Nigerian Capital Market: Rising from ruins of recession

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Nigerian-Stock-Exchange

The Nigerian capital market, which had been on a negative trend since 2014 when the country’s fortunes started showing signs of recession, experienced a massive growth in 2017.

Although the market started year 2017 on a sluggish note, it emerged one of the best among its peers, against predictions of many financial experts.

Instability in foreign exchange rate, at the beginning of the year, negatively impacted on the market at the time, as many foreign investors exited.

The market remained fragile until April when the Central Bank of Nigeria (CBN) introduced the Nigerian Autonomous Foreign Exchange Market (NAFEX) window, which proved to be a confidence booster to foreign investors.

The aim was to stem capital flight.

The value of Foreign Portfolio participation in equity trading in the Nigerian Stock Exchange (NSE) totalled N851 billion as of October 2017 – 60.8 per cent higher than N517.55 billion recorded for the entire 2016.

Also, 2017 witnessed an average Foreign Portfolio Investment (FPI) per month of N85 billion as against N43 billion recorded in 2016.

A breakdown of FPI showed that August, March and June recorded the most impressive inflows at N208, N132 and N101 billions, respectively, with the lowest being N22.4 billion in April.

The fixed income securities were not left out as the Federal Government floated Sukuk Bond, Federal Savings Bond and Green Bonds during the year.

The market moved from a loss position recorded since 2014 to achieve one of the biggest growths among its peers in the frontier market.

Analysts have attributed the impressive performance to reforms introduced by the market regulators to boost liquidity.

Record of trading on the Nigerian Stock Exchange as at Dec. 20, 2017 showed that the equity market rose by over 41 per cent year-to-date, with the market rated the best investment stopover in sub-Saharan Africa as offshore investors scrambled to benefit from the recovery in the market.

Specifically, the All-Share Index which opened trading for the year at 26,874.62 rose by 11,059.24 points or 41.15 per cent to close trading at 37,933.86 as of Dec. 20.

All-share-index-Jan-Dec.-20-2017
All-share-index-Jan-Dec.-20-2017

Also, the market capitalisation which opened for the year at N9.250 trillion inched N4.249 trillion or 45.94 per cent to close at N13.499 trillion on Dec. 20.

As part of the move to stem the drift in the market and restore public confidence, the market regulators strengthened some reforms such as the foreign exchange policies, e-dividend payment platform, full dematerialization, and introduced Direct Cash Settlement initiative.

Dangote Sugar during the period under review emerged the best performing stock in percentage terms with a growth of 235.84 per cent to close trading on Dec. 20 at N20.52 against the year’s opening price of N6.11.

Top-10-Gainers-Jan-Dec.-20-2017, Nigerian Stock Exchange
Top-10-Gainers-Jan-Dec.-20-2017, Nigerian Stock Exchange

Fidson Healthcare trailed with 194.53 per cent to close at N3.77 compared with N1.28 it opened the year with; May & Baker rose by 191.49 per cent to close at N2.74 against 94k in 2016.

Other top gainers were Dangote Flourmills, International Breweries, Stanbic IBTC, Fidelity Bank, C & I Leasing, FBN Holdings and Airline Services.

Conversely, Forte Oil was the worst performing equity in percentage terms, dropping by 48.50 per cent to close at N43.48 per share on Dec. 20 in contrast with year’s opening price of N94.43 per share.

University Press came second dipping 43.40 per cent to close at N2.40 against N4.24 it opened the year with, while Mobil Oil lost 39.07 per cent to close at N170 against N279 in 2016.

Other top losers include MRS Oil, Transnationwide Julius Berger, Con Oil, Total, 7UP and Nigeria Enamelware.

Nigerian-Stock-Exchange-Top-10-Losers-Jan-Dec.-20-2017
Nigerian-Stock-Exchange-Top-10-Losers-Jan-Dec.-20-2017

Dr Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University, Keffi, says that the stock market fared better in 2017, recording over 40 per cent year-to-date return so far.

Uwaleke is of the view that the impressive performance was mainly due to a gradual rise in international crude oil price which enabled sustained interventions by the CBN in the forex market.

He also attributes it to the introduction of the investors-exporters window which strengthened foreign investors’ confidence.

According to him, other factors that accounted for the stock market rallies during the year include the country’s exit from economic recession and receding headline inflation.

Uwaleke says positive results and strong fundamentals of many quoted companies as well as the significant improvement in the World Bank ease of doing business contributed to the enhanced growth.

He notes that some of the confidence-building measures implemented by the Securities and Exchange Commission such as the e-dividend policy and full demartirialisation of share certificates helped to boost retail investors’ sentiments in 2017.

The don foresees a bullish stock market in 2018 in response to sustained favourable crude oil price in the wake of the extension of output cut agreement by OPEC/Non OPEC countries till the end of 2018.

“The surge in forex reserves to over 40 billion dollars, further improvement in the ease of doing business, further moderation of inflationary pressures, possible easing of monetary policy early next year and expected increase in liquidity, will enhance lending which is good news for the stock market.

“Also, the likely drop in Treasury bill yields and other government securities, as the government borrows less from the domestic market, will rub off positively on the fortunes of the stock market in 2018,” he predicts.

According to him, the performance of the market in 2018 will also depend on the implementation of the 2018 Budget, especially the capital component.

Malam Garba Kurfi, the Managing Director, APT Securities and Funds Ltd., also says operators were excited with the market growth which churned out over 40 per cent increase.

Kurfi notes that such a growth was seen last in the market in 2007 before the global financial meltdown and expresses delight that the market is now booming.

The managing director believes that the market was in recession since 2014, even before the economy went into `technical’ recession.

He is of the opinion that the apex bank’s policy on foreign exchange was able to restore foreign investors’ confidence in the stock market.

According to him, the index moved from negative to positive direction immediately the foreign exchange policy was introduced.

Kurfi calls for sustenance of the policy in 2018 to retain the confidence of foreign investors.

The managing director also urges quick passage of the 2018 Budget Bill as well as effective implementation of the budget.

He points out that company performances are the key indicators for price growth in the market rather than the forces of supply and demand.

Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., believes that the market is on a positive note on the strength of improving economy fundamentals as reflected in the nation’s GDP compared to the contracted economy of 2016 due to recession.

Omordion advises that investors should focus on the emerging sector with strong earning power to drive prices positively and pay dividends.

According to him, investors should target emerging companies with strong fundamentals and undervalued stocks to manage risks of elevated valuations.

Omordion adds that investors should monitor the market very well to avoid being taking unawares by exit of foreign investors without notification.

Analysts, however, caution that although the capital market recorded impressive growth in 2017, the market still has challenges to contend with in 2018 to sustain the growth, noting that developments in the international oil market, liquidity level in the foreign exchange markets and realignments in fiscal and monetary policies will determine trading and performance of the market in 2018.

They are convinced that early passage and implementation of the 2018 Budget will also play major roles to ease liquidity challenges and strengthen growth and development since the Federal Government remains the major spender and influencer in any economy.

* A News Anlysis by Chinyere Joel-Nwokeoma, News Agency of Nigeria

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