March, June to remain "profit-taking" months after market correction.

[madeonline]

Chukwuma Soludo, governor, Central Bank of Nigeria (CBN), affirmed (as quoted on the pages of businessday newspapers of July 10) that Nigerian stock market is one for the leading five globally. Also, recent analysts report from two globally acclaimed offshore investment banking firms, Renaissance capital and JPMorgan also supports the view that the market is healthy and there is no cause for panic in view of present bearish trend and price volatility.

It is worthy to note that volatility in stock market is a usual phenomenon in all other jurisdictions all over the world hence there is a need for the Nigerian investors to understand and learn to adjust to global patterns. It is expected that after the on-going market driven regulatory corrections, the Nigerian stock market would have easily recognizable global benchmarks and ROIs that are easily correlated with financial statements or forecasted based on published financial statement of public companies (and its thorough analysis).

Definitions of investment gestations would also need to be adjusted as investors must accept the fact that short–term or current investments are for a minimum period of one year and medium-term investments are required to mature within two to three years while long-term investments may take three to five years. This is a sharp contrast to the liquidity propelled situation of Q1, 2008 that herald the market correction in Q3, 2008 2008. Then, short term investments could be as short as one month with ROI of 100% from a stock whose financials have not be updated in the last four years!

In view of the above, and in recognition of the fact that timing is very essential in equity trading; it is expected that the months in which we expect the greatest number of financial statements to be published would retain their status as profit taking months in the years ahead. The major reason why stock prices rally in those months are expectation of corporate actions (that may include declaration of bonuses and/or dividend) and increased sectoral band wagon effect. Although the market is not responding positively to good corporate actions in Q3 and the situation may persist till Q4, 2008, however, it is expected that both ROI and market momentum would be driven by corporate actions and their expectations in Q1 to Q2, 2009 in line with previously established patterns.

Also, it is expected that the uniform year ends for banks would strengthen March as a corporate declaration month as 21 other banks would adjust their year end to December 2008 bringing the number of companies with December as their year end to atleast 145. It is expected that most newly listed companies, (especially Microfiance Banks/non-banking financial institutions) on the exchange are expected to also adopt December for the year end.

A survey of 200 actively traded stocks on the exchange reflects that 63% of listed stocks have their year end in December, 19% March while the others months have 18%.


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