Naira bounces back, investor confidence soars

April 12, 2015

Nigerian stocks end longest rally in 30 months as investors pump N1.8trillion into the economy, dollar crashes as hoarders release currency after presidential poll, reports Bukola Aroloye 

After months of lull, inactivity and losses, the Nigerian economy seems to be revving up, thanks to the just-concluded successful and violence-free presidential election.

The capital market which is the barometer of the economy was on the upswing after the Independent National Electoral Commission (INEC) declared the former military ruler, General Muhammadu Buhari, as the winner of the March 28, 2015 presidential election.

The Nigerian capital market gained 8.30 per cent, its single biggest daily gain this year, wiping off the negative year-to-date (YTD) performance, after the INEC declaration.

In the first quarter, the capital market indicators lost 8.40 per cent as a result of the uncertainty surrounding the election and the poor macro-economic factors.

Market capitalisation of the listed equities under the period went down by N76 billion to close at N10.718 trillion while the Nigerian Stock Exchange (NSE) All-Share Index (ASI) fell by 8.40 per cent to close at 31,744.82 on March 31. Operators in the Nigerian financial market are optimistic that the market will bounce back with a comfortable lead by Buhari, a disciplinarian that has promised to reshape the national economy, in the incoming government.

Bureau De Change operators in Lagos have attributed the fall in the dollar to release of the foreign currency by hoarders who had stored it pending the outcome of the nation’s general elections.

A cross-section of the operators said that the dollar sold as low as N185 to a dollar as against N220 in the parallel market before and during the Easter holidays.

Meanwhile, the Central Bank of Nigeria frowned at the growing practice of trading goods and services in foreign currencies instead of the naira in Nigeria.

The bank’s governor, Godwin Emefiele, said in Abuja at the end of the Monetary Policy Committee meeting that it is illegal for landlords or school proprietors to demand rents or fees in dollars, while transacting other businesses in foreign currencies.

“The official currency for doing business in Nigeria remains the naira. Collecting rents or school fees in dollars in Nigeria is illegal. We like to advice those involved in these practices to desist from them, because CBN would very soon begin to go after them,” Mr. Emefiele warned.

The CBN governor, who spoke on efforts to check the pressures on the naira as a result of the unnecessary demands for foreign exchange, said steps must be taken to prevent the dollar from dominating the country’s economy.

Mr. Emefiele denied prioritising the sale of foreign exchange to foreign investors, explaining that all such transactions on a daily basis were only to people with effective demand in line with its policy.

He said attempts to meet the demand by foreign investors for foreign exchange was part of the promise of unhindered access to the country’s foreign exchange market to support their needs to raise funds so as to encourage them to invest in the country.

On transparency of the market, Mr. Emefiele explained that the closure of the official foreign exchange market was to remove rent-seeking activities or opportunities for people who felt they wanted to take advantage of the vulnerabilities in the FOREX market.

According to capital market analysts, the one-day gain is the highest that has ever been witnessed in the history of the Nigerian stock market.

Analysts at APT Securities and Funds Limited stated that “we believe that the positive rally of the bourse is attributable to the peaceful conduct of the presidential election and the statesmanship of the incumbent president in accepting defeat and congratulating the president-elect, General Muhammadu Buhari. This has, to a great extent, assuaged the fears of foreign investors about the capital market as they are taking position by snapping up shares across the board.”

Similarly, the market capitalisation of the listed equities appreciated by N903 billion from N11.621 trillion to N10.718 trillion and market breadth remained positive with 65 gainers and three losers. While it was business as usual at the money market and the interbank end of the foreign exchange market, the value of the naira got a boost at the black market where it sold between N209 and 210 to the dollar.

A black market dealer said that the value of the naira had been on an upward swing since Tuesday when signs that Buhari would win at the polls emerged.

At the interbank end of the foreign exchange market, the value of the naira remained stable at N197 to the dollar. Interbank lending rates also trended downwards since Monday with overnight rate dropping to 13.6683 per cent while one-month and six-month rates closed lower at 15.5486 and 17.5973 per cents.

The All-Share Index rose by 1,347.98 points or 3.92 per cent to close at 35,728.12, from the 34,380.14 achieved on Wednesday, returning the year-to-date increase to 3.09 per cent. Also, the market capitalisation which opened at N11.621 trillion, appreciated N514 billion, to close at N11.621 trillion.

Nestle led the gainers’ chart by N44.60, to close at N936.60 per share. Forte Oil gained N19.78 to close at N215, while Seplat grew by N14.49 to close at N443.99 per share.

Nigerian Breweries appreciated by N7.91 to close at N166.25, while Mobil went up by N7.06 to close at N175 per share.

On the other hand, Okomu Oil recorded the highest price loss of N1.46, to close at N28.29 per share. Presco trailed with a loss of 67 kobo to close at N28.50, while Stanbic IBTC dipped by 61 kobo to close at N31 per share.

Unilever lost 35 kobo to close at N44.45, while Fidson depreciated by 17 kobo to close at N3.41 per share.

In all, the volume of shares traded increased by 33.21 per cent as investors exchanged a total of 1.174 billion shares worth N18.75 billion in 9,006 deals as against the 881.585 million shares valued at N10.94 billion traded in 4,611 deals on Wednesday.

The earning season hot up in the month of March, 2015 as many listed companies released their 2014 audited financial reports.

By the rules, companies whose financial year end is December, have March as deadline for the release of their results.  So it is not surprising that a lot of companies published their performance broadcast for the out-gone year in March.

Forty-two companies disclosed their corporate action in the month of March, announcing different amounts of dividend as rewards to shareholders for the financial year ended December 31, 2014.

Amongst the companies that have announced their corporate broadcast, Total Nigeria Plc has the highest dividend pay out to shareholders at N9.00 per share.

Dangote Cem followed with a declaration of N6.00 per share while Larfarge Africa paid N3.60k per share.

Of the many companies that announced their results in the month of March, 42 companies rewarded shareholders with dividend.  Four, out these, gave bonuses in addition to the cash dividend.

Nahco aviance paid a cash dividend of 20k and scrip issue (bonus) of 1 for 10. McNichols Consolidated paid a cash dividend of 0.04k while giving a bonus of 1 for 10.

Other companies that gave bonuses include Infinity Trust Mortgage Bank, 1 for 4 plus a cash dividend of 0.75k and Forte Oil Plc which paid a cash dividend of N2.50 and a bonus share of 1 for 5.

Analysts at FBN Capital noted that the election only became an investor concern on its postponement which created a number of negative scenarios for the offshore community.

“Once these proved unfounded, a strong rally was always likely,” they said.

Speaking on the impact of the announcement of the new president on the Nigerian financial market, the executive secretary of the Financial Market Dealers Association (FMDQ), Wale Abe, noted that not much will change in the next quarter “because the new government that will take over will not do so until May 29. All that is likely to happen is that the status quo will be maintained. So we are not likely to have any significant development.

“However, there will be positive perception due to the fact that Nigeria is able to change its government peacefully. That is positive and a plus for Nigeria as an investment destination and those who have been waiting on the line will now say that the new government will soon come into place. We will wait a bit to see the policies, in terms of the policy direction. Everything as at now is positive because peace will return.”

Also, the Managing Director of APT Securities and Funds Limited, Mallam Kurfi Garuba, said, “The capital market has started to response to the good news as it gained over eight per cent on the day Buhari was declared as the winner of the presidential election.”

He noted that Nigerian investors were excited about the outcome of the election as the naira currency remained strong in the black market, saying that this election marks the first time in Africa’s most populous nation where a sitting president was voted out of power through the ballot box.

“We believe that the positive rally of the bourse is attributable to the peaceful conduct of the presidential election and the statesmanship of the incumbent president in accepting defeat and congratulating the president-elect, General Muhammadu Buhari. This has to a great extent assuaged the fears of foreign investors about the capital market,” Kurfi said.

According to him, most analysts believe foreign investors backed Buhari’s victory and have been taking position by snapping up shares across the board.

Foreign investors were skeptical on the Nigerian markets starting late last year, unnerved by political uncertainty before the election as well as the sharp fall in the global price of oil which negatively impacted the currency, triggering devaluation in November.

The Managing Director of Highcap Securities Limited, Mr David Adonri, said that the stock market reacted positively to the election of Buhari, saying that after the initial euphoria, the direction of the market will depend on post-election peace and economic policies of the new administration while analysts from GTI Capital Limited noted, “The major challenges that the new president will inherit when he takes the reins include insecurity as posed by the Boko Haram scourge, power sector, depleting external reserves, corruption, exchange rate stability, the Niger-Delta, infrastructure and oil price volatility.

“Like we noted in our 2015 outlook report, the diamond in the rough, the crash in oil prices have exposed the frailties in the Nigerian economy and the consequences of our long years of dependence on crude oil. 90 per cent of our foreign exchange earnings have left the Nigerian economy vulnerable.”

According to a broker with Calyst Securities Limited, the post-election (presidential) euphoria had an impact on the capital market as this will strengthen the economy, bring back investors’ confidence.

Although the presidential handover is not due until late May, FBN Capital analysts say the new administration which seems to have a different ideology on managing the economy will be subject to the same fiscal constraints because a marked recovery in the oil price this year is unlikely.

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