Nigerian Capital Market: Emerging from the challenges of global meltdown

Nigerian Stock Exchange 128 December 2013, Abuja – Five years after the meltdown of the Nigerian capital market, some investors and operators appear to have shaken off their investment shocks by describing 2013 as the year of recovery and consolidation.

The stakeholders say that their new enthusiasm about the nation’s portfolio climate stems from the rebound of high rate of securities transactions, the recovery of the national economy and the rising public confidence in government and governance.

In the first week of December 2013, the Nigerian Stock Exchange (NSE) overall transactions grew from a loss position, recorded during the downturn in 2008, to a level which is widely considered as one of the best in the frontier market today.

The stakeholders say that the major drivers of the market growth developed from the strict adherence to corporate governance and zero-tolerance to aberrations by the regulators in the year under review.

Other key growth indicators of the market are regulatory reforms and initiatives, as well as strong financial fundamentals posted by publicly quoted companies.

Apart from the licensing of market makers by Securities and Exchange Commission (SEC) in 2012, the introduction of securities lending, short selling and consistent monetary policies contributed to the market stability.

Specifically, the stability of the exchange rate at N157 to a dollar throughout the better part of 2013 encouraged more foreign investors to remain in the capital market, while stemming capital flights and encouraging foreign investments in local debt papers.

Available securities transactions at the NSE as at Dec. 9, 2013 showed that the equity market grew by 37.96 per cent year-to-date.

The visible market growth made the Nigerian bourse to be rated the best investment destination in sub-Saharan Africa.

The All-Share Index of the Exchange in the period under review appreciated by 37.96 per cent year-to-date to close trading at 38,738.15 points, as against the opening index of 28,078.81 points.

The Index, a measure of the market direction, grew by 34.5 per cent in 2012.

The market capitalisation, which opened trading for the year at N8.98 trillion, grew by N3.41 trillion to close trading on Dec. 9 at N12.39 trillion, reflecting a growth of 37.97 per cent.

In spite of the market growth, the NSE witnessed only the listing of Computer Warehouse Group (CWG) and Infinity Trust Mortgage (ITM).

Providing an insight into the market performance in the period under review, Ms Arunma Oteh, the Director-General of the SEC, attributed the growth to some factors.

She said that the factors included the concerted efforts of operators and regulators as well as the Federal Government’s reforms and initiatives, aimed at boosting activities in the market.

Oteh debunked claims in some quarters that the recent growth in the market would soon fizzle out, saying: `The capital market is not driven by euphoria but by fundamentals of different sectors of the economy represented on the exchange.”

She said that the financial sector had recorded appreciable growth.

“The banking sector is leading because globally, everybody recognises the bold steps which Nigeria took to address the challenges facing the financial sector.

“Besides, many people recognise that Nigeria is, indeed, the preferred investment destination in spite of the challenges,” she said.

Oteh said that SEC was monitoring the current reforms in the nation’s economy, including the government’s privatisation programme, so as to ensure that privatised companies were encouraged to get listed on the local bourse.

She also said that efforts were underway to create an enabling environment for energy companies operating in the upstream and downstream sectors, as well as telecommunications companies to also get listed on the stock exchange.

Mr Okechukwu Unegbu, the former President of the Chartered Institute of Bankers of Nigeria (CIBN), said that the market’s growth could also be attributed to the activities of market makers and the impressive financial results by listed companies.

He, however, said that the Federal Government must make the national economy investor-friendly by reviewing the nation’s business laws.

Unegbu also called for a reduction in the nation’s domestic debt and the effective implementation of the 2014 budget with a considerable emphasis placed on infrastructural development.

On his part, Mr David Adonri, the Chief Executive Officer, Lambeth Trust Investment, noted that the stock market growth this year had surpassed the performance of 2012.

He said that increasing investors’ confidence and internal reforms, especially the commencement of market, had affected the market positively this year.

He pointed out that the stability and growth of the capital market would be sustained if the regulatory framework remained effective.

Adonri , however, underscored the need for the Federal Government to pursue sound fiscal and monetary policies that would be market-friendly in the years ahead.

He stressed that the regulatory initiatives could only be meaningful if local investors took due advantage of new and dynamic frameworks, current market trends and improved companies’ results to increase their stakes in the bourse.

Nevertheless, Dr Doyin Salami of the Lagos Business School expressed reservations about the gains so far recorded in the market.

Salami, an economist, expatiated that his queries about the much-touted market growth were due to the dominance of the activities at the NSE by foreign portfolio investors.

He said that as at Dec. 5, 2013 foreign portfolio investment profile in the nation’s bourse amounted to about N13 billion dollars.

Salami solicited the encouragement of domestic retail investors, even though he welcomed new foreign investments in the nation’s economy, particularly in the equities market.

“Capital market regulators need to show more concern on how to improve the participation local investors in the market so as to avoid another round of meltdown in the event of investment outflow by foreign investors,” he said.

Salami said that the regulators must evolve strategies and create pragmatic policies aimed at increasing local investors’ participation in the nation bourse.

He said that the active engagement of domestic investors in the nation’s portfolio investment would only be visible and sustainable if concerted efforts were made to make ongoing reforms investor-friendly.

He, nonetheless, described the current situation in which emphasis was placed on market automation to the detriment of local investors as a dangerous trend.

In spite of the optimism and misgivings about the growth of the country’s capital market in 2013, Salami said that tangible efforts should be made to address the waning confidence of local investors in the market come 2014.

He blamed the limited confidence of local investors in the market on their alleged alienation by the government in efforts to mitigate investors’ losses after the 2008 meltdown.

Market analysts underscore the need for regulators to quickly embark on another round of investors’ awareness campaign nationwide.

They say that such awareness campaigns would be handy in efforts to assuage the fears of investors and provide the much-needed technical knowledge on the dynamics of the capital market.

The analysts also urge the Federal Government to honour its earlier pledge to remove market-based taxes for the system.

The elimination of stamp duties and Value Added Tax (VAT), among other levies, as promised by government in December 2012, would aid efforts to create the much-needed market liquidity, they add.

The analysts also urge market regulators to strengthen the Investor Protection Fund (IPF), while resolving the recurring menace of unclaimed dividends.
*Chinyere Joel-Nwokeoma, NAN

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