.

Entry opportunity

The persistent bear run has depressed the prices of stocks to levels that have made them attractive to buy. Given the fact that capital appreciation is hard to come due to the bear run, discerning investors should settle for dividend-paying stocks, taking advantage of their current low prices.

Checks revealed that some of the stocks which regularly reward investors with dividends are trading at prices below what they opened the year with.

For instance, Nigerian Breweries Plc, which pays almost 100 per cent of its profit every year as dividend, is trading 23.6 per cent lower than the year’s opening value.

Zenith Bank Plc, which recently declared an interim dividend is 10.4 per cent lower, while Union Bank of Nigeria Plc and United Bank for Africa Plc are 26.9 per cent and 18.9 per cent respectively lower than their year’s opening prices. Dangote Sugar Refinery Plc, which raised dividend paid last year, is 24.1 per cent. Similarly, Dangote Flour Mills of Nigeria Plc is 37.4 per cent cheaper.

Others are: Fidelity Bank Plc (34.5 per cent); PZ Cussons Nigeria Plc (31.8 per cent); Flour Mills of Nigeria Plc (24.1 per cent); Honeywell Flour Mills Plc (25.2 per cent); Berger Paints Nigeria Plc (22.8 per cent); Total Nigeria Plc (20.4 per cent);United Capital Plc (14 per cent); CAP Plc (16.6 per cent); and Conoil Plc(13.2 per cent).

The petroleum products marketing firm is a regular dividend payer. It paid a dividend of 200 kobo for 2017. And given the performance of the company for the half year ended June 30, 2018, shareholders would equally enjoy higher dividend.

Conoil Plc grew its turnover by 21.3 per cent from N44.93 billion in 2017 to N54.48 billion in 2018. Gross profit rose from N5.99 billion to N6.39 billion, while profit before tax increased to N809.78 million as against N627.91 million. Profit after tax grew by rose from N427.29 million in 2017 to N550.65 million in 2018, translating to 29 per cent appreciation.

Investing strategy

On their part, analysts at Meristem Securities Limited stated that the bearish performance would not last for a long time. They have said that rather than panic, investors should take advantage of the bear market.

“With stock prices bottoming out, light gleams at the end of the tunnel. The low prices in the market provide investment opportunities for players in the market, but of course, with a focus on the fundamentally justified stocks,” they said.

The analysts explained that the 2019 elections have posed a major concern for most investors which has caused them to withdraw their funds from the market, thus making profit volume opportunities after the election become more visible. “We believe that after the elections in February 2019, calm will be restored in the market. It is only fair that you don’t get caught sleeping so why not you buy now, ahead of 2019?,” they said.

In buying stocks now, the analysts advised investors to consider the fundamentally justified stocks, stressing that “the market always remembers these stocks and given their very attractive prices now, your patience will be rewarded.”

They added that investors should also consider companies which are important to the growth of the economy.

“Consumption is a given and the government will always carry out infrastructural projects and works. Consumer staples and the elephant in the industrial goods sector lead the way here,” they said.

Other stocks investors should consider, according to the analysts, are dividend yielding stocks.

“Dividend yielding stocks always provide an extra income stream for their holders. Even when stock prices are falling and there is no capital appreciation, dividend income provides some comfort. With prices on the low end, dividend yield becomes even more attractive,” they said.

Another strategy they advised to be used is block buying of stocks.

“Prices have been on a downward spiral and as low and attractive prices may seem, there is always room for a further slip, which means there is always an opportunity to buy at the cheapest price. You might want to buy in bits and pieces so that if the axe falls, you get to enjoy the lower price, while obtaining your target volume,” they said.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Energy

Nigeria’s Power Sector to Get $7.5bn from $30bn African Electrification Initiative, Says Minister Adelabu

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Power - Investors King

Minister of Power Adebayo Adelabu has said that Nigeria is set to receive a portion of a $30 billion investment aimed at electrifying Africa.

During a visit to Splendor Electric Nigeria Limited, Adelabu revealed that the World Bank and the African Development Bank (AfDB) have committed to this ambitious initiative with Nigeria slated to receive approximately $7.5 billion, or 25% of the total fund.

The groundbreaking initiative is designed to extend electrification to an additional 300 million Africans over the next five years.

This large-scale project aims to address the energy deficit that has long plagued the continent and is expected to transform the power infrastructure significantly.

Adelabu expressed optimism about Nigeria’s role in the project, citing the country’s large population and ongoing power sector reforms as key factors in securing a substantial share of the funds.

“I want to inform you of the proposal or the intention, which is at an advanced stage, by the World Bank and the African Development Bank to spend about $30 billion to extend electrification to an additional 300 million Africans within the next five years. Nigeria is going to participate fully in this. I am confident that nothing less than 20% or 25% of this fund would come into Nigeria because of our population,” Adelabu stated.

The minister’s visit to Splendor Electric Nigeria Limited, a porcelain insulator company, underscores the government’s commitment to involving local businesses in the electrification drive.

The investment will focus on enhancing and upgrading power infrastructure, which is crucial for improving electricity access and reliability across Nigeria.

Despite the promising news, Nigeria continues to face significant challenges in its power sector. The country’s power grid has suffered frequent collapses, with the Nigerian Bureau of Statistics reporting less than 13 million electricity customers and frequent nationwide blackouts.

The International Energy Agency highlighted that Nigeria’s national grid experienced 46 collapses from 2017 to 2023, exacerbating the nation’s energy crisis.

To combat these issues, the government is also advancing the Presidential Power Initiative, a project in collaboration with Siemens, which aims to build thousands of new lines and numerous transmission and injection substations.

Adelabu noted that the pilot phase of this initiative is nearing completion and that Phase 1 will commence soon.

With over 200 million people and a chronic energy shortfall, Nigeria’s power sector is in urgent need of overhaul.

The additional $7.5 billion from the African Electrification Initiative represents a critical step toward achieving reliable and widespread electricity access.

The investment is expected to stimulate not only infrastructure development but also economic growth, creating opportunities for local companies and improving the quality of life for millions of Nigerians.

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Crude Oil

Oil Prices Climb as Markets Eye Potential US Rate Cuts in September

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Crude oil - Investors King

Oil prices rose during the Asian trading session today on speculation that the U.S. Federal Reserve may begin cutting interest rates as soon as September.

Brent crude oil, against which Nigerian oil is priced, increased by 32 cents to $82.95 a barrel, while U.S. West Texas Intermediate crude oil climbed 34 cents to $80.47.

The anticipation of rate cuts stems from recent U.S. inflation and labor market data indicating a trend towards disinflation and balanced employment, according to ANZ Research.

The Federal Reserve is set to review its policy on July 30-31, with expectations of holding rates steady but providing clues for potential cuts in September.

The potential rate cuts could stimulate economic activity, increasing demand for oil. This optimism has been partially offset by recent concerns over China’s slower-than-expected economic growth, which could dampen global oil demand.

President Joe Biden’s announcement to not seek re-election and endorse Vice President Kamala Harris had minimal impact on oil markets.

Analysts suggest that U.S. presidential influence on oil production is limited, although a potential Trump presidency could boost oil demand due to his stance against electric vehicles.

In response to economic challenges, China surprised markets by lowering key policy and lending rates. While these measures aim to bolster the economy, analysts remain cautious about their immediate impact on oil demand.

With OPEC+ production cuts continuing to support prices, the focus remains on the U.S. Federal Reserve’s next moves.

Any decision to cut rates could further influence oil prices in the coming months, highlighting the interconnectedness of global economic policies and energy markets.

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Crude Oil

Dangote Refinery Clash Threatens Nigeria’s Oil Sector Stability

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Crude oil

Nigeria’s oil and gas sector is facing a new challenge as a dispute between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) intensifies.

The disagreement centers on claims by NMDPRA that diesel from the Dangote Refinery contains high sulfur levels, making it inferior to imported products.

The $20 billion Dangote Refinery, located near Lagos, has the potential to process half of Nigeria’s daily oil output, promising to reduce dependency on foreign fuel imports and create thousands of jobs.

However, the recent accusations have cast a shadow over what should be a significant achievement for Africa’s largest economy.

Industry experts warn that the ongoing conflict could deter future investments in Nigeria’s oil sector.

“Regulatory uncertainty is a major disincentive for investors,” said Luqman Agboola, head of energy at Sofidia Capital. “Any factor affecting foreign investment impacts the entire value chain, risking potential energy deals.”

The regulatory body, led by Farouk Ahmed, maintains that Nigeria cannot rely solely on the Dangote facility to meet its petroleum needs, emphasizing the need for diverse sources.

This position has stirred controversy, with critics accusing the agency of attempting to undermine a vital national asset.

Amidst these tensions, energy analyst Charles Ogbeide described the agency’s comments as reckless, noting that the refinery is still in its commissioning stages and is working to optimize its sulfur output.

In response, Dangote Industries has called for fair assessments of its products, asserting that their diesel meets African standards.

The refinery’s leadership argues that certain factions may have ulterior motives, aiming to stifle progress through misinformation.

As the dispute continues, the broader implications for Nigeria’s oil sector remain uncertain. The outcome will likely influence not only domestic production but also the country’s standing in the global energy market.

Observers hope for a resolution that supports both industrial growth and regulatory integrity, ensuring stability in a sector crucial to Nigeria’s economy.

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