Expert frets over banking stocks’ low performance

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…says investors lost about N1.71 trillion in 2019

 

A capital market operator and Managing Director, APT Securities and Funds Limited, Mallam Garba Kurfi, has said that the low performance of banking stocks at the nation’s bourse is worrisome.

Mallam Kurfi, who spoke with a crop of financial journalists in Lagos, said banking stocks might not be able to surpass their previous performance due to reduction in bank charges, fees and crash of the interest rate.

He disclosed that investors in the Nigerian equities market lost about N1.71 trillion in 2019 as a combination of political risk, weak macroeconomic performance and tense global outlook drove the stock market to a second consecutive negative performance.

Kurfi, however, advised that investors should watch out for stocks that would benefit from the implementation of the new Finance Act, such as companies that will enjoy Value Added Tax exemption, like Nestle Nigeria Plc.

He said that building material companies, such as cement manufacturing companies, were likely to double their turnover due to an early implementation of the budget, adding that the insurance companies were likely to do better because of the recapitalisation with some mergers and acquisitions or takeover.

Looking back to 2017, the leading capital market analyst said Nigerian equities could repeat their 2017 feat in 2020 with a double-digit return that could compensate for the losses suffered in recent years, adding that after a three-year consecutive losing streak, Nigerian equities in 2017 posted average positive return of 42.3 per cent, which was regarded as one of the highest returns in the global stock market.

Kurfi stated that the Nigerian stock market was poised for a repeat of the 2017 performance this year, citing similarity of scenarios, macroeconomic environment and inherent attractions of Nigerian equities.

According to him, the benchmark index for the Nigerian equities’ market, the All Share Index, is expected to close in double digit by the end of 2020, a repeat of the 2017 performance.

He recalled that the stock market closed 2019 with a negative average full-year return of -14.60 per cent for the 2019 trading year, equivalent to net capital depreciation of N1.71 trillion for the year. It had recorded negative average full-year return of -17.81 per cent in 2018.

The 2019 pricing performance marks the fifth negative closing in six consecutive years. After a world-leading positive return of 42.3 per cent in 2017, the market had reversed to negative in 2018 with average full-year return of -17.81 per cent.

Aggregate market value of all quoted equities at the Nigerian Stock Exchange had declined by N1.889 trillion in 2018. The stock market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the general expectation that political transition and new government would quicken a rebound, equities closed 2016 with a net capital loss of N604 billion.

Kurfi said investors should have long-term horizon in order to maximize their returns, citing the historical performance of companies like Nestle Nigeria, which had turned into generational wealth for many families of investors.

Meanwhile, Kurfi has commended the ongoing demutualisation of the Nigerian Stock Exchange, describing it as a process that would bring many benefits to operators, capital market and Nigeria.

He said demutualisation would boost economic activities and activate idle capital in the market, thereby boosting economic activities.

Kurfi added that demutualisation would change the perspective and drive more growth for the nation’s economy.

“It is a good thing and all of us are going to be happy at the end of the day because it is going to unlock more capital for the market.  For instance if I place shares as collateral, I can trade and make money, we are pleased this is coming after so much delay, this will change the economy’s perspective as well. My only worry is that we are slow starter, and we need our regulators to wake up to their responsibilities,” he said.