LIFTING LOCKDOWN: Market rebounds as Nigerian funds switch to stocks

May 1, 2020
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•Investors gain NN220bn
•NSE plans fresh rules on listing by introduction

By Peter Egwuatu  and  Nkiruka Nnorom

Stock exchange
Nigerian Stock Exchange

There are indications that equity investors are already positioning their stakes in the stock market ahead of resumption of economic activities next week.

Consequently, a bull run has set in leading to positive market outcome for all the trading days of the week, the forst time since the Coronavirus (COVID-19) pandemic entered Nigeria’s economy. The investors have gained over N220billion during the week.

The Nigerian Stock Exchange, NSE, market capitalisation surged to N11.997 trillion at the close of trading yesterday from N11.777 trillion at the close of trading last week Friday.

NSE All Share Index, ASI another major stock market gauge up by 1.9 percent or 431.63 points to close at 23,021.01 points from 22,599.38 points it closed last week Friday.

Analysts have explained that Nigerian funds managers are switching back to equities from fixed-income securities, hoping for a stock market rebound in response to the move to re-open the economy after the lockdown and also a further acceleration by middle of the year when global economy would have shaken off the COVID-19 shocks and the oil price rebounds.

On the other hand, Mr Adeniyi Falade, Managing Director of Crusader Sterling Pension, major institutional investors in the Nigerian stock market, who spoke with Reuters said domestic funds were betting on equities to stay ahead of rising local inflation.

“I believe the worst is over. We are positioning for a rebound which will come at some point … before the end of the year,” he said by phone. This is a period to go long on equities and short on bonds, whether corporate or sovereign.”

An equity analyst, who declined to be named, said that over the past five years, Nigerian pension funds have cut back their holdings of local equities in favour of fixed-income instruments, blaming the situation on the lack of reforms to spur growth in Africa’s largest economy following a recession.

New listing rules underway

Meanwhile, the NSE plans to introduce rules that would compel companies intending to list their securities by introduction to make more shares available for trading to the public on the day of their listing.

The NSE stated this in a notice tagged: “Amendments to the Listing Requirements: The Rulebook of the Exchange”.

Listing by introduction involves listing of company whose shares are already held through private placement.

Investors, especially domestic retail investors, have always expressed frustration at the inability of minority investors to secure shares in those companies for trading whenever such companies list their shares by introduction on the Exchange.

NSE said that the proposed amendment to the listing rules would not only address the concerns around availability of shares, but also provide clearer description of what listing by introduction entails.

The Exchange stated that the proposed rule would also compel prospective issuers to make information on their financial position available to investors in order to allow them make informed investment decision.

Accordingly, companies seeking to access the equities market through Listing by Introduction would be required to publish information on their financial position on their website at least 48 hours before listing.

According to the Exchange, “The amendment to the listing rules requirement seeks to impose an obligation on prospective issuers of equity securities, excluding public offerings, to make a reasonable volume of shares available for trading on the day of listing.’’

“Another concern is the need for sufficient information about the issuer’s financial position on the day of listing, to give the prospective investors a basis for trading in the issuer’s shares. Consequently, an additional amendments are being proposed to ensure that issuers provide their Information Memorandum or Securities and Exchange Commission (SEC) approved prospectus, as well as their latest financial statements to the market by publishing same on their website as least forty eight hours before the listing in order to enable investors to make informed investment decision regarding the issuer.”

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