In a bid to benefit from the current rally which has pushed the equities market year-to-date (ytd) performance high, at 28.25 percent, retail investors who largely fled the stock market in the wake of the crises are warming up to the market again.
This renewed interest is linked to retail investors realisation that most traded securities are undervalued; company financial performances have improved; and most share prices are trading below Book Value Per Share (BVPS). This is in addition to improved regulation around the capital market, particularly those around investor protection.
Retail and institutional investors who make up the domestic investors, accounted for close to 60 percent of transaction value in the Nigerian capital market as at the end of the first quarter of 2013, while foreign investors were responsible for about 40 percent.
This new turn of events contrast sharply with the circumstances between 2009 and the first half of 2012 when such investors shunned the market on account of losses they sustained in the aftermath of the near meltdown of 2008 with transaction values being controlled by foreign investors to the tune of 80 percent in certain instances.
The Nigerian stock market has shown clear signs of stability as the Market Cap remained above the N10 trillion mark from late January 2013 till date, allowing the Nigerian Stock Exchange (NSE) yet again to outshine two of the major stock Exchanges in Africa -Kenya and South Africa, in its year-to-date performance, having main
tained its upward trajectory in the New Year.
Just this past week, the All Share Index (ASI) reached 36,010.28 points from 34, 935.62 points in the preceding week. The equities segment of the Nigerian bourse closed last week with a huge N343 billion or 3.1 percent gain resulting to a new year-high of N11.513 trillion in market capitalisation from N11.170 trillion.
Though, Michael Oyebola, managing director, FBN Capital Asset Management believes that in addition to equities, there are a vast array of investment products/instruments investors can choose from, some of which include: Bonds, Treasury Bills, Real Estate, Cash, Structured Products, Mutual Funds, and Exchange Traded Funds (ETFs), he tied retail investors preference for equities to the belief that stocks have historically had the greatest risk and highest returns among the three major asset categories, while also offering the greatest potential for growth.
With the NSE All-share Index (ASI) recording a positive yield-to-date of 28.25 percent, it has outperformed other emerging markets like South Africa (Johannesburg Stock Exchange about 1.60percent); China (Shanghai Stock Exchange 50 Index -2.21percent); and Brazil (Ibovespa Brasil Sao Paulo Stock Exchange Index -9.74 percent).
Olumide Oyetan, CEO, Stanbic IBTC Asset Management Limited, linked the move by such investors in favour of equities to recent trends which show that “the equities market has rallied from a Price Earnings (P/E) ratio of circa 9x earnings to 13x current earnings.” In a stock market, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
Bola Adeeko, head, corporate services division, Nigerian Stock Exchange said: “Despite these gains, we recognise challenges still persist around low investor confidence and conversely, tremendous upside opportunities for greater participation, especially at the retail investor level. One of our core strategic pillars for enhanced market performance and growth, is to develop a strong investor protection framework.”
While advising retail investors recently at the “NSE Retail Investors Clinic”, analysts at Greenwich Trust Limited observed that, “spreading investment capital across a range of investments is one of the best ways to reduce risk and protect against sudden falls in any particular market sector, or individual investment. With a diversified portfolio of investments, returns from better performing investments can help offset those that under perform.”
IHEANYI NWACHUKWU
