Investors jostle for attractive equities ahead of flexible forex policy expectation from MPC

By Godfrey Okpugie   |   25 May 2016   |   1:58 am  
Head, Secondary Market, The Nigerian Stock Exchange (NSE) Dipo Omotoso, (left); Company Secretary, Berger Paints Nigeria Plc, Oluseun Oluwole; Corporate Strategy & Risk Management, Berger Paints Nigeria Plc, Oluwaseun Daini; Executive Director, Capital Market, NSE, Haruna Jalo-Waziri; Non-Executive Director, Berger Paints Nigeria Plc, Abi Allison Ayida; Managing Director, Berger Paints Nigeria Plc, Mr. Peter Folikwe; General Manager, Finance, Berger Paints Nigeria Plc, Kola Ajayi, and Olumide Lala, Head, Transformation and Change, NSE, at Berger Paints Nigeria Plc Facts Behind the Figures presentation at the Exchange on Monday.  

Head, Secondary Market, The Nigerian Stock Exchange (NSE) Dipo Omotoso, (left); Company Secretary, Berger Paints Nigeria Plc, Oluseun Oluwole; Corporate Strategy & Risk Management, Berger Paints Nigeria Plc, Oluwaseun Daini; Executive Director, Capital Market, NSE, Haruna Jalo-Waziri; Non-Executive Director, Berger Paints Nigeria Plc, Abi Allison Ayida; Managing Director, Berger Paints Nigeria Plc, Mr. Peter Folikwe; General Manager, Finance, Berger Paints Nigeria Plc, Kola Ajayi, and Olumide Lala, Head, Transformation and Change, NSE, at Berger Paints Nigeria Plc Facts Behind the Figures presentation at the Exchange on Monday.

Amidst widespread speculation that there might be a forex policy reversal in this week meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) in favour of flexible exchange rate, bull investors, who want to quickly capture the attractive stocks, have swooped on the equities market ahead of the outcome of the MPC’s meeting.

Beginning from last week, the market suddenly became bullish amidst lingering bear-market environment, which has been on since last year.
Initially, the acute bull market was attributed to swing trading ignited by the recent deregulation of petrol price from N86.50 to N145 by the Federal Government, but investigation by The Guardian, this week, revealed that the cause of the prevailing bull rally is rooted more on expectation of flexible forex policy from the MPC’s meeting.

Current trend in the market revealed that though the Market recorded a dip in Capitalisation on Tuesday May 17, after posting appreciations for three consecutive days from Thursday, May 12, where capitalization was N8.900 trillion, this later rose to N9.223 trillion on Monday, May, 16.

But on Tuesday May 17, the bull run caused by the petrol price increase was terminated by the resurgence of the bears, which pulled down market capitalization from Monday’s position of N9.223 trillion to N9.173 trillion on Tuesday May 17, translating to a loss of N0.05 trillion on that day.

But beginning from Wednesday, May, May 18, bull investors, spurred by the speculation of coming flexible forex rate, stormed the market to capture the larger cap stocks that are among the most actively traded.

This second round of positive rally, which began on Wednesday last week, has raised market capitalisation from Tuesday, May 17’s position of N9.173 trillion to N9.279 trillion on Monday, May 23, translating to an appreciation of N106 billion as at Monday.Commenting on the development, Tunde Oyekunle, CEO, Finawell Capital Limited said:

“A major factor that is responsible for the bull market is investors’ anticipation of a deregulation favoured shift in the country exchange rate policy at the MPC meeting following the deregulation of the fuel imports. The deregulation of the Naira is expected to bring back most foreign fund managers and increase their participation, which has dropped from 70 per cent to 35 per cent.”

David Adonri, CEO, Highcap Securities Limited, in his reaction, noted that the Bull Run has been a reaction to the increase in fuel price deregulation. It is a major market friendly policy that will end fuel scarcity and empower the oil companies to reduce their non-performing loans.

“It is the hope of economic operators that if government, which has deregulated the petrol price makes foreign exchange flexible, more positive reactions will occur in the market,” he said.

In his contribution, Sola Oni, who is a Lagos-based stockbroker and the CEO, Sofunix Investment and Communications Ltd, pointed out that: “The protracted delay in passing the 2016 fiscal budget and the controversial management of the Naira Exchange rate to Dollar has caused more harm than good. At present, the economy is like a banana peel as all economic sectors are battling for survival. Manufacturers are crying of high production costs and low consumer demand. There is massive unemployment.”

According to him, the shocks from the international oil market and failure of the previous administration to save from the excess gain on crude oil in the past has put us in a quandary.

“The emergency deregulation of the downstream sector as typified by the current increase in pump price of petrol, though welcomed by a section of the society, is still a subject of controversy.

“However, we have recorded negative growth in the Gross Domestic Product in the first quarter and inflation rate is on the upswing. These and other parameters have forced analysts to caution the federal government through the Central Bank of Nigeria on the need to embrace flexible exchange rate regime as a quick means of revamping the economy. We are awaiting the outcome of the Monetary Policy Committee ‘s meeting on this very important matter. We just hope and pray that the yearnings of the private sector operators are met by the government,” Oni concluded.

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