Hope of recovery of the Nigerian capital market this year may be dashed, unless there are prompt returns in both equities and the fixed income markets. In this report, NGOZI AMUCHE takes a general look at the tricky nature of the nation’s stock market.
Many quoted companies on the Nigerian Stock Exchange have continued to suffer unbelievable price depreciation, despite their strong fundamentals. Viewed from whatever perspective, the year 2016-2017 could best be described as unrewarding for operators and players in the nation’s bourse.
Today, most of the stocks listed on the Exchange have become penny stocks and have refused to recover after the heavily dominated financial crisis and recession, which crippled financial institutions, leaving the stocks to trade far below the value they represented in the boom days of 2005 to 2008.
Although despite the sinking value, many of the companies have declared huge and appetising bonuses and dividends pay out.
The Point investigation revealed that the sluggish performance of stocks have been attributed to loss of confidence by investors, occasioned by political and economic uncertainties. This is as the unrelenting selling activities witnessed since 2012 continued to dominate even in 2015 with increased momentum. This, of course, came on the back of pessimistic posture of investors in the year, which later developed into a wait and watch atmosphere as the market seems to have defied every measure to revive confidence.
It is common knowledge however that the market is cyclic and volatile. It rises and comes down. Both scenarios are natural part of the market fundamentals. The market cannot continue to go down and it cannot continue going up, but currently the downward trend in the market is becoming worrisome.
Market observers and stakeholders, however, attributed the prolonged lull in the equities market and economy in general to tight macroeconomic policies, electioneering jittery and falling crude oil prices which thwarted stakeholders expectations and led to the exit of foreign portfolio investors.
Operator’s view
Chief executive officer of the NSE, Oscar Onyema, attributed the sagging fortune of the exchange to volatile market conditions and waning investors’ appetite for shares as well as divestment from the Nigerian market by foreign investors.
According to him, the Nigerian stock market was depressed by the absence of large companies in the market and the absence of loan facilities from the banks to support trading in the market.
Onyema recalled that the 2016 investment year will remain indelible in the minds of investors on the NSE as it was a year of wailing and lamentations not only in the capital market but in every sector of the economy.
Economist and Head, Investment Research and Advisory, Sterling Capital Limited, Mr. Sewa Wusu, said the current macro-economic environment is supportive of a positive outlook for the equities market.
Wusu explained that despite the fact that the market has failed to respond to some of the impressive results released so far, “I still think the outlook for the last quarter looks positive.”
According to him, “Most stocks are trading at their lows and that presents an attractive entry point for investors. The only downside risk will be the election cycle.”
An analyst at FSDH Merchant Bank said: “Although Nigeria’s Gross Domestic Products growth rate improved further in fourth quarter 2017 at 1.92 per cent from 1.40 per cent in third quarter 2017, the recovery is still very fragile, thus additional monetary policies are required to stimulate a broad-based growth.
FSDH pointed out that the increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance.
FSDH Research, however, recognises the vulnerabilities of the Nigerian economy to the adverse movements in the crude oil prices, thus the need to stimulate other non-oil sectors to reduce these vulnerabilities.
The managing director, APT Securities and Funds, Mallam Garba Kurfi, said the lull in the market would persist due to government’s inability to release sound economic blueprint, adding that the economy needed incentives that would trigger job creation with the dwindling revenue generation due to the global oil price.
The Managing Director, Highcap Securities Limited, Mr. David Adonri, said, “So far, based on what has been released, the market is not impressive.”
He added:”We are seriously worried in the market that the bear run has not been reversed.
For the past two quarters or so, the gross domestic product had been on a decline, but we thought that some other things could be done by the government to restore investors’
confidence.”
While the former President, Chartered Institute of Bankers, Mr. Okechukwu Unegbu, said the capital market would continue to nosedive because of over dependence on foreign investors’ cash and dependence on policies introduced by regulators.
Shareholders seek govt. intervention
President, Association for the Advancement of the Rights of Nigerian Shareholders, Dr. Faruk Umar, said that regulators are the only ones to restore the market back to its past glory, maintaining that it is collective effort of all the stakeholders in the
market.
“Federal Government needs to work on the issue of security, as we know, our market is driven by foreign investors and many of them are afraid of what is going on in the country,” he
said.
Responding, Mr. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, said for the market to go back to its past glory, government must tackle and re-assemble the present economy.
Basic challenges
The market was heavily laden with low investor’s confidence; poor market depth, in terms of limited securities and products on offer; poor savings and investment culture as a result of the country’s low per capital
income. Others are low market liquidity; excessive market concentration, with over 60 per cent of trading activities on bank stocks as well as legal constraints.
