22 — Vanguard, WEDNESDAY, OCTOBER 10, 2012
Liquidity flow to stock market rises by 46.4% ..Market making stimulates activities in penny stocks BY NKIRUKA NNOROM
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ARIOUS measures be ing put in place to stimulate activities in the capital market seem to have started yielding results as liquidity flow to the market increased by 46.4 per cent to an average of N3.42 billion per day in the month of September. The Managing Director, Financial Derivatives Company Limited, FDC, Mr. Bismark Rewane, made the assertion, while reviewing activities in the economy and capital market for the month of October. He, however, stated that despite the increase in liquidity, Nigerian market still remained highly illiquid relative to other emerging markets. The FDC boss cautioned that “inflow of hot money could lead to a domestic capital market bubble.” Meanwhile, Rewane observed that there was increase in activity in small-cap stocks in the portfolio of market makers recently constituted by the Nigerian Stock Exchange, NSE.
He said, “Market making activity has not resulted in diversion of funds from traditionally heavy traded stocks. There has been no significant change in
activity of large and mid-cap stocks. However, the impact of market-making activity will be better judged in upcoming months.”
He adjudged September the best performing months in the capital market since the market crashed the last three years, saying that there was 9.5 per
From left: Mr Thabo Mabe, Managing Director, Unilever Nigeria Plc; Mr Frank Braeken, Executive Vice President, Unilever Africa; Elohor Olumide-Awe, Assistant Category Manager; Mr David Ukeme, Marketing Director and Mr Kalpesh Parmar,Customer Marketing Director all of Unilever at the reception in honour of Braeken, in Lagos. Photo: Biodun Ogunleye.
Gov’s aide warns against recipe for ongoing privatisation BY PETER EGWUATU
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ANAGING Director/ CEO of Bayelsa Electricity Company Limited, Engr. Olice Kemenanabo has warned that the on-going privatization of electricity distribution in the country may end up in a fiasco if certain key post-acquisition success variables are not factored into the criteria for selecting the preferred bidders by the Bureau of Public Enterprises BPE. Speaking on “The New Power Distribution Model: Peculiarities of the Niger Delta” in Lagos at the weekend, Kemenanabo who doubles as the Special Adviser to the Bayelsa State Governor on Power, urged the privatization agencies handling the new power distribution process to ensure that the bidder with the best knowledge of the local environment and affinity with the State Governments should be some of the key considerations for selecting the preferred bidder for the new power distribution model. He added that size of utility experience of the bidders; experience in rural and urban areas and the need for the state government’s participation are other key pre-requisites for the post-acquisition operation success of the preferred bidder. He asked rhetorically, are the partners familiar with the terrain? Can the shortlisted bid-
ders deliver; can they take power to the rural riverine areas? ‘’We must ensure that we select somebody who has a track record of having done it before with great competence’’, he said, stressing that loss reduction figures should not be a strait-jacket parameter for selecting preferred bidders as against technical experience, size of previous operations and adequate knowledge of the environment. Kemenanabo however, cautioned that electricity is not a product; but a process, stressing that, ‘we must make sure that the right technical framework is put in place to sustain the success of liberalization post acquisition. He said, ‘’otherwise, the beautiful work already done by the respective privatization agencies in the exercise shall end up making a hero out of a monopoly franchise we’ve all condemned as being the cause of the lack of electricity ’’. Of the three components of electricity supply chains to the consumer: generation, transmission and distribution, according to Kekenanabo, distribution is the only component that has connection with the end-users of electricity. He however, warned that ‘’if we don’t get it right with the new distribution model by selecting the most suitable distribution company as the preferred bid-
der, in spite of the impressively comprehensive privatization exercise by the BPE so far, we might still end up in the dark age’’ Rather than using ‘loss reduction’ which he said is neither here nor there as a basis of selection as against technical ex-
perience and ability to take electricity to the people, Kekenanabo urged the privatization agencies to avoid ‘trial by error ’ in selecting the preferred bidder for the power distribution in the Niger Delta given the volatility of the region.
cent return in the month compared to 5.23 per cent loss in the same period of 2011. He noted that the All Share Index, ASI, returned 20.4 per cent or 4,412.06 points in quarter three, adding that it was the first consecutive quarterly gain since fourth quarter 2007 and first quarter 2008. he explained that this was a marked up performance relative to the gain of 6.77 per cent and 2.99 per cent in July and August respectively, adding that the market crossed the 24,000, 25,000 and 26,000 points barriers in the month. He further stated that a total of 10.0 billion units shares was traded as volume increased by 83 per cent during the month, saying that the huge volume traded was consistent with other high volume turnover in the final months of quarter one and quarter two. According to him, the recovery witnessed in the market in the month of September was supported by both fundamental and technical analysis, even as investors’ interest was driven by performance potential, business model and strategy. “The recovery was supported by improved corporate earnings despite tough operating environment. Fund managers were buying stocks to increase equity exposure in portfolio as yields in fixed income fall. Big investors net buyers of stocks in August/September because to them, all the bad news had been discounted while corporate earnings were improving. There was falling yields in the bonds market making equity investment even more attractive,” he stated.
Bank profit leading S&P 500
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S third-quarter earnings season begins, the companies analysts are most bullish about are the ones whose stock prices are farthest below their highs — banks. While financial institutions in the Standard & Poor’s 500 Index climbed 24 percent in 2012 for the biggest rally in nine years, they remain 58 percent below the record of February 2007, according to data compiled by Bloomberg. Signs of a housing recovery prompted Wall Street firms to raise estimates for profit growth to 21 percent for the third quarter and 32 percent in the fourth, the most of 10 S&P 500 industries. Bulls say banks will continue to rally as Federal Reserve stimulus boosts earnings and helps companies from BB&T Corp. to KeyCorp and rebound from the 84 percent drop during the financial crisis. Bears say gains will be limited to traditional
lenders and increased regulation will drag down firms that depend on trading and underwriting for revenue. “As transactional volume increases for consumer, housing and business credit, there is an opportunity to increase earnings” among regional lenders, said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $3 billion. Firms outside of the “purer banking model” face too much regulation, he said in an Oct. 3 e-mail. Almost five years after the stock market high, real-estate loans among 7,246 federally insured banks have fallen to $4.09 trillion from the record $4.81 trillion reached in 2008, Federal Deposit Insurance Corporation data shows. After declining for 14 consecutive quarters, lending expanded 0.4 percent during the last
three months of 2011 and less than 0.1 percent between March and June of this year. Financial companies still haven’t recovered to pre-crisis levels, with revenue per share at less than half the amount in 2007, according to data compiled by Bloomberg. Tighter rules that limit firms’ trading and call for higher capital requirements and new home sales 70 percent below their record are weighing on investor sentiment. While banks, brokers and insurers gained 158 percent since equity markets bottomed in March 2009, leading the S&P 500, it would take a rally three times as large to get back to the all- time high. More than $2.4 trillion was erased from the S&P 500 Financials Index (S5FINL)’s value from February 2007 to March 2009, as lending froze and writedowns and losses related to subprime mortgages climbed to $2.1 trillion globally.