What’s Going On? Saturday, Jul 19 2008

The market is determined on its southern course. For several weeks now, it has maintained its downward trend. Analysts have come up with different reasons for the market’s unrelenting slide; from profit taking, distractions from private placements to stoppage of margin accounts and delay in budget passage. But one thing remains clear; the level of liquidity enjoyed by the market over the past three years has dropped in the last couple of months. Its liquidity level started this drop late last year as investors became enamored by IPOs/POs that flooded the market then. These offers, which were mostly oversubscribed, tied up over N700 billion in the primary market. As the Yuletide approached more investors exited their positions to have cash to meet expenses associated with the celebrations.

At the start of this year, the market raced out of the blocks as the index gained 9.23% in the first three months of 2008 to hit 63,986 from a year start 58,579. Today, the index has fallen below the year opening to 56,234, a 13.79% drop in two months. The market cap has not done any better. It started the year at N10. 284 trillion, rose to N12.31 trillion before falling to N10.95 trillion. The initial good showings were mostly due to returned monies from oversubscribed offers. Then CBN put a stop to margin accounts, which analysts said made up 20% of the market. Following this was a plethora of private placements. Though supposedly for sophisticated investors, private placements seem to be the darling of virtually all shades of investors now. The result being a continuous drain on the market as investors trim their portfolios to take up promising private placements.

While some analysts are quick to point to the reasons above, others have continued to be worried because they believe the slide goes beyond margin stoppage, private placements or the budget, but they have not been able to place a finger to the problem. The market authorities are also confounded. This much was revealed when they set up a committee to review the embargo on margin accounts. The move underlines the fact that they believe margin investing could arrest the market slide. Could it?

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Are We Finally Safe? Saturday, Jul 19 2008

The market seems to have finally recovered from its slump over the past several weeks. A number of reasons had been given for the slowdown: from budget delay, margin account stoppage to the credit crunch in the US, lack of confidence in the market, and so on. But the bottom line is, the market went through a period of correction, a quite normal thing. For a while before the decline, equities had been trading consistently above their value, as so much money chased after limited number of quoted stocks on the Exchange. The result was that momentum traders and profit seekers throw money at stocks thereby pushing prices higher and higher. Value investors could hardly get good stocks at bargain prices to buy.

The three or four weeks of decline was, however, a great window of opportunity for value investors, who had been nudged of the market, to take positions in good quality companies at near or their intrinsic values. With the rebound, analysts have also come forward with what could be responsible. The rebound has been largely attributed to encouraging corporate results so far released. Yes, good results have helped somewhat, especially with dividends and bonuses declared by some of the companies. Whatever the cause of the new confidence, it is too early to celebrate the return of the bulls, as some are already doing. Is the rebound a temporary reprieve or are the bulls truly back? Well, whatever the case, this is still a good period to take positions in good quality companies at give away prices.

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