The recent OCE Policy Brief issued by the Securities and Exchange Commission shows that the current bullish trend in the equities market can be justified by both company-specific and macroeconomic fundamentals.
As at the end of July 2017, the All Share Index (ASI) grew by 34.67% year-to-date (YtD) and 27.97% year-on-year (YoY) while the market capitalization grew by 34.8% YtD and 28.30% YoY.
Total transaction in the market increased by 274.5% between April and May, driven by both foreign and domestic transactions. Foreign transactions rose by 324%, thereby increasing the share of foreign transactions in the market from 40.9% to 46.3%. Domestic transactions rose by 240.3%.
The OCE Policy Brief noted that this impressive growth became pronounced from May, 2017, marking a turn around from the negative growth of -3.22% YtD recorded up till April 2017.
Factors such as foreign exchange rate stability, lower inflation rate and fixed income rate were highlighted as the major macroeconomic factors responsible for the recent growth in the market. The brief posits that these factors influenced the participation of foreign investors in the market. It also affected the perception of uncertainty in the economy and substitution of fixed income products for equities.
While explaining the pass-through effect of macroeconomic fundamentals to company-specific performance, it stated that the constant interventions by the CBN in the foreign exchange market and the introduction of the Investors’ and Exporters’ Window (I&E) positively affected the companies in terms of their ability to obtain foreign exchange for importation of inputs and the purchasing power of the citizen. This ultimately improved companies’ profitability.
According to the brief, the average PAT recorded by companies in the market was N2.48 billion in Q2 2017 representing an increase of 46.11% over Q2 2016 (YoY) and 45.3% over Q1 2016 (QoQ).
The sectors that saw the most growth are Other financial services, Consumer goods, Industrial goods, Agriculture and Insurance which grew by 416.31%, 284.42%, 218.06%, 119.29% and 45.76% year-on-year respectively.
Quarter-on-quarter, sectors like Oil and Gas, Services, ICT and Industrial goods accounted majorly for the average PAT growth as they increased by 15,232.22%, 530.52%, 357.2%, 285.1% and 169.72% respectively.
