Malam Garba Kurfi is the Managing Director, APT Securities and Funds Ltd. On Wednesday, February 12, he was the guest speaker at the Capital Market Correspondents Association of Nigeria (CAMCAN) first quarter forum in Lagos. The event took place at the 20th Floor The Nigerian Stock Exchange Building 2- 4 Customs Street, Lagos.
A seasoned capital market operator and chartered accountant, he expressed optimism that the Nigerian equities market would witness double digit growth in 2020. We bring you highlights of the engaging presentation. Sam Diala was there and brings this report:
Intro:
A capital market is one of the financial markets where long term debt, equities and derivatives are being traded.
- – It channel funds into long term productive use by companies or government
- – Global capital market has performed best for the year with double digits gained compared with the previous years and beyond expectation.
- – S&P 500 delivered 30.24% since 2013 (29.60%)
- – NASDAQ posted 36.2%
- – Dow Jones returned 23.54%
- – Large cap were up 30%, mid-caps 25% & small caps 22%.
- – The stock market was pricing in recession by the end of 2018. (Down roughly 20%)
- – Much of the gains attributed to monetary policy of the Federal Reserve where rates were lower three times falling interest rate, Investor quest for better yield and shift into stocks
- – The MSCI Emerging market index closed 1.2 higher than 2018 with a return at 15.4%
- – China market benchmark rise 36.1%
- – South Korea 7.7%
- – Taiwan 25.9%
- – Brazil (BOVROSPA) 32.1% all time high
- – Russia RTS 27.54%
– South Africa 11.49% - The MSCI Frontier markets are capital markets that are in developing economic or emerging market. - Lost 16.2% (2018) gained 32.3% (2017) - 29 countries Argentina, Nigeria, Botswana among others
In Africa the capital market performance for the year 2019 was mixed up across countries which in some have recorded a positive performance such as Zimbabwe 57.33%, Kenya 18.50%, South Africa 11.49%, Uganda 9.17% while others recorded losses Zambia (18.75%) Nigeria (14.60%) Ghana (9.53%) among others.
THE REVIEW OF THE NIGERIAN CAPITAL MARKET PERFORMANCE 2019
The All Share Index (ASI) closed the year 2018 with a loss of 17.80% followed by all others indexes closed in a negative. The bearish trend continued in 2019 especially in January due to uncertainty of election.
January ASI closed with a lost of 2.78% follow up by a positive returns of 3.81% in February due to the peaceful election conducted that rose investors’ confidence but did not last by March ended it closed with a loss of 2.14% as detailed below:
Monthly Market Performance Month Open Close January 31,430.50 30,557.20 February 30,557.20 31,721.76 March 31,721.76 31,042.42 FIRST QUARTER ENDED
Gain/(Loss) (2.78%) 3.81% (2.14%) (1.24%)
– The Q1 ended 2019 with a loss of 1.24% compared with Q1, 2018 with a gain of 8.53%.
The Foreign Portfolio Investors increase their outflow more than inflow as shown in the first four months.
Period Foreign Domestic N’BN % N’BN %
Inflow Outflow N’BN N’BN 27.89 39.04 43.93 55.01 25.89 30.20 35.14 41.78
- – It confirmed the rate of foreign investor outflow more than inflow, which contributed to the depression of the market. Foreign portfolio inflow is less by 43% compared with 2018.
- – The alternative opportunities open in the other market especially in the USA market attract more outflow than inflow by foreign portfolio.
- – The local investors or domestic investors move excessively especially in the month of May and June with 65.06% and 67.45% respectively. While the party was over.
- – Reviewing the market performance on quarterly basis 2019 year was the worst in the last ten years with negative returns in all the quarters as listed below. QUARTERLY EQUITY MARKET PERFORMANCE
Jan 19 Feb 19 March 19 April 19 76.92 57.66 71.99 48.34
66.85 54.74 55.23 45.26 98.94 52.61 89.14 47.39 56.02 54.94 54.02 49.06
YEAR 2013, 2014, 2015, 2016, 2017, 2018, 2019
Q1 Q2 Q3 Q4 YTD %%%%%
19.44 7.84 (6.25) 9.64 (8.40) 5.39 (11.65) 16.96 (5.05) 27.79 8.53 (7.77) (1.24) (3.46)
1.16 12.97 (3.00) (15.90) (6.69) (8.25) (4.27) (5.16) 7.01 7.71 (14.40) (4.08) (7.80) (2.85)
47.19 (16.14) (17.36) (6.17) 42.30 (17.81) (14.60)
– It clearly shows that even thus loss recorded for the year 2019 was not the worst but on quarterly basis is the worth as all the four quarters recorded losses which was never the case in the last eight years.
Malam Kurfi
LISTING/DELISTING
A total of 7 companies were delisted from the NSE of which Diamond Bank PLC was as a result of merging with Access Bank. While Skye Bank PLC was as a result of liquidation or withdrawal of the operating licence by the Central Bank of Nigeria.
- – The rest were voluntary withdrawal or due to non- compliance with NSE rule.
- – About 77 companies delisted from Nigerian Stock Exchange in the last 10 years communication.
- – Listing MTN Communication Nigeria PLC in the Nigerian Stock Exchange is one of the great deal by the Exchange that stand second in term of capitalization with over N00 trillion about 18% of total market capitalization months after Airtel Africa PLC have established dual listing in both London Stock Exchange and Nigeria Stock Exchange with a market capitalization of over N1.3 trillion about 9% of market capitalization.
- – This give telecommunication sector a strong position in the market and actively trade.
- – The combination of two listed stocks increase the market capitalization by 9% despite ASI lost 14.6%. NIGERIAN MUTUAL FUND ASSET
- – The year recognized a mutual assets funds is now N1,017,705,544,066 from N17,500,000 in 1991.
- – In 2019 attract a sum of N6bn
- – Money market funds is 69.89%
- – Eurobond funds is 9.78%
- – Fixed Income Funds is 7.70%
- – Real Estate Funds is 4.52%
- – Infrastructure Funds is 4.14%
- – Equity Based Funds is 2.49%
- – Balanced Based Funds is 0.95%
- – Exchange Traded Funds is 0.51%
- – Ethical Funds is 0.47%
- – Target Date Funds is 0.07%
- – About fourteen (14) institutions are the managers of funds
- – 3 institutions managed more than 70% of the total funds under management
- – This gives alternative ways to invest especially by retailers who have little or no knowledge about equities. FIXED INCOME
– Market capitalization increased to N12.92 trillion (2019) compared with N10.72 trillion (2018) an increase of 20.42%.
- – Value traded is N64billion (2019) from N 0.95billion (2018) an increase of N3.10billion or 389.26%.
- – Corporate Green Bond Access Bank Plc N15billion listed.
- – North South Power Company Limited listed corporate infrastructure Green Bond N 8.5bn
- – The NSE signed MOU with Luxembourg Stock Exchange on Green Bond. 2020 Out look FISCAL POLICY
- − The production of crude oil will remain at least 2.18 million barrel per day or more.
- − The price of crude oil will remain $57 per barrel or above.
- − Gross Domestic Product (GDP) at least growth of 2.5% or more.
- − Proper implementation of the FGN budget 2020 and timely.
- − The finance act bill which consist of;
- Increase of VAT from 5% to 7.5%
- VAT exemption on Group Organization.
- VAT exemption of food item such as Water, Sanitary.
- VAT exemption for Foreign Loans where loan is 7 years and above.
- CIT exemption on Small Medium Enterprise (SME) with less than N25million turnover. 30% tax exemption on interim dividend
- − The introduction of stamp charge of N50 per N10,000 and above.
- − The reduction of time frame meeting with Economic Advisory Council (EAC) from 12 weeks to 6 weeks only
- − The harmonization agencies with ministry to avoid unnecessary of conflict of interest and inter- appearance as;
- EFCC intervention in the case of Access Bank PLC with Slock Holding ltd.
- The MTN dispute of Certificate Capital Importation (CIC) that send HSBC and UBS Banks closing their representative office in Nigeria in 2018.
- CBN order Standard Chartered and three other Banks to repay $8.134billion
- MTN’s $2billion Nigeria tax dispute which later dropped its demand by Attorney General of the Federation. EXCHANGES EXECUTION
- − The dematerialization of the Nigerian Stock Exchange is un lucking the dead capital to the brokers and non-dealing members. It will enable the exchange much with the like of Johannesburg Stock Exchange (JSE), Nairobi Securities Exchange (NSE) among others.
- − Review of the pricing methodology ensuring market stability, efficiency and fairness in pricing securities. A minimum of 100,000 units per deals for price change.
− SEC rule 57 & 58 on Net Capital – the revised rule insists every broker – dealer should submit report five (5) days after end of the month to NSE & SEC.
- The report shows compliance or non-compliance but deteriorating • It cost dealing member to provide 10% threshold of aggregate
indebtedness hold by the end of the month.
- − SEC rule 27 Fidelity bond revised from staff only to include Director and
officers liability;
- Fidelity Guarantee
- Professional indemnity
- Directors and officers liability: These are in Tier 1, 2 and 3 with a total liability of N200million or more per house.
- − Revised Regulatory Filling Companies Report.
- That companies should submit
fourth quarterly report on or before 31st January for the year ended December otherwise full report should be within 60 days or two months.
▪ To reduce speculation for 90 days.
▪ To align with Standard / Global Practice.
Derivative Market
- − The releasing of the rule by SEC for derivative trading is one of the right steps marching with other Exchange such as JSE, NSE Kenya among theirs.
- − It adds to the product that is traded in the market. MONETARY POLICY
− The revised cash reverse ration (CRR) from 22.50% to 27.50 by an increase of 5000 basis point
This single policy reverse the All Share index gained from 9.6% to less than
5% from the date the policy announced
- − The CBN restriction in participating in OMO, TBs by High HMI / Financial Institutions sustained
- − The policy of Loan Deposit Ratio (LDR) from 60% to 65% should be
maintained
These crash money market interest from 15% to 7%;
- – 91 days TBs 10.75% to 3.5%
- – 182 days TBs 12.50% to 4.5%
- – 364 days TBs 15.00% to 6.5%
- − The Export & Import window of foreign exchange policy should be retain to ensure stability of foreign exchange. The Market
- − All share index is expected to close in double digit by the end of the year 2020 to repeat 2017 performance after witness filling index of 2015 & 2016
- − Companies that benefit from VAT exemption such as water, sanitary Will likely to declare better profit e.g. Nestle food.
- − Building material companies are likely to double their turn over such as cement companies because of early implementation of the budget.
- − Insurance companies are likely to do better because of the capitalization some are into Acquisition, Merger or Takeover while Banks are the financial sectors that are not expected to perform better than the previous years due to reduction in the bank charges, fees and crash of the interest rate.
The appearance of Coronavirus in the Mainland of China Market plum of beyond 7%, the Shanghai composite fell 7.31% while the Shenzhen component dropped 7.48%
The index all fell almost 9% in early trade. This may extend to other exchange because of the China economy relationship with other economy especially Africa and emerging economy.
CONCLUSION
The All Share Index is likely going to close for the year 2020 in positive and may close in double digits. Both Technical Analysis and Fundamental Analysis move to the positive direction.
However the market may experience volatility because of the changes in the reporting financial reports as adopted by the Exchange without adequate awareness of the brokers.
Many unaudited report for the fourth quarter ended December 2019 were released in January by over seventy (70) companies without reflecting much to their price appreciation.
The educational and marketing awareness adopted by the exchange will bridge the gap and better for the market.
