New Telegraph

Equities market thrives on undervalued stocks

The stock market sustained positive route in 2021 as investors leveraged undervalued stocks despite the ravaging coronavirus pandemic, CHRIS UGWU writes

 

Despite investors’ anticipated hope in 2021 as panic over COVID- 19 seems to be relaxing, investors’ cumulative year-todate (YTD) returns on investments in equities during the half quarter of the year closed negatively at –5.8 per cent.

 

Investors in equities recorded a loss of N1.298 trillion during the half year of 2021 following massive profit taking and low sentiment to growing concerns about the rising insecurities in the country.

 

Analysts attributed the drop in the indices to sell pressure by investors, saying the trend may be sustained as investors continue to offload shares to leverage the appreciation recorded largely during the first month of the year.

 

However, the equities market bounced back with a gain of N1.206 trillion during the third quarter ended September 30, 2021, as investors continue to increase their buying appetite, especially on undervalued stocks.

 

Available statistics showed that activities on the Nigerian Exchange Limited (NGX), which opened the trading year at N21.058 trillion in market capitalisation and 40.270.72 in index at the beginning of trading on January 4, 2021, closed at December 24, 2021 at N22.060 trillion and 42,262.85 index points, hence earning a year to date gain of about N1.002 trillion or 4.9 per cent year to date.

 

The Nigerian equities market had ended the first month of 2021 on an impressive note as investors increased their buying pressure, especially on blue-chip stocks. The equities benchmark recorded its highest return, rising 5.3 per cent to become Africa’s best performing stock.

Positive sentiments had returned to the local bourse, as the gradual release of corporate earnings bolstered buying interests in dividend-paying stocks.

This was further strengthened by the outcome of the MPC meeting, which reinforced the theme of “lower for longer” yields in the FI market. However, investors in equities recorded a loss of N1.758 trillion during the first two months (February and March) 2021 following massive profit takings and low sentiment to growing concerns about the rising yields in the fixed income market.

 

Trading on the floor of NGX ended the month of April 2021 on an impressive note as positive sentiments returned to the local bourse as gradual release of Q1 corporate earnings bolstered buying interests in dividendpaying stocks.

 

The release of H1 corporate earnings bolstered buying interests to close the third quarter on positive route.

 

Market analysts believed the renewed sentiment in the local bourse market had also grown following crave to increase capital gains on the back of low prices of stocks owing to upset in the financial market arising from the widespread of the pandemic and sharp drop in oil price.

 

However, despite the shortfalls on equities, the stock market community, during the year, finally secured approval from the regulatory authorities for demutualisation of the then Nigeria Stock Exchange during the period under review.

Demutualisation

The Nigerian Stock Exchange (NSE), during the half year of 2021, received final approvals of its demutualisation plan from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC) respectively.

 

These approvals completed the Exchange’s demutualisation process. Under the demutualisation plan, a new non-operating holding company, the Nigerian Exchange Group Plc (NGX Group) was created.

 

The Group created three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company and NGX Real Estate Limited (NGX RELCO), the real estate company.

 

All the entities have been duly registered at CAC. Otunba Abimbola Ogunbanjo, NSE Council President, said: “Successful demutualisation was one of my fundamental objectives when I assumed the Presidency of the Exchange.

 

The SEC’s decision today to approve NSE’s demutualisation plans brings this aspiration to a successful conclusion in a process that included the passage of the Demutualisation Act through the National Assembly.

 

“We are elated that this milestone has been achieved as we celebrate the 60th anniversary of the commencement of trading at the Exchange and now look forward to the future public listing of its shares on NGX Limited.

 

“On behalf of NSE, I would like to warmly thank all those that have worked assiduously to achieve this watershed event on our journey to make NSE a multifaceted exchange that extends across various markets and geographical regions.” The approvals by SEC and CAC signified that NSE could now activate its transition plan to a new operational structure and holding company.

 

The extensive transition plan, taking the Group and its subsidiaries through to full operational launch, covers legal and practical changes to enable the functioning of the new corporate structure, with no loss of service and a seamless transition for market participants.

 

The transition plan will also see the inauguration of boards for each of the new entities, staff reallocation to their respective functions within the operating subsidiaries, operationalisation of business plans and budgets, technology systems transfer, and the requisite

 

approvarm’s length agreements between the entities. Appointment of CEOs In order to facilitate the operational structure, the National Council of the Nigerian Stock Exchange, during the period, announced the appointments of Chief Executives to head its non-operating holding company and operating subsidiaries.

 

They are Mr. Oscar Onyema, Group Chief Executive Officer, Nigerian Exchange Group Plc; Mr. Temi Popoola, Chief Executive Officer, Nigerian Exchange Limited; and Ms.Tinuade Awe, Chief Executive Officer, NGX Regulation Limited. Commenting on the appointments, Ogunbanjo, Chairman of Nigerian Exchange Group Plc (NGX Group) Board of Directors, stated: “The confirmation of these appointments are an important step in the process of building a leading and resilient African Exchange Group following the completion of our demutualisation programme. “I am delighted to continue working with Oscar N. Onyema, who has played a significant role in the reshaping of the Exchange. As a proven business leader and strategic thinker, I am confident that he will elevate the Nigerian Exchange Group (NGX Group) and its subsidiaries successfully into a new era of development.” SEC approves 7 NGX’s ETDs The Securities and Exchange Commission (SEC) had, in June, being the last month of the half year, approved seven derivatives contracts for NGX. The approved contracts are: Access Bank Plc Stock Futures, Dangote Cement Plc Stock Futures, Guaranty Trust Bank Plc Stock Futures, MTN Nigeria Communications Plc Stock Futures, Zenith Bank Plc Stock Futures, NGX 30 Index Futures, and NGX Pension Index Futures.

 

This announcement follows the successful registration of NG Clearing by SEC, as a premier Central Counterparty, effective 7 June 2021. With these approvals, NGX is inching closer to launch West-Africa’s first Exchange Traded Derivatives supported by NG Clearing in the risk management process.

 

Ahead of the launch of derivatives, the Chief Executive Officer, NGX, Mr. Temi Popoola, noted: “The launch of the derivatives market aligns with our commitment to build a market that thrives on innovation and responds to the needs of stakeholders in accessing and using capital.

 

“We are, therefore, excited about the prospects of deepening Africa’s position in the global financial markets  through ETDs, as well as enhancing liquidity and mitigating against price, duration and other financial risks that may arise from sophisticated financial transactional activities.”

 

Leading up to the launch of ETDs in the market, NGX has continued to ensure widespread understanding of derivatives, its applicability and how investors can reap maximum value from the asset class.

 

NGX has collaborated with both local and international organisations such as SEC, JPMorgan Chase, CBOE Options Institute, and NG Clearing to facilitate in-depth capacity building programme on the derivatives market.

 

In addition, through its learning and development arm, X-Academy, NGX has hosted trainings to prepare capital market players who wish to undertake the Chartered Institute for Securities & Investment UK Global Derivatives qualification exam, and is on track to host further trainings for other stakeholders in the near term.

 

Operators’ views

 

The President, Chartered Institute of Stockbrokers, Mr Olatunde Amolegbe, had, while reviewing the capital market recently in a statement, explained that the market, relative to the economy, was abysmally low.

 

“It’s not heartwarming to say that the Nigerian capital market, relative to the size of the country’s economy, is still abysmally low, as the equity market capitalisation to GDP ratio stands far below 20 per cent, in contrast to the South Africa’s 348.3 per cent and Brazil’s 68.4 per cent.

 

“The ratios in the key developed economies are in excess of 100 per cent. The participation of Nigerians in the capital market is very low. Less than five per cent of the country’s population are involved in the market as investors, while less than one per cent of registered companies are listed.”

 

According to him, an institution like the CIS, which is primarily responsible for training and certification of individual practitioners and propagation of capital market literacy across the country, requires financial support such as grant from both government and market regulators to support the drive.

 

“The National Assembly should give expedited hearing and passage to the proposed Chartered Institute of Securities and Investment Market (CISIM) Bill, which will properly update existing legislation to be at par with the realities of the global capital market,” said Amolegbe.

 

Corroborating him, the immediate past ASHON Chairman, Chief Onyewenchukwu, in a statement, said the market challenges emanated from buy and hold attitude of many investors and the lack of synergy between the regulators and operators.

 

Ezeagu noted that buy and hold attitude of many investors was as old as the market, attributing this to ignorant of dynamics and benefits of investment in shares.

 

“The challenges of the Nigerian Capital Market runs in tandem with the challenges of the country, giving credence to the belief that the capital market is a barometer of the economy of a nation. However, the market has stood the test of time despite the huge challenges of an underdeveloped country and some peculiar problems,” he said.

 

Last line

The regulators should continue to encourage investors to promote access to diverse investment opportunities and strengthen investor confidence in the capital market.

 

through ETDs, as well as enhancing liquidity and mitigating against price, duration and other financial risks that may arise from sophisticated financial transactional activities.”

 

Leading up to the launch of ETDs in the market, NGX has continued to ensure widespread understanding of derivatives, its applicability and how investors can reap maximum value from the asset class.

NGX has collaborated with both local and international organisations such as SEC, JPMorgan Chase, CBOE Options Institute, and NG Clearing to facilitate in-depth capacity building programme on the derivatives market.

 

In addition, through its learning and development arm, X-Academy, NGX has hosted trainings to prepare capital market players who wish to undertake the Chartered Institute for Securities & Investment UK Global Derivatives qualification exam, and is on track to host further trainings for other stakeholders in the near term.

Operators’ views

The President, Chartered Institute of Stockbrokers, Mr Olatunde Amolegbe, had, while reviewing the capital market recently in a statement, explained that the market, relative to the economy, was abysmally low.

 

“It’s not heartwarming to say that the Nigerian capital market, relative to the size of the country’s economy, is still abysmally low, as the equity market capitalisation to GDP ratio stands far below 20 per cent, in contrast to the South Africa’s 348.3 per cent and Brazil’s 68.4 per cent.

“The ratios in the key developed economies are in excess of 100 per cent. The participation of Nigerians in the capital market is very low. Less than five per cent of the country’s population are involved in the market as investors, while less than one per cent of registered companies are listed.”

 

According to him, an institution like the CIS, which is primarily responsible for training and certification of individual practitioners and propagation of capital market literacy across the country, requires financial support such as grant from both government and market regulators to support the drive.

 

“The National Assembly should give expedited hearing and passage to the proposed Chartered Institute of Securities and Investment Market (CISIM) Bill, which will properly update existing legislation to be at par with the realities of the global capital market,” said Amolegbe.

 

Corroborating him, the immediate past ASHON Chairman, Chief Onyewenchukwu, in a statement, said the market challenges emanated from buy and hold attitude of many investors and the lack of synergy between the regulators and operators.

 

Ezeagu noted that buy and hold attitude of many investors was as old as the market, attributing this to ignorant of dynamics and benefits of investment in shares.

 

“The challenges of the Nigerian Capital Market runs in tandem with the challenges of the country, giving credence to the belief that the capital market is a barometer of the economy of a nation

However, the market has stood the test of time despite the huge challenges of an underdeveloped country and some peculiar problems,” he said.

Last line

 

The regulators should continue to encourage investors to promote access to diverse investment opportunities and strengthen investor confidence in the capital market.

 

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