16 May 2017

Nigeria: Capital Market Experts Caution On Equities Investment

Experts in the nation's capital market have stressed that the positive rally witnessed in the nation's equities market last week , following the launch of the Investors' and Exporters' FX windows, may not be sustained, unless government implemented policies that would stimulate the macroeconomic environment and improve liquidity in the market.

Indeed, the market performance for last week was one of the best recorded in the last two years, as market indices appreciated by 7.68 percent. The last time the stock market recorded such improved performance was in the week ending April 2, 2015, when the index closed with a week to date gain of 18 per cent, valued at a whopping N2 trillion.

The 2015 gain was due to expectations that followed the election of President Muhammadu Buhari, but some experts who spoke in an interview with The Guardian on the development said the renewed investors' interest in the market currently was optimism that foreign investors are taking position hoping that the country is working towards stabilising the FX market.

Others attributed it to dividend payout from listed firms for the 2016 year end, noting that such appreciation is not sustainable.

However, they maintained that without favourable monetary and fiscal policies from government and other positive macroeconomic variables, the positive sentiments may not continue and the market will not achieve sustainable rebound.

Specifically, at the close of transactions last week, the All Share Index appreciated by 1,956.83 points or 7.46 per cent to 28,192.46 points, while year-to-date gain increased to 4.90 per cent. Also, the market capitalisation increased by N676 billion to close at N9.746 trillion.

On whether the positive sentiments would be sustained, an independent investor, Amaechi Egbo, in an interview with The Guardian expressed delight over the week on week rally in the market, but stressed the need for investors to be cautious while taking position.

"Appreciation in the market numbers week on week is good for the entire market players but we have to remain optimistic cautiously going forward as the closing are a prudent of mix sentiments and positive macro economic variables and outlook.

"We expect the market to experience some slowing down declines depending whether players see value on prices of equities and Q2 and Q3 performance of listed firms. Ultimately, sustainability will depend on reassuring mix of government monetary and fiscal policies positive in macroeconomic aggregate and action of the regulators," he added.

The President, Proactive Shareholders Association, Taiwo Oderinde, said the appreciation recorded in the market last week may not be sustained.

" I believe this is as a result of companies declaring dividend for 2016. Even international rating agencies predicted that it cannot be sustained. When quarterly results are coming out for 2017, and the result of 2nd quarter and others cannot surpass that of 2016, the phenomenal growth will not be sustained. The best we can have is linear growth. "

Agreeing, the President Association For Advancement of Rights of Shareholders, Faruk Umar, maintained that the positive sentiment cannot be sustained, while investment analyst and Managing Director of InvestData Limited, Gabriel Omodion, said sustenance is dependent on the strength of low valuation, improving companies and market fundamentals being propel by recovery macroeconomic environment. It also depends on "improving liquidly in the fx market and also expected impact of budget implementation," he added.

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