Stock Market Surges 12% In Three Weeks On Rising Investor Confidence In FX Window

From being the worst performing market among its emerging market peers, the Nigerian equities market has made record gains for three weeks in a row, surging by 11.9 per cent, following renewed demand for stocks by foreign portfolio and domestic investors on the back of introduction of the new foreign exchange window for investors and exporters by the Central Bank of Nigeria (CBN).

In a bid to boost liquidity in the forex market, the CBN introduced the window last April that allows market participants to determine the exchange rate of the naira on a willing buyer, willing seller basis. But to promote liquidity and professional market conduct, the central bank may from time to time participate in the market.

Transactions under the new window include invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees, consultancy fees, software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including “miscellaneous payments” as detailed under Memorandum 15 of the CBN Foreign Exchange Manual.

CBN, however, excluded international airlines ticket sales’ remittances.

Following the introduction of the new window for investors and exports, the Nigerian Stock Exchange (NSE) All-Share Index has spiked by 11.92 per cent in the last three weeks, from 25,189.27 to close at 28,192.46 last Friday, while market capitalisation gained N1.03 trillion or 11.81 per cent, from N8.716 trillion to N9.741 trillion.

The volume and value of trading also witnessed unprecedented gains, as investors traded 5.742 billion shares valued at N48.848 billion in 158,346 deals in three weeks.

A breakdown of the market’s performance showed that in the week ended April 28, 2017, the index rose by 2.26 per cent to close at 25,758.51, while market capitalisation closed at N8.913 trillion. Investors exchanged 1.33 billion shares valued at N9.671 billion in 16,300 deals.

The second week of the bullish trading saw the index rise by 1.85 per cent to close at 26,235.63, just as market capitalisation closed higher at N9.069 trillion. In the week, which ended May 5, investors also exchanged 1.154 billion shares worth N10.439 billion.

However, the market made record-breaking gains last week when the index surged by 7.46 per cent to close at 28,192.46, while market capitalisation rose to N9.741 trillion. Equally, the volume of trading jumped to 3.255 billion shares valued at N28,738 billion in 25,370 deals.

With the gains recorded last week, the year-to-date performance of the Nigerian bourse swung into the positive territory, appreciating by 4.9 per cent.

Commenting, analysts at Cordros Capital Limited said they sensed improved investor appetite for risk assets on the Nigerian bourse, judging by market activity in the past three weeks, and more specifically the spike in the number of deals and the volume of shares traded last week.

They linked the performance to reduced apprehension in the macroeconomic environment, impressive full year 2016 and 2017 first quarter (Q1) results of highly capitalised companies, as well as increased confidence and liquidity in the forex market.

Supporting this assessment, analysts at Afrinvest (W.A) said foreign investors’ appetite for Nigerian assets had waned significantly on the back of the currency crisis, which in turn had fundamentally weakened macroeconomic environment, dragged corporate earnings, and impacted negatively on the equities market.