Shareholders of companies traded at the Nigerian Stock Exchange lost as much as N1.2 trillion in the first four months of the year (January – April 20016). This leaves the Nigerian Stock Exchange as the worst performing stock exchange among its peers in African countries. Available data showed that the NSE has returned negative 12.5 per cent within this period, thereby consolidating the negative performance sustained in the last two years. Opening the year at N9.50 trillion, the market capitalisation of all listed equities slumped by N1.2 trillion, representing -12.5 per cent decline compared to N8.62 trillion posted at the end of April, 2016.
Also the All Shares Index, ASI, which opened the year at 28,642.25 points, fell by 3,579.84 basis points to close at 25,062.41 points, again, representing -12.5 per cent year-to-date return. The NSE had in 2015 retreated by17.4 per cent compared to a decline of 16.14 per cent in 2014. The ASI lost 6014.90 points or 17.4 per cent to close for the year at 28,642.25 on Dec. 31, 2015 from the 34,657.15 it opened for the year, while market capitalisation, which opened for the year at N11.478 trillion in 2015, lost N1.63 trillion to close at N9.850 trillion on Dec 31, 2015.
Meanwhile, operators have blamed the declining returns in the nation’s capital market to poorly articulated economic policies by the economic managers. They averred that getting the economic policies right as well as major improvement in macro-economic environment hold the key to resuscitating and keeping the market on the path of positive growth. They also believe that attracting retail investors back to the market would improve the general performance of the Exchange going forward. Performance of other majorequity markets in Africa(January – April) Of all the major stock exchanges surveyed by Financial Vanguard, FV, the NSE recorded the worst investors’ return during the first four months to April, 2016.
Just like the first quarter of the year where the NSE underperformed all the major exchanges, it continued the trend into the fourth month, coming just closely behind Ghana and Zimbabwe stock exchanges which returned negative 8.3 per cent and 7.9 per cent year-to-date respectively. The NSE outperformed only Mauritius Stock Exchange which recorded -1.6 per cent return. The Egypt Stock Exchange outperformed all the other major exchanges during the four month period, recording 11.0 per cent returns, followed by Tunisia’s Dar es Salaam with 6.2 per cent returns. BVRM and the Johannesburg Stock Exchange, JSE, recorded 4.9 per cent and 4.5 per cent returns respectively, while Nairobi Stock Exchange returned 0.6 per cent to investors. Constraints for the NSE David Adonri, Managing Director, Highcap Securities Ltd, attributed the negative RoI to the impact of declining price of crude oil, which severely affected commodities exporting markets, of which Nigeria is one. He fingered lack of policy direction by the new government of Nigeria, the delay in take-off of the new government and consistent declining of macro-economy as part of the problems. “You can see that inflation rate moved away from single to double digits and then exchange rate crisis, coupled with the energy crisis.
Those were the factors that affected the macro-economy that impacted negatively on the capital market,” he stated. He, however said that the market may not dwindle further, as it has experienced the worst situation this year because “the government is gradually picking up and the crude oil market is becoming more stable. I believe that macro-economy will improve as we move forward and that will impact positively on the capital market.”
Speaking in the same vein, Mr. Johnson Chukwu, Managing Director/CEO, Cowry Asset Management Limited, said: “There are multiple problems, among which are the issues of policy environment; because the government has not come out with a well defined economic blueprint, the economic agents like fund managers have been shying away from risky investments, which equity investment naturally represents. They have been underweight in equities and rather overweight in fixed income instruments because they need to have clearer policy environment. “The second factor is the capital controls imposed by the Central Bank of Nigeria (CBN) in terms of foreign exchange. What we have seen is consistent exit of foreign portfolio investors from the market. Another thing is the depletion in the reserve; the reserve that should give investors confidence of the ability of the government to meet its foreign currency obligation has also been weak because of the low crude oil price.
“And then the issues related to the performance of the quoted companies. We have seen a situation where most of the quoted companies are declaring decline in earnings apart from the few which seem to have weathered the storm. But even then, if you look at those of them that have published their first quarter results, most of them have decline in their earnings and profitability.
“The banking sector which account for significant part of the market, is also going through some difficulties. We have seen an increase in Non-Performing Loans, NPL, which is a pointer that the earnings will further deteriorate. So, those factors have made investors to shy away from the market, Chukwu stressed. He added that the up-tick in inflation, which has forced the monetary policy authority to increase interest rate to 12 per cent is also part of the problem, saying, “the CBN has made it clear that it will likely further increase the interest rate. So, investors will naturally wait for that further increment in interest rate; they will rather play in the short end of the market hoping that as interest rate goes up, they don’t need to invest in risky assets.”
Suggesting a way out, Chukwu warned that if the present policy environment persists, if the performance of quoted companies continues to deteriorate, if the banking industry continues to see higher indices of NPL and if inflation continues to rise and there is no redefinition of the economic policy, including adjusting the exchange rate, then the prices of equities will deplete further in the course of the year. He said there is need for the government to come up with a comprehensive economic policy that would address the issue of exchange rate, interest rate and also inject liquidity into the system by supporting the creation of credit through lower interest rate which would complement government’s expansionary fiscal policy.
“If these issues are addressed, then both domestic and foreign investors will resume their interest in the market. Until that is done, you are not going to see a sustained rally in the equities market,” he enthused. According to Jude Fejokwu, chief analyst at Thaddeus Investment Advisors & Research Ltd, retail investors are critical to the positive performance of any developing country’s stock market. He blamed the Nigeria regulators for their over dependence on foreign investors, saying that it has whittled down the drive to increase domestic retail investors’ participation in the market.
“The appeal of foreign portfolio investors with their large brief cases have stolen the hearts and minds of market regulators in Nigeria. The refusal to raise the domestic retail investors to a major player from a peripheral player has been the bane of the Nigerian market for more than five years now. This has led to market returns being consistently inconsistent. “The Exchange hierarchies have advised retail investors to invest in mutual fund s instead of directly. I have never been in support of this, especially in Nigeria where their operations are shrouded in secrecy with the tacit co-operation of market regulators,” Fejokwu said. He noted that the All Share Index rose by 3.1 per cent in February when there was an increase in retail investors’ participation by N17.36 billion ($87m). “The Caracas Stock Exchange (Venezuela) market index is up nine per cent YTD while the Nigerian index is down 13.5 per cent.
The Caracas market is retail investor driven and continues to be on the upbeat despite perilous times for the country’s economy and its people,” Fejokwu said. He maintained that while volume (number of investors) brings stability to markets, value results in activity. “Both are important. The former is the foundation that keeps markets even keeled,” he observed. For Emeka Mmadubuike, Chairman, Association of Stockbroking Houses of Nigeria (ASHON), comparing the NSE with other frontier markets that their economies have some level of stability is a disservice of the nation’s capital market.
He stated that considering the overwhelming challenges confronting the country at the moment, it would be unusual for NSE, which mirrors the economy to perform better than what it is today. “In fact, the market will not have been a good mirror of Nigerian economy if it had performed better. Remember that for the first 11 days of the year, the Index went down by over 22 per cent. So recording just a 12.5 per cent decline in the last four months means that things are gradually picking up,” he posited. Foreclosing the possibility of a further decline, Mmadubuike stated that the market would improve once there is an improvement in the macro-economic environment.
Adding his voice, Adonri noted that improvement in macro-economy will attract various categories of investors, both institutional, foreign and retail, saying that all of them are needed to bring back liquidity to the market.
