Stock market loses N811bn in 10 weeks

14 March 2016, Lagos – The downward trend in the Nigerian stock market is showing no sign of abating any time soon as the market capitalisation has continued to fall, with 10 out of the 12 indices currently on the decline, STANLEY OPARA writes

*Floor of the Nigeria Stock Exchange.

*Floor of the Nigeria Stock Exchange.

The market capitalisation of the Nigerian Stock Exchange fell by N811bn from the first trading day of this year till Friday date despite the gains recorded in the market last week, when 40 equities gained and 21 others declined. Similarly, 10 out of the 12 market indices are also in the red.

Market capitalisation is the total market value of the shares outstanding of a publicly traded company.

The NSE market capitalisation dropped from N9.75tn on January 4, 2016 to N8.939tn on Friday, while the All-Share Index also closed at 25,988.40 basis points from the 28,643.67 basis points recorded on the first trading day of the year.

For the third year running, investors made huge losses in the Nigerian equities market last year as the market capitalisation (equities only) of the NSE shed a total of N2.354tn between December 2014 and December 2015.

In the first seven trading days of this year, equity investors in the country’s capital market lost N804tn of their investments’ worth.

The market capitalisation, which was N9.75 on January 4, depreciated to N8.95tn after seven days of trading.

The NSE currently has 10 out of its 12 market indices in red when compared to the performance of the market this time last year. This represents about 83.33 per cent fall year-to-date.

The NSE All-Share Index, Premium Index, Main Board Index, 30 Index, Banking Index, Insurance Index, Consumer Goods Index, Lotus II Index, Industrial Goods Index and Pension Index closed negative year-to-date as of the last trading day.

Only two of the indices, the Alternative Securities Market Index and Oil & Gas Index, recorded gains of 0.10 and 4.97 per cent year-to-date, respectively. Both closed at 1,209.89 and 374.29 basis points on Friday.

The NSE All-Share Index closed at 25,988.40 basis points, falling by 9.27 per cent year-to-date; Premium Index closed at 1,491.63 basis points, shedding 5.89 per cent year-to-date; the Main Board Index closed at 1,188.74 basis points, with a loss of 11.15 per cent year-to-date; while the NSE 30 Index ended Friday at 1,147.60 basis points, falling by 10.88 per cent.

The NSE Banking Index closed at 247.08 basis points, shedding 7.97 per cent year-to-date; the Insurance Index closed at 131.68 basis points, haven lost 7.66 per cent; the Consumer Goods Index closed at 604.22 basis points, shedding 19.03 per cent; the Lotus Islamic Index ended at 1,799.77 basis points, depreciating by 9.96 per cent; the Industrial Goods Index closed at 2,014.87 basis points, shedding 7.01 per cent; and the Pension Index also shed 11.39 per cent year-to-date to close at 722.34 basis points on Friday.

A stock index is a measurement of the value of a section of the market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments.

A market index is a quick measure to judge the overall direction of the market and the scope of its movements.

The NSE ASI is the total market (broad-based) index reflecting a total picture of the behaviours of the common shares quoted on the NSE. It is calculated on a daily basis, showing how the prices have moved.

The Premium Board Index is an equity index designed to provide a benchmark to capture the performance of companies listed on it. The board features companies that meet the Exchange’s most stringent listing criteria of capitalisation, governance and liquidity.

The NSE-30 comprises the top 30 companies listed on the Exchange in terms of market capitalisation and liquidity (high frequency of trading of the shares), among other criteria. The index is reviewed quarterly.

The Lotus Islamic Index is an index of companies that are found to be compliant with the stringent rules of Sharia. For instance, companies dealing with pork, alcohol, gambling, tobacco and banks do not qualify to be part of the index.

It is aimed at helping the Islamic investor community as well as other interested investors to identify and invest in businesses that are compliant with the Sharia laws.

The NSE Pension Index, whose constituents meet certain criterion (taxable profits, dividend, free float, sector and individual stock weighting) as defined by the National Pension Commission Investment Guidelines, was created to ease the replication of equities portfolios and serve as a performance benchmark for pension asset managers, non-pension asset managers and investors.

The Alternative Securities Market Index is a specialised index for emerging businesses – small and mid-sized companies with high growth potential. It gives such companies the opportunity to raise long-term capital from the capital market at relatively low cost, allowing them to grow and be institutionalised.

On the state of the market year-to-date, the Senior Associate and Head, Investment Research, Afrinvest West Africa, Mr. Ayodeji Ebo, told our correspondent that investors, local and foreign, were still very cautious about participating in the Nigerian stock market.

“They are very conservative about the full year results; and this is expected. The year 2015 was indeed a very challenging year for investors, hence the need to thread with caution,” he said.

Ebo said amid these challenges, a right policy direction was capable of turning things around and return the declining NSE indices to positive trends.

He added, “For now, not much is happening. Things are getting worse. For instance, on the fiscal side, the 2016 budget has not been approved. Currently, the nation is plagued with nationwide petrol scarcity and unprecedented power outage, which has continued to push up overheads for companies, organisations and households.

“Things may even get worse if we do not review our policy stance as a nation in terms of fiscal policies, foreign exchange and the likes. We should be proactive as a people.”

Also commenting on the declining NSE indices, the President, Constance Shareholders Association of Nigeria, Alhaji Shehu Mikail, said in a telephone interview that the Federal Government should be blamed for the multiple misfortunes that had befallen the country’s capital market, and not the investors.

He said the wrong policies of government had only helped to propel the exit of potential investors from within and outside Nigeria.

Mikail noted, “The truth is that investors are running away from the market at the moment. There is no point blaming the NSE or investors. The NSE, which is the regulator of the market, has helped a great deal to sustain sanity in the market in this turbulent time.

“Many firms would have wanted to cut corners at this time, but it is rather difficult for them to do so because of the market regulator and its strict adherence to sanctions for errant players.”

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