THE year 2014 will
remain evergreen in
the annals of the Nigerian capital market, just like 2008 – the year of the locust or the global financial meltdown.
The key issue in comparison remains that market within the period under review witnessed a major setback, which wiped away the growth posted in 2013.
Investors returned to another locust era, following the tight macroeconomic policies, falling crude oil prices, prolonged security challenges and anxiety on uncertainties in the scheduled 2015 general elections.
Available statistics showed that, in spite of the orchestrated market recovery championed by the capital market regulators, the Nigerian bourse would close for the year as one of the worst performing markets across the globe, due largely to sales pressure by panic foreign investors.
The total foreign exchange outflow, as at October 2014, amounted to N101.22 billion as against N92.54 billion posted in September.
Also, a total of N56.56 billion total foreign outflows was recorded in August 2014, due to investment retreat embarked on by foreign investors, occasioned by falling crude oil prices.
The nation’s market scenario, according to many analysts, point to the need for increase in participation by domestic investors in portfolio investment.
Investments in the sector stood at 12.46 per cent as at October, compared to 49.06 per cent recorded as at November 2013.
Records of trading on the Nigerian Stock Exchange (NSE), as at December 5, showed that the equity market dipped by 20 per cent to-date, due to massive sell-off, in spite of strong corporate fundamentals of listed companies, against 47.19 per cent achieved in 2013.
Other factors that affected market growth, in spite enhanced regulatory framework embarked upon by regulators, were hike in Cash Reserve Requirement, increase in Monetary Policy Rate and devaluation of the naira by the Central Bank of Nigeria (CBN).
The market was also negatively impacted by the instability in the exchange rate, which led to the exit of more foreign investors, with the nation’s currency losing about 11 per cent of its value against the dollar the year.
Market data showed that at the close of market on December 5, the All-Share Index of the Exchange dropped by 20 per cent year-to-date, to close trading at 33,228.29 points, against opening year index of 41,329.19 points.
Also, market capitalization, which opened trading for the year at N13.20 trillion, dipped by N2.23 trillion to close trading on December 5 at N10.970 trillion.
Speaking on the 2014 market performance, Mrs Oluwatoyin Sanni, the Group Chief Executive Officer, UBA Capital Plc., attributed the development to depressed investor confidence and concerns surrounding the forthcoming general elections.
Sanni said that security challenges in the country led to a ‘wait-and-see’ game by international investors, who wish to ascertain the outcome of the general elections and the sustainability of the nation’s economy.
The UBA Capital boss said the foreign investors’ ‘wait-and-see’ game would likely continue until the second quarter of 2015 when the outcome of the elections would have been ascertained.
Sanni said that persistent oil price drop- a significant contribution to the nation’s Gross Domestic Product (GDP) — added to the lull in the market and the economy in general.
Another major factor in the nation’s negative economic swing that affected the growth of the capital market, she noted, remained the issue of market-based liquidity challenges.
According to her, Nigeria’s retail investors’ apathy at the NSE remains very visible, following poor financial inclusion.
She, however, argued that the persisting challenges were not insurmountable, stressing that the global economic problems necessitated the need for a regulatory operating synergy among the different arms of the financial markets’ regulators to systemic market failure.
To her, the need to avoid duplication of regulatory oversights has made it imperative for the Securities and Exchange Commission (SEC), the CBN, the NSE and the Pension Commission to collaborate towards achieving market development, depth and growth sustainability.
The Federal Government, she said, must move toward the promotion of a National Savings Policy to engender long-term saving culture among Nigerians.
Sanni also insisted that the desired savings culture would only emerge through updating of the Pension Fund Administrators’ (PFAs) investment guidelines, to ensure maximum use of the opportunities in the nation’s capital market.
She also canvassed the need for the listing of the government privatised entities in the market and prompt privatisation of the remaining agencies to strengthen market depth and breadth.
Also, Mr Emeka Madubuike, President, Association of Stockbroking Houses of Nigeria (ASHON), described 2014 as one of the worst years in the history of the nation’s capital market.
Madubuike, the Managing Director of Compass Securities, said that the major lesson in the period was an urgent need for diversifications of the nation’s economy, with less emphasis on crude oil.
The ASHON boss said that the development called for less spending by the Federal Government and the introduction of more economic buffers to reduce the effect of external shocks on the economy.
Madubuike said that government should support the market by ensuring that the bulk of its investment in the transformation agenda would come from the market, instead of concentrating on local and international borrowings.
He said that the infrastructure needs of the country would not be achieved through borrowings, noting that the capital market remained the vehicle for long-term funding of developmental projects.
Madubuike also stressed the need for increased participation of domestic investors in the market, to reduce shocks caused by the exit of foreign investors. He said this could be achieved through strict implementation of the capital market 10-year master plan launched in 2014.
Malam Garba Kurfi, the Managing Director, APT Securities and Funds Ltd., said that the economy would not achieve any meaningful growth and development with the present security challenges.
Kurfi said that the Federal Government should address issues of national security critically, and ensure political stability, since the nation’s economic performance in 2015 would be determined by the outcome of the general elections.
He also called on the government to ensure the investment of the Sovereign Wealth Fund (SWF) in the nation’s bourse, to strengthen market activities.
Kurfi said that certain percentage of the fund should be invested in the market to avoid foreign dominance, noting, however, that, the funds should be invested in blue chip companies.
He said that government should be committed to the development of the stock market, to protect it from being dominated by foreign investors, as they could offload at any given time.
Overall, the contention of most of the stakeholders was that the Government must, and should, demonstrate more than lip-service in the development of the nation’s capital market because of its role in promoting sustainable economic development.
They contended that the nation’s development challenges, especially in infrastructure, major driver and moderate of growth, would be fast tracked if government and sub-national institutions appreciated the dynamics of development seed funds.
They clearly identified the overhaul of the privatisation legal framework that would compel emerging companies from the privatisation programme to be listed at the Exchange.
According to them, the overhaul of the privatisation laws will enable a large segment of Nigerians to benefit from the unbundling of our commonwealth into viable private-driven companies.
To them, the opportunity to own shares of the new companies would engender confidence in the economy and stimulate avenues for Nigerians to sharpen their entrepreneurial skills in transforming a local company into a global concern.
2011: Another Locust Portfolio Investment Year
THE year 2014 will