FUND MANAGERS REFUTE THE IDEA THAT THERE WAS A STOCK MARKET CRASH IN 2017
After a first and a second part dedicated to the dynamics of the market and to the external and internal reasons explaining the correction registered with the BRVM in 2017, Daniel Aggre, Managing director and founder of Sikadvisory and Ahmed Diallo, address in this third and last part the 2018 perspectives. Resolutely optimistic.
To better understand the decline in the market, a survey was conducted among fund managers in the UEMOA sub-region. The stated goal: to know the time of the year when fund managers felt the market downturn, the strategies adopted and the outlook for the 2018 year.
The information used by the fund managers for the most part, the decline in the market at the end of 1er quarter 2017 (April). And others early in the second quarter.
Strategy adopted
In order to understand the strategies put in place following the market downturn, they were asked to describe the composition of the portfolio at the beginning of the year and at the end of the year.
The review of the results shows that the share of equities in the portfolio of fund managers has fallen sharply between the two periods. Beginning 2017, these shares ranged from 35% to 81% of respondents. At the end of the 2017 year, the shares in the portfolio fell between 20% and 66%, respectively.
After seeing the decline in the market, managers began to reduce their positions in equities. The results obtained show that in the second quarter 2017 some reduced by 10% or more in the second quarter. They then sharply divested into equities to inject their resources into the bond market. Others preferred to keep cash.
These decisions are the result inter alia of the pressure suffered. At this level, it is important to note that the funds whose clients consist of companies and individuals have been under pressure from them. In addition, the preparation of the announced IPOs and the fall in market share prices have accentuated the divestment.
The divestment resources were used to purchase bonds and reinforce securities that performed well. Or even investments outside the BRVM market. However, the fund managers refute the idea that there was a stock market crash in 2017.
Indeed, almost all of them have argued that the market has just experienced a drop due to external events (see the article on Krach stock exchange or simple correction of the BRVM in 2017 for more elements).
The survey also looked at investor expectations for the 2018 year. It emerged that investors are optimistic. Indeed, they expect a market recovery and rely on an improvement of BRVM indices between 0 and 5% during the 2018 year. In addition, they plan to better position themselves on the equity market by counting on the growth of the 10% portfolios during the year.
The perspectives according to SIKA ADVISORY
According to SIKA ADVISORY analysts, “the 2018 year will be better than the 2017 year.”
“Our opinion is primarily based on the fact that market specialists believe in it at first,” they say.
In a second time, the BRVM’s stock market activity being strongly linked to the Ivorian economy, Côte d’Ivoire continues to have the confidence of its main donors and the economic world. And this, despite a difficult 2017 year, marked by social demands and mutinies.
In addition, the 2018 budget bill announced by the Ivorian government marks an increase in the investment budget to 1997.2 billion FCFA, ie 29.6% of the State budget and 7.6% of GDP. As a result, the 2018 year will be dominated by large infrastructure projects in collaboration with financial partners.
In particular, the urban transport project (86,3 billion FCFA), the construction of Abidjan Urban Train infrastructure (30 billion FCFA), the construction and extension of airports in the interior (30 billion FCFA). Or the project for Strengthening Transmission and Distribution Networks (PRETD) (30,1 billion), to name just a few.
Ivorian growth is projected at + 7.5%, that of Senegal should be around + 7%. The budget deficits of the union are expected to decrease from -4.4% in 2017 to -3.3% in 2018, according to IMF estimates.
Similar to the market of Ghana and Kenya
Based on the technical analysis. Our region is most often compared to the Kenyan and Ghanaian markets. These two markets have seen a sharp decline, the last two years for Kenya and these last 3 for Ghana. For the two countries mentioned above, the market fell by more than 30% for each country and the following year was the year of recovery.
As for the BRVM Composite, it recorded a fall of 21% over the last 2 years (2016 and 2017). And we have previously found that the 2017 year is strangely similar to that of 2011. So based on a technical analysis, 2018 should follow the progress of 2012. That is, a recovery but not the same dimension.
On the basis of fundamental analysis, the sharp drop recorded by the market this year has corrected the overvaluation of many listed securities (VIVO ENERGY CI, SERVAIR ABIDJAN, SMB, TRACTAFRIC MOTORS …).
Indeed, Côte d’Ivoire’s strong economic growth as a result of the post-election crisis and the lack of financial analysts on the market have led to the creation of a certain bubble.
In addition, the splitting announcements were perceived by some investors as a fall in the price of the share (see table below). Consequently, the price of shares split over the period (2012-2016) with the exception of SERVAIR ABIDJAN have all registered strong growth in less than 2 months without any real basis.
*For illustration,
However, the decline in the market these two (2) last years have helped correct some overvaluation of securities. Everything seems to indicate that the 2018 year should start on a good basis.
Similarly, in the development prospects of the stock market in this year 2018, the Director of the BRVM, Edoh Kossi Amenouve mentioned the 3e compartment dedicated to SMEs.
Several questions are looming on the horizon. Among other things, how to support them for a successful listing? How to instill a good financial communication?
How to even improve the financial communication of companies listed on the BRVM?
For analysts of SIKA Advisory, “if the financial communication of listed companies is improved, it will contribute to the improvement of capital gains at the BRVM in the coming years”.
So many questions that will be the subject of our next article on financial communication at the BRVM.
Daniel Aggre, Managing Director and Founder of Sikadvisory andAhmed Diallo (Financial Analyst)
Daniel K. AGGRE (photo) is a financial trainee, holds a Master’s degree in Pure Economics, obtained at the University of Cocody (Ivory Coast) and a Master in Banking and Finance at London Metropolitan University in Great Britain . He has held 10 years as a financial analyst specialty stock market and commercial financial products in the Financial Information Company, Bloomberg.
Daniel AGGRE has a very good knowledge of the African financial markets. As sub-saharan manager ex south africa, he developed financial products for this region. Daniel has worked in the city of London, Geneva and the financial center of Dubai.
He regularly organizes training sessions on stock market techniques in Abidjan. Mr. AGGRE is the Managing Director and founder of SIKAdvisory.