Nairobi goes lower, as Jo’burg gains high on Stock Markets.

For stock investors in Major African stock markets like the Nigerian Stock Exchange (NSE), Egyptian Exchange, Kenya Securities Exchange, Ghana Stock Exchange, and Mauritius Stock Exchange, it has been a mixed bag of fortunes in terms of returns this year.

On the positives, investors in the Johannesburg Stock Exchange and that of Morroco (Bourse de Casablanca) have had reasons to smile.

BusinessDay check shows that while returns from the Nigerian Stock Exchange have been in excess of minus 10% this year, Egypt also lowered to minus 10.59% year-to-date (Ytd), while that of Nairobi stood lower at minus 3.35% ytd. 

Returns from the Ghana stock market are also in negative of 2.81%; while Mauritius is down by 3.70% ytd. On the positives, the year-to-date returns of Johannesburg Stock Exchange are high at 5.10%; while that of Bourse de Casablanca was positive at 1.55%.

 

Lack of policy direction, occasioned by delays in forming a cabinet in Nigeria, as well as issues around Forex and a recent spate of terrorism, have eroded gains in the Nigeria and Kenya bourses. Africa’s largest stock market – Johannesburg continued to benefit.

On the African continent, Johannesburg leads Nigeria, Egypt, Morroco and Kenya Securities Exchange in terms of market capitalisation ranking.

Primary market activities at the Nigerian Stock Exchange have been very low, as the market has witnessed only two Initial Public Offerings (IPOs) year-to-date (ytd). The NSE has witnessed more Rights Issues with majority being in the pipeline since late 2014.

Analysts still expect that further weakness on the NSE All Share Index (ASI) would come from a sustained fall in oil price, which would intensify pressure on public finances, the balance of payments and the naira exchange rate.

“Volatility reflects political cycle and uncertainties”, analysts at Financial Derivatives Company Limited said. They noted that Nigerian stocks will remain bearish “as poor H1 results continue to dampen investor confidence.”

They further asserted that stock market performance would remain subdued in the absence of a firm policy direction, adding that key ministerial appointments (expected next month) will serve as the much desired catalyst for a market rally. “Currency devaluation will attract foreign institutional investors and stimulate the market,” the Financial Derivatives Company insisted.

As at yesterday, Nigerian equities had lost circa N500billion, as speculators continued to besiege the equities market to take profits.

“Lagos has been more erratic, gaining 20 percent between 20 March and 13 April on an election-driven surge, yet since shedding -11.9 percent. This downward shift on the NSE ASI is traceable to poor listed company results and an investors’ sense of drift since the handover to the new administration on 29th May,” according to FBN Capital analysts. They highlighted a general risk to frontier and emerging markets from expected US monetary tightening this year.

“We note the increasingly attractive valuation of value stocks in the market, a trend we think accounted for the bullish run recorded last week. We expect the weak macro backdrop to fuel more speculative behaviour in the market in the near term. 

“We therefore look to see more profit-taking this week, slightly offset by bargain, hunting steered by attractive valuation”,a team of research analysts at United Capital said.

Currently, there is a regulatory move that will lead to improved liquidity on Africa’s exchanges. This move will see increased cross-listings of Exchange Traded Funds (ETFs) on the larger exchanges on the continent.  By cross-listing ETFs on African exchanges, investors will be given access to liquid company shares tracked by indices such as the FTSE/ JSE Top 40; the FTSE/ NSE Kenya 15 Index; and the MSCI/Nigeria. Analysts say this move may not favour Nigeria if the returns from this market remain unattractive.

While Nigeria’s Capital Market Committee (CMC) at its recent meeting in Lagos, expects the market to witness more positives, while stressing its commitment to reviewing transaction costs in the market, ensuring full dematerialisation of share certificates, and market integration with other West African market; its Nairobi counterpart believes that an increased number of issuers will come to a liquid market “as they are assured of raising capital at a lower cost”.

“These undertakings will enhance the trading of all listed securities” said Geoffrey Odundo, Chief Executive, Nairobi Securities Exchange, at the recent Barclays Africa conference.

Nairobi Securities Exchange is the fifth largest exchange on the African continent in market capitalisation, ranking after the South Africa, Nigeria, Egyptian and Morroco Stock Exchanges.

Iheanyi Nwachukwu