Market sentiments for the week ended 130608

Investors heaved a deep sigh of relief as the authorities of The Nigerian Stock Exchange intervened to regulate the unending price free-fall in the market. Apparently bothered by the development that persisted for about 3 weeks, the regulatory authorities effected a market correction through what participants call ‘regulatory intervention’ by freezing prices of equities at their previous days’ close prices except for those that closed higher due to market forces of bid and offer (demand & supply). This intervention has helped to augment the market performance as The NSE ASI closed higher by 704 basis points to 60,191.83 points while total market capitalisation of 222 quoted equities rose by 7.04 percent to stand at N11.72trn against N10.95 trn reported in previous week. Some market commentators argue that the practice is not only peculiar to Nigeria but also obtainable in other developed economies as part of the statutory functions of the authorities of any Exchange.

There are indications that this regulatory intervention may last till when the issue of margin loans from banks to investors/stock brokerage firms is resolved amongst all regulators involved. However, market is rife with the news on suspension of the ban on margin trading accounts pending when the special committee set up comprising representatives of the Central Bank of Nigeria (CBN); Nigeria Deposit Insurance Corporation (NDIC), Securities & Exchange Commission (SEC), and The Nigerian Stock Exchange (NSE) meet to come up with a workable process. Market participants and regulators attribute the prolonged lull largely to the margin calls by banks following the directive from the Central Bank of Nigeria to put a halt to margin loans to capital market operators, an allegation that has been denied by the CBN authority at several fora.

Similarly, the recent publication by The NSE in respect of Private Placement has also spurred reactions from market commentators and participants. The authorities of The NSE have come up with a pronouncement putting a caveat on Private Placements which may somewhat make them unattractive to the investing Public. The NSE maintains that henceforth companies seeking listing on The Exchange by way of Introduction shall have such shares listed at the Private Placement price and will also meet the Listing Requirements, Rules and Regulations governing Initial Public Offerings (IPO) all in an attempt to protect investors’ interest.

We believe this pronouncement will bring some level of sanity to the market and substantially checkmate the flurry of Private Placements and its attendant effects on the secondary market activities.

Notwithstanding the regulatory issues that overshadowed the market during the week ended Friday June 13, 2008, a few stocks still made investors rich. Fidson closed the week at N9.55k to post 27.3 percent in capital appreciation Prestige Assurance also went on bid apparently due to its impressive full year results and lip smacking twin benefits of 20k dividend and 1 for 4 bonus.

No sooner had the authorities of The NSE made the pronouncement than the market re-adjusted with all performance indicators pointing northwards. We anticipate increase in activities in coming weeks following the suspension of ban on margin trading as investors re-position themselves in response to the latest developments. Also in response to these developments, market sources reveal that banks have started to approach their customers for margin facilities. This re-affirms our position of possible resurgence in coming weeks. - Meristem