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NASD OTC Defies Bearish Economic Fundamentals; Grows Market CAP

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Thursday, December 01, 2016 12.50 PM / TheAnalyst 

The growth in a market is measured by the rate at which liquidity is entering and exiting such market. If exiting rate is higher, it means liquidity level is shrinking, i.e. more money is exiting the market than entering. Obviously, stocks would slide. And on the other hand, if money is coming into the market at a greater rate than is exiting, stocks in market would rise.  This is the case of two Nigerian Equities markets. The Nigerian Stock Exchange and NASD OTC Markets

As we speak, analysis revealed that large and smart monies are exiting Nigerian stock Exchange- while the OTC market has experienced modest weakness in its inflow in recent weeks. Though, the Year-To-Date performance outlook is much more impressive when compared with bearish run in stock exchange.

So far in the year, the Net worth of Nigerian stock market had depleted by N1.16triliion, representing 11.83% YTD loss- the total loss is about 14% of current market net worth.  

On the other hand, the NASD OTC market recorded modest inflow. So far this year, Market net worth has gained N54.32billion i.e. about 14% of current market capitalisation as November 30th 2015. 

The outlook in both markets has reflected economic outlook as no market is an economy on its own, the general state of the economy has great influence on market performance- the forces of bearish fundamentals of the economy are dictating the investments decision, particularly towards equities.  

The Earnings and profitability postures of companies across sectors have shrunk considerably as Q1'16, Q2'16 and Q3'2016 earnings reports had shown. The rising inflation and increasing costs of production and operation leave companies (quoted and unlisted companies) with marginal profits.  

This has incited sell activities in both markets, though with much negative impact in stock exchange as investors reshuffled and reduced exposure to equities considerably by moving capital out of equities portfolios to bonds and other fixed income instruments because of the attractive high yields.  

In NASD OTC Market, the low level of dematerialisation could be responsible for weakness in liquidity inflow observed in the year. We observed that the dematerialisation level of securities on the NASD Market is currently low (15.71%), and a low dematerialisation level means there are few (18.66 billion of 118.79 billion) units of shares that are available for trading in the market.  

Nevertheless, the market recorded improved and commendable liquidity posture as position of its market capitalisation had shown above. We expect the market to sustain the positive outlook for the year 2016. 

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