Equities Investors Count Gains as FX Policy Boosts Market

By Goddy Egene

Equities investors   had a bounteous harvest as stocks surged to new highs on the Nigerian bourse last week. While the market measured by the benchmark Nigerian Stock Exchange (NSE) All-Share Index went up by 7.46 per cent, some stocks fetched higher gains of between 31.9per cent and 16.3 per cent last week alone.  For instance, investors in May & Baker Nigeria Plc saw their investments rise by 31.9 per cent, while those of Ecobank Transnational Incorporated recorded a growth of 22.5 per cent.

Fidson Healthcare Plc and PZ Cussons Nigeria Plc added 21.5 per cent and 20.4 per cent respectively among others. By the close of trading last week, the market swung positive territory recording   year-to-date growth of 4.9 per cent.

Although many analysts have been upbeat on the market recovery this year, they never expected it to be soon. However, analysts at Afrinvest (West Africa) attributed the growth recorded last week to developments in the foreign exchange (FX) market, which increased foreign investors to the equities market.

They said foreign investors’ appetite for Nigerian assets has waned significantly on the back of currency crisis, which in turn has fundamentally weakened macroeconomic performance, dragged corporate earnings and also impacted on equities market viability.

“This condition has also lingered into the year 2017 as investors have been dumping equities for less risky investment opportunities in the fixed income market especially given the current relatively high yield environment. However, in April, investor sentiment strengthened following the commencement of the Investors’ & Exporters’ (I&E) FX window, which signalled a possible return of flexibility in FX rate determination; though multiplicity of rates at official windows is still a concern,” they said.

Accordingly to them, the NSE ASI trended on a 10-day bullish streak majorly due to the improvements in the FX market.

“Within the last two years, the exit of foreign portfolio investors from the equities market, given the perceived mispricing of the domestic currency, was majorly responsible for the drag witnessed in the equities market. This was further compounded by the massive spread of approximately N200.00/US$1.00 between the official and parallel market exchange rates. However, through the various recent intermittent but steady interventions by the CBN, the spread between the market rates has trimmed considerably. Our interactions with FX traders and Afrinvest equity brokerage desk suggest that the launch of the I&E FX window on the 21st of April, 2017 was the major “game changer” as the equities market has witnessed improved participation from foreign portfolio investors, especially this (last) week,” they said.