The demand for stocks with good earnings will continue this week as the Central Bank of Nigeria, CBN, sets the exchange rate freely from today.
The All-Share Index and Market Capitalization appreciated by 7.40 per cent to close on Friday at 29,247.27 and N10.045 trillion respectively.
Similarly, all other indices finished higher during the week, with the exception of the Alternative Securities Index, which declined by 0.17 per cent.
A turnover of 2.158 billion shares worth N20.394 billion were exchanged in 24,369 deals by investors in contrast to a total of 959.917 million shares valued at N7.871 billion that exchanged hands the preceding week in 17,561 deals.
The Financial Services Industry (measured by volume) led the activity chart with 1.939 billion shares valued at N12.393 billion traded in 16,023 deals, contributing 89.85 per cent and 60.77 per cent to the total equity turnover volume and value respectively.
The Consumer Goods Industry followed with 77.415 million shares worth N4.747 billion in 3,489 deals. The third place was occupied by the Conglomerates Industry with a turnover of 74.437 million shares worth N412.717 million in 1,018 deals.
Trading in the shares of United Bank For Africa Plc, FBN Holdings Plc and Zenith International Bank Plc(measured by volume) accounted for 1.001 billion shares worth N6.778 billion in 7,153 deals, contributing 46.37 per cent and 33.23 per cent to the total equity turnover volume and value respectively.
The Managing Director of APT Securities Limited, Alhaji Garba Kurufi noted that considering current inflation rate of 13.72 per cent, investors have started taking position on stocks.
He said, “Some people investment in bonds at 12 per cent coupon but the inflation rate is now higher than the interest rate, so investment in stocks is better.”
To the Head, Research, Afrinvest, Mr. Ayodeji Ebo, the cheering news is that the CBN has come to realise that the country need a flexible exchange rate regime rather than the fixed regime.
According to him, the introduction of a flexible interbank market from a de facto peg of around N197 would boost investors’ confidence and create more dollar liquidity.
“The immense investor demand seen in the market was clearly on the back of the CBN announcement made last week this week. This ultimately pushed week-to-date to increase of 2.7 per cent as year-to-date perched at 7.7 per cent,” analysts at United Capital Securities said.
The firm added that local institutional investors like Pension Fund Administrators who have shown considerable apathy for equities investments as a result of the high volatility created by the exodus of foreign portfolio investors, who traditional accounts for up to 55 per cent of transaction volumes on the Nigerian bourse, will have the impetus to also take advantage of the opportunities in the market considering that most stocks that fit their stringent investment criteria’s are trading at considerable discounts.
“We also expect local retail investors to jump right into the market for stocks that have very strong fundamentals in anticipation of the resurgence of the foreign portfolio investors and local institutional investors who will only target cheap large cap companies trading at discounts because the market revival will start from top (large cap companies with strong fundamentals) to bottom of the market,” it added.
The firm explained that the CBN has taken a huge step in the right direction from an investment standpoint. “It is our opinion that this new policy is positive for the equities market and will result in the resurgence of the market. As much as we are aware that this policy still requires fiscal responsibility to be effective, we are optimistic that this is the right step for the economy at this time.
“We encourage our investors to take advantage of stock recommendations for this week, which has factored in all the unfolding economic events and realities to position their investment portfolios towards identified opportunities,” the firm said.
While the firm predict a rally in equities in the coming days, as retail investors attempt front-run the Foreign Portifolio Investors, the market is likely to be cautious in the near term as a quick attainment of equilibrium in the foreign exchange market will be key for a full FPI comeback into equities.
“The market needs to be convinced that the CBN can provide sufficient liquidity after clearing the backlog of foreign exchange demand which has been estimated at anywhere between US$ 4-6bn.
“Foreign exchange supply would need to be consistent and sufficient to match demand in such a way that a relatively stable price discovery is achieved within the shortest possible time after an initial bout of volatility.
“In all, the move provides a clearer long term direction for FPI participation in equities which was down 72.3 per cent year-on-year in April 2016.
Also, investment analysts at DLM Asset Management Limited noted that the week saw momentum trading, taking positive cue from the CBN’s new foreign exchange policy.
“We highlight that speculation and expectations remain integral parts of the trading strategies of many investors. With these factors creating short- term fluctuations in equities, it is important to understand how all these fundamentals and government economic policies will come together to create trends.
While the CBN’s FX policy guidelines hold much sway over the market, however, what is uncertain in the near term is the sustainability of the current rally as business and economic fundamentals remain unchanged,” the firm.
However, the naira firmed at the parallel market on Friday, while stocks posted their biggest weekly rally in 14 months as domestic funds snapped up shares following the reforms designed to attract foreign investors.
The naira traded at N345 at the black market on Friday, up 2.8 per cent, two days after the CBN’s announcement of the currency reforms.