The stock market sustained positive rout in Q3 as investors leveraged low prices despite the ravaging coronavirus. CHRIS UGWU writes
The Nigerian stock market, which closed positive during the second quarter of 2020 with an appreciable gain of about N1.669 trillion or 15 per cent, maintained the trend in the third quarter with a gain of N985 billion as investors leveraged low prices of stocks Statistics available to New Telegraph showed that activities on the Nigerian Stock Exchange, which opened the trading third quarter at N12.769 trillion in market capitalisation and 24,479.22 in index at the beginning of trading on July 1, 2020, closed last Friday September 25, 2020 at N13.754 trillion and 26,319.34 index points, earning a quarter to date gain of about N985.
billion or 7.52 per cent. The growth in market capitalisation, which was recorded in third quarter 2010 was due to positive sentiment by investors following sustained activation of business continuity process and other innovations by the Securities and Exchange Commission and the Nigerian Stock Exchange amidst COVID-19 ravaging the country. Also is the sharp drop in fixed income yields following further monetary easing by the MPC. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) had voted to reduce the Monetary Policy Rate (MPR), from 12.5 per cent to 11.5 per cent.
This was disclosed by the CBN Governor, Godwin Emefiele, while reading the communique at the end of the MPC meeting recently. Market analysts believe the renewed sentiment in the local bourse 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 scourge and sharp drop in oil price. Market observers agree that the decline witnessed in the Q1 that made prices of many stocks miserable attracted investors in the Q2 and Q3.
SEC proposes rules for CIS
The Securities and Exchange Commission during the quarter proposed new rules for Collective Investment Schemes (CIS). According to the notice obtained from SEC’s website, the proposed rules stipulates among other things that “all units/securities of a collective investment scheme shall be registered by the Commission. On shelf registration, which is a filing undertaken by issuers intending to access the market in the near future, the rules noted that in general requirements, the value of the issue on offer under shelf programme registration shall not be less than N5 billion. An issuer may issue, offer for subscription or purchase, or make an invitation to subscribe for or purchase units under a shelf registration where at the time of the issue, offer or invitation, there is in force a shelf prospectus as updated by a supplementary shelf prospectus, both of which have been registered by the Commission. On the annual supervision fees for the schemes, the rules stipulates among others that “All CIS fund managers shall pay annual supervisory fees of 0.001 per cent of the net asset value of the CIS under management not later than the 31st January of every year failing which the fund manager shall be liable to a fee penalty of N100,000 and a further sum of N5,000 for every day of default, among others.
SEC also issued statement on digital assets, their classification and treatment during the period under review. The Commission noted that since digital assets offerings provide alternative investment opportunities for the investing public, it is essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency. It noted that the general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market. “Section 13 of the Investment and Securities Act, 2007 conferred powers on the Commission as the apex regulator of the Nigerian capital market to regulate investments and securities business in Nigeria. In line with these powers, SEC has adopted a three-pronged objective to regulate innovation, hinged on safety, market deepening and providing solution to problems. This will guide its strategy, its regulations and its interaction with innovators seeking legitimacy and relevance. “Consequently, SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions,” it said. The statement noted that the position of the Commission is that virtual crypto assets are securities, unless proven otherwise. Thus, the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.
NSE intensifies efforts on derivatives
As investors anticipate the launch of Derivatives trading in the Nigerian capital market, the Nigerian Stock Exchange (NSE) during the quarter continues to lay the ground work to build a standardized derivatives market. Part of these efforts include capacity building sessions such as the virtual derivatives workshop which was organized by the exchange. The training was themed, Adopting Derivatives During Stressed Market Conditions and featured a special presentation from Charlie Rubin, Derivatives Consultant at C-Rubin Futures, and former Senior manager of the New York Stock Exchange, and New York Futures Exchange. Speaking at the webinar, the Chief Executive Officer, NSE, Mr. Oscar Onyema, stated: “The global financial market has seen good growth and innovation over the past 20 years, and derivatives have contributed substantially to this impressive development. “The global derivatives market is the main pillar of the international financial system and the economy as a whole. The Exchange in its quest to be Africa’s preferred Exchange hub, recognizes the importance of a welldeveloped Derivatives market and has worked assiduously to build the regulatory and technology framework as well as the competence required to support the launch of a standardised Exchange Traded Derivatives (ETDs) market.” Derivatives consultant, Charles Rubin, highlighted the unique benefits of derivatives trading, noting that “derivatives have been known to increase trading activity significantly across markets. “For instance, the National Stock Exchange of India is witnessing trading activity 25 times more than prederivative levels in its 8th year since introducing derivatives. “This accounts for four times more than its cash business. Markets are likely to continue to enjoy such activity due to the fact that derivatives provide a hedge against risk, facilitate short selling and allow investors to undertake leveraged buying and selling.”
FMDQ admits new debt securities
The FMDQ Holdings Plc during the quarter announced the approval and admission for listing of the United Capital Plc Series 1 N10.00 billion Fixed Rate Bond under its N30.00 billion Bond Programme. Also admitted is the LAPO MFB SPV Plc Series 2 N6.20 billion Fixed Rate Bond under its N20.00 billion Bond Issuance Programme. According FMDQ in a statement,the Nigerian debt capital market (DCM) has continued to demonstrate buoyancy and resilience in the face of the pandemic, authenticating its role and increased capacity to support domestic economic growth by providing alternative capital sources as well as the much needed liquidity to boost working capital for corporates and governments. “This remains a commendable development characterised by the towering levels of confidence demonstrated by both issuers and investors as they continue to tap the market to meet their short- and long-term business and investment objectives, respectively,” the exchange noted. According to the Managing Director, Investment Banking, United Capital, Babatunde Obaniyi, “the Series 1 bond issuance adds to the impressive portfolio of innovative and landmark transactions which are the hallmark of the United Capital brand. “The bonds, which have a tenor of five years, recorded a 124 per cent subscription, with commitments received from Pension Funds (comprising 64 per cent of the issue), other financial institutions as well as high net worth individuals. “This very strong outcome further affirms buy-side investors’ confidence in United Capital PLC and is a testament to the leading role the organisation continues to play in the financial services space.”
According to analysts at United Capital Research, the Nigerian equity market performance in H1-2020 was a tale of two quarters. Notably, the market tumbled by more than 20.0 per cent in Q1-2020 as FPIs and local investors flew to safety amid the collapse in oil prices and currency adjustments. However, the stock market recovered by more than half the initial downturn in Q2-2020, spurred by demand from local investors with excess liquidity and few high-yielding investment outlets. “Looking ahead, our overall outlook for equities is lukewarm in H2-2020, despite the expansionary monetary policy stance in the global space and the renewed domestic interests pushing stock prices towards pre-pandemic levels. “Although the argument for continued recovery is increasingly compelling from a technical standpoint, we note that weaker company fundamentals heightened by the COVID-19, currency movement risks and capital control at the I &E window, are key downside risks that could curtail further recovery. “As a result, we expect the market to remain highly volatile for the rest of the year and ‘short-term gain’ driven. In all, we peg our base case scenario for the YTD performance of the NSE ASI in 2020 at -4.1 per cent. However, we believe these times provide opportunities for long term investors, as stocks that have stood the test of time are still relatively cheap.” Analysts at Cordros Capital “expect the market might continue to benefit as domestic investors seek alpha-yielding opportunities in the face of increasingly negative real returns in the fixed income market. However, we advise investors to trade in only fundamentally justified stocks as the weak macro environment remains a significant headwind for listed companies.”
The depreciation witnessed in Q1, where most stocks hit their record lows, still offered attractive entry opportunities for discerning investors to leverage on.