Post Views: 84 All over the world, the stock market is acknowledged as a leading indicator and a discounting machine, which points to future expectati...
All over the world, the stock market is acknowledged as a leading indicator and a discounting machine, which points to future expectations from any economy because almost all major sectors of that economy are represented.
In the same way, it equally factors the expected future of the economy into prices of equities listed, which means that 50 to 80% of the economic and market fundamentals influences equity prices. While the performance of a company has 20 to 30% impact on its share price since the industries and sectors are integral parts of the economy at any time.
Contrary to fears some investors may be entertaining at the moment, if any, the current rally of Nigeria’s stock market is not artificial, given that the bourse has suffered three consecutive years of negative growth. This resulted from the effects of an unholy combination of multiple evils such as: Low consumer confidence, low oil price at almost $28 in January 2016, low national output that resulted in economic recession, as well as a seeming lack of focus and direction by the Federal Government on the economy at the beginning of the Muhammadu Buhari administration.
As if these were not enough damage already, and due to the impact of the above, the Naira came under severe attack from official and unofficial devaluation, made worse by the import dependent nature of the Nigerian economy and high interest and inflation rate, all of which affected the economic and market fundamentals, with disposable income among many Nigerians seriously hampered.
As a result, many state governments and private companies owed workers’ salaries, which also affected purchasing power, resulting in many company products being left to gather dust on shelves of many stops, following which warehouses were filled with unsold inventories.
With the poor sales came a drop in earnings capacity of companies, even as operating costs of companies continued to bloat helplessly, as a result of which many of them started posting losses. With these manufacturers unable to repay their loans to banks, non-performing loans of the industry soared further, following which many of the banks were unable to pay dividend to their shareholders at year-end, because they had to make the huge loan loss provisions in line with regulatory requirements.
But since the Central Bank of Nigeria (CBN) began tackling the supply side of the nation’s foreign exchange market which was identified as the major problem, the story of Nigeria’s economy has been reversed to what we are seeing today that is attracting inflow of foreign exchange in form of direct and portfolio investment. This also equally rekindled domestic investor confidence due to positive data in the last five months pointing to economic recovery, which is currently being driven solely by monetary policy. Expectations are that the fiscal authorities will brace up and begin to do the needful, a situation that would further fast-track recovery, knowing that without a thriving economy, there is no politics.
Performance of the domestic equity market, when compared to the global markets is relatively in order, because improving economic fundamentals have started impacting positively on the listed companies as revealed by their first quarter numbers and reinforced in Q2 figures now being released that support the current prices of stocks on exchange.
Even then, the share prices of many companies on Nigeria’s stock exchange are still undervalued. Only a few companies are overpriced due to market sentiment for those particular stocks.
Price to earnings ratios of quoted companies are below 15x, dividend yields of majority are above 4%, economic growth is expanding, unemployment rate as at December 2016 was 14.2%, industrial production growth is equally expanding as revealed by the Purchasing Managers’ Index (PMI) remained above 50 points in the past three months, inflation figure is on the decline in the last five month, FX market performance remains strong with improving liquidity and 10-year Federal Government bond yields and interest rates at 16.18%.
This review is intended as a tool for both reference and ideas generation at a time many people have expressed palpable fears that the market is set for a huge correction. You may however choose to take profit and still keep your eyes on the market with the earnings reporting season at its peak, boosted by strong investor confidence, positive economic data and strong liquidity in the import/export window of the fx market.
This is first stop for basic background info on how the economy is performing, and what issues are driving the economy. This will help you get up to speed on and keep track of the basics for the most important sectors and industries in the economy, informing starting points for further research and risk management. As you keep your eyes on the CBN intervention that is driving the economy and market, get INVESTDATA home study pack to understand market timing and the four phase of the market to protect your capital and manage trading/investing risk.
Grab your home study pack now and ride with the recovery stock market and economy.
The workshop video can be view in your phone, laptop and television. The cost of the home study pack is N20, 000 including DHL delivery at your door step. Payment should be made into Investdata Consulting Ltd, Zenith Bank 1013033032. When payment is made, kindly send details to 08032055467,
MR. OMORDION AMBROSE
CHIEF RESEARCH OFFICER
INVESTDATA CONSULTING LIMITED
Phone 08028164085, 08032055467