Nigerian Stocks Capable of Reaching 2008 Peak in 2014, despite N2.15Trn MKtCap Shortfall

Recently, the Dow Jones Industrial Average index surged to its highest closing level ever, overcoming the losses related to the financial crisis and economic melt-down – by surpassing its closing peak on Oct 9, 2007.

For most analysts, this was a much awaited development; one that rekindled the nostalgia felt towards the Nigerian situation. For us, it encouraged us to enquire, review and determine if and when the Nigerian market will hit and exceed its previous 2008 high.

In this mornings news analysis from Wall Street Journal, part of the factors that has helped propel the stock market's rally was the decision by U.S. companies to “shower investors with a record windfall in the form of dividends and share buybacks”. Further, “companies in the S&P 500 index are expected to pay at least $300 billion in dividends in 2013, according to S&P Dow Jones Indices, which would top last year's $282 billion”

In Nigeria, factors that impacted our recovery from the historical fall of 2008 stems from the attainment of a bottomed-out stage; state of returns in the euro zone driving foreign inflows, increased governance culture, market friendly reforms, resolution and continuous focus on issues affecting liquidity, floats and practice.

Technically, our market is trying to move into the accumulation stage, as noted in one of our recently published articles – against a weak appearance occasioned by the vulnerability to shifts from the incidence of and contribution of foreign investors to funds flow, volume movements and less participation of the savings and pensions funds sector – resulting in an ASI far below its record high of 66,371.20 (attained on March 5, 2008).


The Nigerian market as at March 07, 2013 is currently down by 51% (or 33, 598.47 basis points) from its record high, having gained 66% (or 13, 040.39 basis points) from its full collapse point of 19,732.34 recorded on December 8th 2011.

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In relative terms, this suggests market fell from its record high by -70% between March 5, 2008 and December 8, 2011. And it has climbed from its crash point by 66% or 13,040.39basis points. This convincingly vindicates our December 2012 position that market has stepped out of bottomed-out stage completely.

Looking at this scenario constructively, our market has only recovered +20% when compared to the market's position as at March 07, 2013 against its record high of 66,371.20 recorded five years ago. The table below (@March 06, 2013) puts all the scenarios into proper perspective.


This further shows Nigerian market is trading at the deficit of 33,598.47 basis points as at March 07, 2013; representing a -51% loss. In a value term, Nigerian market is currently trading at N10.49Trillion of market capitalisation as against N12.64Trillion market capitalisation as at March 5th 2008, indicating a deficit of N2.15Trilliion of investors’ net worth yet to be recovered.

So how do we bridge this gap? What do we need to see to assure markets that the Nigerian market is not only capable of, but on the way to overcoming the huge losses that are yet to be recovered?

It is a compelling risk to stick the neck out for the market at a time managers of the bourse concede humbly, that the market is still at a fragile stage and lots of more hands are needed on the deck to keep the recovery trend alive.

Yet it is a risk we are happy to embrace. Why?

Comparing the realities and outlook of our market/economy with other advanced markets positions, whereas our market performance is lower compared to exchanges that have completely erased their losses incurred during financial crisis; we are of the view that should the government of Nigeria (GON) accept representations on listing requirements for state owned enterprises (SOE’s), pension funds investment guideline reforms, state and corporate bond attractions as well as the SEC/NSE market-led reforms; the Nigerian bourse can reach the 2008 levels before the end of year 2014.

Ambitious, one would assume; but our premium analysis of trends will indicate a support for a strong northward movement with +66% appreciations from the final crash-point in December 2011 to the current position. The market breadth is very strong, healthy and reliable.

The optimism level remains very high and impressive so far while the market horizon holds further healthy prospects. Most the value stocks are still trying to attain their true face/fair value(s) as market should stay bullish; with intermittent profit taking.

We are encouraged by, and commend every initiative aimed at driving and sustaining the recovery so far.


Source: Proshare Research/ The Analyst

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Caution:

To properly actualise this refreshing optimism, we believe that a conscious effort at building a replacement source of liquidity to mitigate against the strong grip and overbearing hold of foreign investors in the market will concretise the optimism and sustainability of the current trend.

The position of the market managers towards the retail end of the bourse is another key factor in this game. Addressing the liquidity and (in)flexible margin guidelines cannot be overemphasised, whilst the regulators retain a grip of/on corporate governance, market oversight and investors’ protection issues as a key driver of investor confidence in the market.

Year End Results

The outcome of Q4’12 earnings reports of the most value stocks, particularly the banking stocks and other blue chips should play a major indicator of how the market will swing in the next couple of sessions as regards to the sustainability of the trend.

Recently, we had observed a sequence of anticipatory rallies and hold positions towards value stocks while the market has been trying to hold its support level well above the new psychological 32,000.00 basis points.

Conclusion

Conclusively, we observed that our market is finding it more difficult to move into accumulation/mark-up stage as the trend in the recent time appeared unstable, oscillating between 32,731.08 and 33,895.08 basis points with a couple of short term price corrections. This could not be isolated from the delay in the release of Q4’12 earnings reports for value companies.

That being said, we remain optimistic that an impressive corporate earnings posture will ginger investors into further buying decisions (as the market still trades below its fair value).


Source: Proshare Research/ The Analyst

the market will definitely reach the peak as you said but there is no much peak in 2008 compare to early year 2000.
The market is now at a pace compare to last year. This is how it should be if we dont want to get into trouble again

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