30 December 2015, Lagos – As stakeholders in the nation’s stock market looks forward to the formal closing of trade tomorrow, many of them are highly disappointed that they are ending the year with losses. When the market opened for trading in January 2015, hopes were high, that after a suffering a decline of 16 per cent in 2014, the market would recover this year. Given that enthusiasm, many investors entered the market, convinced by the lower prices of most of the stocks.
But as the market closes for the year, it is recording another loss worse than the decline recorded in 2014. With just three trading days to the end of the year, the market capitalisation of the Nigerian Stock Exchange (NSE) has dipped by N2.24 trillion, while the NSE All-Share Index (ASI) has dipped by over 22 per cent.
While events in first and second quarters of the year made some operators to prepare their minds for a negative market performance in 2015, they never expected the decline to be as high as 22 per cent in ASI and N2.24 trillion in market capitalisation.
While regulators made efforts to restore and sustain investors’ confidence in the market, other domestic and external factors negated the impact of such efforts. Consequently, the stock market is recording its second consecutive decline, even with apprehensions that the negative trend may not be over in the first quarter of 2016.
The market began to suffer a bear run when investors started reducing their investments in the market over the uncertainties around the general elections. Domestic and foreign investors adopted cautious trading as they monitor events leading to the general elections. However, once the results of the Presidential election were announced and President Muhammadu Buhari declared winner, the market reacted positively.
In fact, the emergence of Buhari as president of the Nigeria raised high optimism among investors, who swooped on the stock market. Consequently, the market posted a historic performance, gaining N904 billion in one day. But the positive performance could not be sustained as delay in forming the federal cabinet by Buhari and continued slide in oil price dampened investors’ confidence. The devaluation of the naira and stringent measures to check the further slide in the value of the currency, kept foreign investors away from the market.
Assessing the performance of the market, the Chief Executive Officer of Quest Advisory Services Limited, Mr. Bayo Rotimi said it was occasioned by a combination of multiple global and local macro-economic events ranging from the impact of the sharp decline in commodity prices; slow/negative growth in China and other emerging markets.
“The 2015 general elections and the delay in inaugurating the federal cabinet; and the depreciation of the Naira followed by the stringent calls from various quarters for a further devaluation of our national currency. A raft of weak corporate earnings by leading companies was also not particularly helpful. These have occasioned the massive outflow of capital by foreign portfolio investors which have, in turn, led to further decline in the ASI,” he said.
In the opinion of a senior stockbroker and Managing Director, Partnership Investment Company Plc, Mr. Victor Ogiemwonyi, the performance of the market in 2015 is probably the worse in years, saying it was challenge given the slowdown of the economy.
“From a growth trajectory of six to seven per cent that was predicted for 2015 to a mere 2.3 per cent actual growth, means that the economy was in deep recession throughout the outgoing year. Elections and the usual disruptions, combined with insecurity to steep drop in oil prices, all combined to put the capital market in a negative territory through the year,” he said.
Ogiemwonyi added that there was no significant capital raising activity nor was there investors active in the market.
“The significant drop in oil prices translated to sharp depreciation of the naira as foreign investors sold their stocks and left in droves,” he said.
Speaking in the same vein, the Managing Director of Highcap Securities Limited, Mr. David Adonri, said the performance of the market reflected the parlous state of the Nigerian economy.
“So far, the ASI and market capitalisation have declined by over 20 per cent. Demand for debt securities has also declined considerably. The primary market for equities has virtually be dormant through the year. In summary, the capital market performance very poorly in 2015,” Adonri said.
An investor and General Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr. Bayo Adeleke said the market did not deliver on the expectations of investors in 2015, saying the reasons are many.
“Investors’ hesitation early in an election year, extended election timetable and overheated polity, heightened insecurity, continuous slide in price of oil, non- composition of federal cabinet, non-payment of salaries to workers, unimpressive results of companies for 2014, among others. Therefore, the market performance is very poor,” Adeleke said.
Not All Gloom
While the market went down under the heavy burden of factors beyond the control of regulators, some positive developments took place that would help to fast-track restoration of investors’ confidence to the market in the very near future.
According to Rotimi, there were some positives in the market. “Among the positives were the strong calming influence of the Securities & Exchange Commission (SEC). The SEC has shown responsiveness to the evolving needs of the market through the release of far-reaching rules and operating processes aimed at fostering greater efficiency as well as deepening the Market,” he said.
Rotimi added that SEC has also demonstrated it’s resolve to crack down on infractions by market operators.
“The recent inauguration of the Capital Market Masterplan Implementation Council(CMMIC), in my view, is its clearest demonstration of its commitment to the actualisation of the roadmap, which represents the collective resolve of all stakeholders in the capital market,” he declared.
Apart from the CMMIC, SEC also launched the National Investor Protection Fund(NIPF) board , a development that is expected to boost investor confidence and attract them back to the market. Nigeria’s capital market regulatory regime, anchored on the Investments and Securities Act 2007, mandates securities exchanges to set up investor protection funds for the compensation of investors who sustain losses due to bankruptcy or malfeasance by any of their dealing members.
Already, the NSE already set up an investor protection fund, which will have responsibility for compensating investors who suffer losses due to faults of NSE-member broker dealers. However, the SEC’s NIPF will compensate such investors whose losses are not covered under the investor protection fund administered by the NSE.
Another positive initiative that was introduced by SEC recently is the Corporate Governance Scorecard for public companies. The corporate governance landscape in Nigeria has witnessed modest advances over the last decade. Five regulatory institutions have developed and released codes of corporate governance for participants in their respective industries.
These include the Central Bank of Nigeria (CBN), the National Pensions Commission (PenCom), the National Insurance Commission (NAICOM) and the Nigeria Communications Commission (NCC). The fifth regulator is the SEC, whose 2011 Code of corporate governance covers all public companies regardless of their industry of operation in the country.
However, a key ingredient that has been missing all along in the Nigerian corporate governance environment has been the right instrument to incentivize compliance and encourage disclosure. That is the essential value that the SEC Scorecard is expected to add to the system.
Developed with support from the International Finance Corporation (IFC), the Scorecard is based on the SEC 2011 code of corporate governance. The Scorecard is a tool for the assessment of corporate governance practices. It is aimed at measuring adherence to the code of corporate governance. The Scorecard would also be used to assess the progress of companies’ governance practices overtime while enabling comparison among companies within or across sectors, with a view to fostering best practices. With these initiatives, capital market stakeholders believe the implementation of the master plan is on track.
While existing investors are counting their losses, it is believed that current valuations of most equities offer an entry opportunity for fresh investors. It is also an opportunity for existing investors to mitigate their losses.
The Chief Executive Officer of the NSE Mr. Oscar Onyema, had advised investors to take advantage of the low prices of equities .
According to him, although many anticipate volatility through the first half of the year, some stock prices are at their lowest since the May 2013 sell-off, and some are below book value, thus, presenting domestic investors with no currency risk, an opportunity for cautious long-term investing.
He declared that NSE is unwavering in its commitment to solidify its leadership position as Africa’s foremost securities exchange, and is committed to initiatives that will position the bourse as an attractive listing and investment destination.
“In support of the federal government’s reforms, the NSE intends to continue to provide a viable platform to support the financing and sustainable development of the real economy. In 2015, the exchange has been focusing on delivering several initiatives in support of its revised strategy,’’ he said.
- This Day