Shares glut looms as investors’ losses hit N1.68tr

Several companies went on offer without bids as continuing decline in share prices at the Nigerian equities market worsened investors’ losses to N1.68 trillion at the weekend. After three consecutive days of negative trading, investors lost N186 billion in capital gains in the three-day trading session last week, bringing total loss so far this month to N386 billion.

With continuing depreciation in August, investors’ losses so far this year hit N1.68 trillion at the weekend compared with N1.38 trillion recorded at the end of July 2019.

Check indicated that investors were increasingly resorting to open market orders- at buyer’s discretion price, to induce shares sale as shares supply outstripped demand. Several stocks were seen with long red line of shares supply without corresponding green line of demand, which technically often lead to price depreciation and overtime, shares glut.

Several large-cap sectoral leaders and influential stocks closed weekend at their lowest prices in a year including Stanbic IBTC Holdings, Nestle Nigeria, Guinness Nigeria, Total Nigeria, UAC of Nigeria, Presco, Okomu Oil Palm, Oando, Conoil, Dangote Group’s Nascon Allied Industries, CAP, Unilever Nigeria, Fidelity Bank, Airtel Africa and UACN Property Development Company among others.

The benchmark index for Nigerian equities, the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), at the weekend slipped to a new low at 26,925.29, indicating average year-to-date decline of 14.33 per cent, equivalent to net capital depreciation of N1.68 trillion. It had opened last week at 27,306.81 points.

The ASI had opened August at 27,718.26 points, its closing points for July 2019. The ASI had opened 2019 at 31,430.50 points, 17.81 per cent down from its 2018’s opening index of 38,243.19 points.

Aggregate market value of all quoted equities closed weekend at N13.121 trillion as against N13.307 trillion recorded as opening value for the week. Market capitalisation of equities had opened 2019 at N11.721 trillion, N1.89 trillion below its 2018’s opening value of N13.609 trillion.

The unabsorbed impact of the listing of two telecommunication companies- MTN Nigeria Communications Plc and Airtel Africa Plc coloured the unadjusted market capitalisation with a semblance of gains, but the main benchmark-ASI, presents the true state of the market valuation.

Based on market values, both the ASI and market capitalisation are correlated indices and without new listing or delisting, usually move simultaneously in the same direction. But the ASI is weighted, and as such adjusted for effect of new listing while the market capitalisation is a straight-line summation of share prices and issued shares. Thus, where the ASI and market capitalisation differ, the ASI is widely regarded as the true representation of the market condition.

Official indices at the NSE at the weekend indicated that most investors might have lost more than the overall average loss as steep losses in several active stocks were moderated by dormant values of several illiquid stocks. The NSE 30 Index- which tracks the 30 most capitalised stocks at the Exchange, closed weekend with a year-to-date loss of -25.18 per cent. The NSE Corporate Governance Index- which tracks a basket of some of the best-managed quoted companies, closed with above average decline of 26.74 per cent. The NSE Pension Index- which tracks stocks with steady and unbroken profitability adjudged safe for investment of pension funds, indicated average year-to-date return of -23.90 per cent. Also, the NSE Lotus Islamic Index- which serves as gauge for ethical stocks in line with Islamic rules posted a loss of 23.61 per cent.

Most sectoral indices also closed weekend with above-average depreciation, underlining the depth of losses for several investors. The most active banking sector, represented by the NSE Banking Index, has lost an average 23.63 per cent so far this year. The NSE Consumer Goods Index showed the highest depreciation of 31.99 per cent. The NSE Oil and Gas Index has lost 27.62 per cent. The NSE Insurance Index carried a negative return of -15.31 per cent while the NSE Industrial Goods Index showed some resistance with a below average, though negative, return of -13.20 per cent.

Managing Director, APT Securities and Funds Limited, Mallam Kasimu Kurfi, said there was a link between crude oil pricing and Nigerian equities market noting that Nigerian equities recovery might be affected by any continuing decline in crude oil price.

He said major decisions like appointing the appropriate persons to manage key ministerial portfolios and the release of interim dividends of major banks could boost the recovery of the market.

Kurfi called for intensive investors’ education to enlighten Nigerian investors about the dynamics of the stock market to avoid panic behaviours and extreme volatility that comes with it.

Chief Dealer, Globalview Capital Limited, Mr. Aruna Kebira said the continuing price depreciation and low demand at the Exchange was due mainly to liquidity squeeze, low oil price and the trade war between the United States of America and China. Foreign portfolio investors account for nearly half of transactions at the Nigerian stock market.

He noted that continuing price depreciation can overstretch investors and lead to low demand overtime.

Many analysts also remained conservative about he outlook for the equities market in the short term.

“Following the bearish performance this week, we expect sell pressures to dominate in the near-term given the generally negative mood and absence of catalyst to spur investor interest,” Afrinvest Securities stated at the weekend.

Cordros Capital urged investors to trade with caution in the short term while reiterating its positive outlook for the equities market in the medium to long term.