The current low prices of stocks present investors an opportunity to respond to experts’ advice and take investment position. Chris Ugwu writes
Safe for the last week’s rally on the Nigerian Stock Exchange (NSE), the recent massive depletion in the price of securities in the Nigerian stock market has resulted in most stocks in the market becoming penny stocks even as confidence is climbing gradually. The hardest hit being insurance stocks, most of which had been stagnated and trading below 50 kobo per share.
Stocks of companies quoted on the insurance sub sector of financial services sector have defied all regulatory reforms to recover from losses incurred during the recession, even as market sentiments for other sectors have slightly turned green, save for the current downswing.
The situation raises concerns in the investment community because the stock market’s key measurement indicators has continued to tilt southwards that between in May, 2018, the market has recorded N1.146 trillion loss to close at N13.802 trillion in market capitalisation.
Available statistics to New Telegraph had shown that activities on the Nigerian Stock Exchange, which opened the trading month at N14.948 trillion in market capitalisation and 41.268.01 in index points at the beginning of trading on May 1, 2018, closed the month on May 31, 2018 at N13.802 trillion and 38,606.41index points. Hence, has earned a month to date loss of about N1.146 trillion or -7.66 per cent.
However, the current situation, according to market experts, presents savvy investors opportunity to take position for capital gains.
Reasons for market downtrend
In a separate chat, CIS’ President, Mr. Adedapo Adekoje, and his counterpart, ASHON’s Chairman, Chief Patrick Ezeagu, explained that performance of listed companies on the Nigerian Stock Exchange were good, but the current downswing was the effect of general lull in the economy and other exogenous factors, prompting both domestic and foreign investors to convert their shares to cash.
The market’s major performance indicators, the All-Share Index and market capitalization, have been on downward swing in the last two weeks, sending panic to domestic investors.
The duo noted that the market remained undervalued; hence, investors have greater chances of higher returns when the situation becomes more stable.
Adekoje, who was elected the CIS’ President recently, noted that market fundamentals remained strong attributed to the bearish trend to panic sales by foreign portfolio investors who are taking advantage of emerging higher returns on mutual funds in the United States and Europe, leading to massive sale of their shares on The Exchange:
“Current Information about mutual fund in America and Europe that are giving five per cent Return On Investment (ROI) is attractive to foreign portfolio investors and they are offloading shares to take advantage of the investment opportunity. They are more comfortable with the new returns on mutual funds.
“The good news is that we are having good valuations. Investors should buy on long term basis and not short term” said Adekoje.
Corroborating him, Chief Ezeagu explained that nothing was wrong with the Exchange in terms of governance structure , technology and compliance with the rules and regulations by Stockbrokers.
According to him, the quoted companies are not doing badly, given the general lull in the economy and the fact that we cannot rule out the usual fear of election. He noted that these factors could elicit massive sale of shares, especially by foreign investors.
“The Federal Government should intensify efforts in addressing insecurity problems in Nigeria and keep on reassuring of a safe investment environment. Our market is full of opportunities but we need to sustain the momentum of assuring both indigenous and foreign investors that the market is safe.
“The Exchange is a barometer that gauges the mood of the economy. Therefore, we should address investors’ fears in order to enable them take advantage of good returns associated with our market. The current bearish trend is temporary as the market would bounced back soon,” said Ezeagu.
He advised investors not to panic as the current bearish trend is temporary as the market would bounced back soon.”
Commenting on the valuation of quoted companies’ shares, Adekoje stated that the good news was that the Exchange is having good valuations, hence investors should buy on long term basis and not short term.”
Adekoje urged the government to initiate policies that would enable the Pension Fund Administrations (PFA ) to increase their investment in the market.
Meanwhile, the Exchange has expressed optimism that there would be upsurge in the Initial Public Offering (IPO) this year as quotable companies are warming up to take advantage of emerging opportunities in the Nigeria’s Capital market to raise cheap funds.
Best time to take position
The current low prices of stocks present investors opportunity to respond to experts advice that in the event of every meltdown in the prices of shares, what investors need to do to reposition in the face of losses in the prices of shares is to invest in the market despite recurrent losses in the recent time, so as to gain at the long run.
The experts are of the opinion that the low price of stocks should make any desiring investor to take position in anticipation of capital appreciation, as well as huge return on investment, going forward.
The Chief Executive Officer of the NSE, Mr. Oscar Onyema, has advised investors to take advantage of the low prices of equities and invest in the market.
Onyema said despite the market’s sharp downturn, it is not all doom and gloom.
“Although many anticipate volatility, some stock prices are at their lowest since the May 2013 sell-off, and some are below book value, thus, presenting domestic investors with no currency risk, an opportunity for cautious long-term investing,” he said.
He declared that NSE is unwavering in its commitment to solidify its leadership position as Africa’s foremost securities exchange, and is committed to initiatives that will position the bourse as an attractive listing and investment destination.
The Chartered Institute Stockbrokers (CIS) has advised domestic and foreign investors in the nation’s capital market to leverage on the current low prices of stocks of companies quoted on the floor of the Nigerian Stock Exchange for future gains.
The outgoing President, Chartered Institute of Stockbrokers (CIS), Mr. Oluwaseyi Abe, who appraised the current state of the market, reassured both individuals and institutional investors to take advantage of the current low share prices to beef up their portfolios.
Abe explained that the market had always been a barometer that gauges the mood of the economy, adding that the Nigerian economy would pick up soon as indices of prior uncertainties were fizzling out.
According to him, Chief Executive Officers of quoted companies are working round the clock to ensure shareholder value.
Abe stated that due to the lull in the economy and the need to boost disposable income and meet other exigencies, many investors had dumped shares, thus inducing bearish trading.
He however noted that market fundamentals remained strong and share prices of many blue chip companies were trading below their intrinsic values.
Abe urged investors to take advantage of the cheap prices to increase their stakes in the quoted companies.
A financial analyst also called on domestic investors in the nation’s capital market to leverage on the current low prices of stocks of companies quoted on the floor of the Nigerian Stock Exchange for future gains.
The Managing Director, Crane Securities Limited, Mr. Mike Eze, who stated this in a chat with New Telegraph, said the market was ripe for investment, going by the current low prices of stocks.
Eze noted that it was obvious that activities will stabilise in the market after the general elections, adding that this was the perfect opportunity for investors to stake their funds in the market.
“This is the right time for investors to take part in the equities market, with the prices of shares at their lowest levels. Brokers are confident that after the elections, the market would begin to stabilise and investors would begin to record significant appreciation on their investments.
“Because with little amount of funds, you will buy large quantity of penny stocks or low price stocks, and that enhances your position as a shareholder. If dividends are declared by such companies, the shareholder will earn sumptuous dividend.
“The likelihood of being adopted a director of the company is also guaranteed. But with the highly capitalised stocks, investors may use enormous amount of funds to buy a little quantity and when dividend are declared, the take home will not be appreciable and then you cannot think of any appointment as a result of your shareholding.
In terms of capital gain if the price appreciate and you decide to sell, you will laugh all the way to the bank with big amount of funds if you invest in low price stocks. But for the high price stocks, if the price appreciates, the margin will not be much and you can only recoup the capital invested,” Eze said.
Considering the current low prices in the NSE, it is believed that this is probably the best time to invest fundamentally in sound stocks.