How equities market makes more millionaires, leaves many poor
Recently, the National Coordinator of the Independent Shareholders Association of Nigeria (ISAN), Mr. Adeniyi Adebisi raised the alarm over the Nigerian capital market’s sudden boom; and called on the nation’s economic managers to monitor the economy closely.
Adebisi said that, “The capital market is a barometer of some sort. It mirrors the state of the economy of a country. A situation where the economy of Nigeria is throwing out poor financial indices and the capital market is showing signs of good health and growth is suspect and should not be.”
He called on stockbrokers, registrars and financial advisers to be more proactive and take their integrity more seriously to checkmate the rising cases of frauds in the sector, adding that ZX “Cases of frauds are becoming more worrisome and alarming. Assurances of our financial advisers are becoming more unreliable”.
The Nigerian equities market currently has been on the bullish run returning with over 16 per cent year to date (Ytd) returns on investment.
This gives foreign portfolio investors (FPI) and other global investors the much needed ground to converge on the Nigerian market for the much needed returns on investment in 2018.
Fears are that the market may have started building another round of bubbles on the back of companies or banks without fundamentals, which is expected to burst, trapping uninformed investors who joined the herd. This could be the backdrop for which the ISAN boss made his pronouncement.
For the week ended Friday, 2ND February , 2018, the equities market closed on bearish sentiments, which remained prevalent in the Nigerian bourse, the week was trailed by consecutive decline day after day in the NSEASI during the week..
Mr. Jude Fejokwu of Galactic Africa Analyst recently noted that as the buying frenzy continues, “be wary of where you are investing your money. Most stocks are rising on momentum and not because of improved financial performances and near-term expectations.”
Fejokwu focusing on the banking industry, which has so far given the highest rewards year to date, noted that there are some banks to be weary of, irrespective of the hype on their equities price upward movement.
He said, “The market has gone crazy; do not rub shoulders with it. If a stock does not deserve to rise to the level it has, when it falls, it will take no prisoners on its reverse journey. It is better to gain less than to lose more.”
Fejokwu noted, “ The banking industry takes the brunt of bulls and bears so, I will focus on this industry. I will mention (briefly) three banks to be wary of when the tide turns and stocks start heading south as investors panic and seek for the exit trying to hold on to their unrealized gains.”
Remarking on some of the banks that have seen high rise in their equity prices recently, Fejokwu said, “ FCMB Holdings’ nine-month (September 2017) result is not on the Nigerian Stock Exchange’s corporate disclosures page”.
He pointed that the bank’s Pre-tax income declined by 52 per cent year-on-year and Gross Earnings declined by 16 per cent year-on-year.
Pre-tax income was 7.57 Billion naira in April 2007 (12-month result) and ten years later now operating as a holding company, nine-month pre-tax income in September 2017 is N6.84 billion despite interest income being approximately seven times larger in September 2017 compared to April 2007.
Taking a closer look at Skye Bank, which for some days, led the gainers’ table on the bourse, the analyst pointed that Skye Bank’s 2016 fiscal year result has been releasedl while 2017 fiscal year results are about a month away from release every other bank.
On Stanbic IBTC Holdings, he noted that it is the holding company that incorporates the largest asset management company in Nigeria. Nonetheless, the bank’s gross earnings and assets are less than that of Diamond Bank, while trading 12.5X higher per share.
However, reacting to the prevailing market bullish trend, Mr. Solomon Kugbe, a Lagos state stock broker told Daily Times Nigeria that the bubble alarm raised by the national president of ISANl, may scare retail investors from the market instead of strengthening them to take advantage of earning opportunities prevailing in the bourse.
Kugbe said, ‘that is not correct, because Nigeria is not alone in positive equities performance prevailing globally.
“We are number three last year in equities performance ranking globally and all over the world equities market are doing very well, so, the growth trajectory is always there for our market and other performing markets across the globe and people who understands this take advantage of the opportunities the market provided”.
According to Kugbe, the Nigerian Stock exchange is not doing badly, and as the third best performing market in 2017, the trend has continued in 2018 and may further lead to a better performance, a trend he wants retail investors to understand appreciate.
Explaining why the market has remained bullish, Kugbe said that understanding the fact that Nigeria came out of recession in 2017, reinforced investors’ confidence in the nation’s bourse. “When economy is coming out of recession the growth pace will be high because of renewed confidence as more investors try to reinforce their position in the market.”
He added ,“Second, we are expecting full year result of many companies and the market is gearing towards that”.
The stock broker stressed that, what might look like a bubble in equity price movement should be looked at from the economy point of view and devalued currency which has reduced the worth of the Naira even trading at ‘assumed” high price.
“You might think that the market is going up, but you have to know that because the naira has been devalued, the N50 naira of today is not the same of yesterday, so, when you see a company trading at N50.00, it is as good as trading at 10 or N15.00 before devaluation of the Naira. So, the market is just adjusting to the realities of the macro economy”.
Afrinvest Securities Nigeria Limited, CEO Mr. Michael Eboh, at a recent forum in Lagos, told our correspondent that, key analysts still have not seen what may be driving up share prices of some banking stocks without strong fundamentals. He noted that some inventors may be blind to such performance measuring indices.
According to him, some of the banks that have lately recorded high growth in equity prices have negative capital adequacy ratio, while some may not have released their results for the past two years.
He said, “you may feel that you want to double your money, but at the end f the day you are trapped. Some of the banks have been rallying for the past weeks; now the buyers want to sell no one want to buy.”
Bonny Amadi
