Trading floor of the Nigerian Stock Exchange
The market capitalisation of the Nigerian Stock Exchange (NSE) depreciated by a total of N489 billion in the third quarter of 2015 as it fell from N11.218 trillion as at July 1, to N10.729 trillion on September 30.
The All-share Index of the NSE was also hit by the apathy that has enveloped the market as it dropped to 31,217.77 points at the end of the third quarter, from the 32,863.43 points it attained at the beginning of the quarter.
Cautious trading by investors has continued to pervade the market, even as a lot of them continue to watch from the sidelines as they await a clear economic direction of President Muhammadu Buhari, who is yet to form his economic team.
Some analysts also believe that the recent removal of Nigeria from the JP Morgan emerging markets bond index also contributed to the slow down witnessed in the stock market. They further pointed out that issues in the macro economy, the political transition, uncertainty around crude oil price and the anticipation of another round of naira devaluation, also suggest that investors are somewhat cautious about the stock market. These according to them were expected to affect the market negatively.
Managing Director of Financial Derivatives Limited, Mr. Bismark Rewane, noted in a recent report that: “The administration has not come out with a clear economic policy or blueprint. This macro-economic ambiguity is borne out of the sheer gravity of the problems and the dilemma that the possible options throw up. The recent plunge in oil prices in August is aggravating a difficult situation.”
He added: “The impact of this policy void is increasing the tentativeness of investors and is being exacerbated by the rash of administrative measures. The volatility in the FOREX and interest rate markets is evidence of consumer and investor anxiety. A cabinet is likely to be announced in a few days and will douse most of these fears.”
But the Managing Director/Chief Executive Officer, Afrinvest (West Africa) Limited, Mr. Ike Chioke, believes that from a valuation perspective, banking stocks on the NSE are actually significantly undervalued in Nigeria than their peers in other countries.
“If you look at the South African market where the currency is down about 15 per cent this year, banks there are still trading at about two time price-to-book value (PBV) on average. Go to Kenya, banks there are trading at about one times PBV on average. Come to Nigeria, most of our banks are trading at 0.6 times PBV. So, 0.6 times PBV means that a bank that has N100 billion shareholders’ funds in its vault as cash, unimpaired is now being valued at N60 billion.
“So, I expect them (stocks) to go down further by the end of the year, which would magnify their under-valuation. For an investor that has a long-term view, I think this is an excellent time to take large position in banking stocks. But the challenge is that Nigerians would not do anything when common sense and logic suggests it is appropriate to do so, no matter how many times I say it. It is only when the shares have gone up 20 per cent that they talk about buying it,” he added.