By Kelechi Mgboji
Many thought the equities market had turned the corner in 2012 when it posted 35.45 per cent profit, with a foreign participation that rose to 61 per cent from 36 per cent in 2010.
By 2013, domestic participation in the market grew by 21 per cent, driven by a bullish mood fueled by foreign investors.
Judging by sentiments to last year, local investors could have taken a lead to return to the market after a flight that reminds them of the 2008 bubble burst which left colossal losses in its trail.
Emboldened by the seeming recovery, market operators have been basking in the euphoria of a doubtful growth forecast of $1 trillion market capitalisation by 2016 projected by Nigerian Stock Exchange (NSE) Chief Executive Officer, Oscar Onyema.
He said the NSE seeks to achieve the $1 trillion capitalisation by 2016 and will continue to innovate to drive the vision.
Such innovations, in line with government reforms, anticipate greater strides in the NSE’s objectives and strategic plan to support the growth of the real sector.
The market strategy growth ending in 2016 includes increase in the number of new listings across five asset classes, increased order flow in the five asset classes, and operating a fair and orderly market based on just and equitable principles.
It also includes seeking laws and policies to drive capital market development and diversification of income streams.
Less than two years to the end of 2016 when the NSE projects to hit $1 trillion capitalisation, stakeholders in the capital market are keen on seeing how the idea bears fruit.
But if the forecast is predicated on the listing of power generating (Gencos) and distribution companies (Discos) on the Exchange, it may be doomed to failure because the successor companies of the defunct Power Holding Company of Nigeria (PHCN) may not go public until five years after take-off.
Power Minister Chinedu Nebo said at the NSE in Lagos recently that the agreement the government signed with the power companies grants them five years’ latitude, after which they will be due for listing on the Exchange.
But he explained that dialogue was going on between the companies and the government to reduce the five-year clause to about two and a half years.
Even with that, chances are that expectation of increase in the number of new listings on the Exchange are dashed if power companies constitute the bulk of expected listings.
Consequent upon the decision of the United States Federal Reserve to begin gradual reduction in quantitative easing (QE) – described as tapering – which has given rise to funds repatriation, monetary policy shocks and negative market sentiments, the equities market so far this year has shed 8.56 per cent.
A sustained bearish mood reminds watchers of calls by market operators for the establishment of an equities market stabilisation fund to serve as a buffer in hard times.
It is evident that despite the attractiveness of the market, some local investors have refused to be led by the nose on account of foreign investors’ lead.
However, persistent local apathy seems lost on the management of the NSE and market regulators which interpret the current state of the market as a passing phase.
The NSE and its regulator, the Security and Exchange Commission (SEC), are yet to devise a strategy to beef up equities trading in the event of market decline similar to that of 2008. Which is why operators want a market stabilisation fund from which to inject liquidity when there is a crunch or repatriation of funds by foreign investors.
By December 31 last year, capitalisation of listed equities on the Exchange grew by 47.33 per cent to peak at $82 billion (N13.23 trillion) from $57.49 billion (N8.98 trillion).
Nonetheless, the current market value is a far cry from the target $1 trillion.
At the close of transaction on March 21, the NSE All-Share Index and Market Capitalisation had depreciated by minus 8.56 per cent year-to-date to close at 37,790.12 and N12.139 trillion, about 7.5 per cent of the $1 trillion target.
“Irrespective of the developments in the economy,” John Bamidele, an economist, said, “you need to consider other fundamentals contingent to the growth level of the NSE.
“Don’t forget that another Exchange is springing up, and even if you expect multinational companies – such as information technology (IT), telecoms, energy, upstream oil and gas, agri based companies, among others – to list on the NSE.
“They would decide what arm of their businesses to bring to the NSE, and the entire capitalisation of what they may decide to bring to the Exchange may not be as the market currently imagines.”
Experts believe that a 100 per cent growth in 2014, 2015 and 2016 will close 2016 at the range of N98 trillion. The consequences of such rapid growth should be of concern.
While market capitalisation grew in 2013 by 47.33 per cent, achieving 100 per cent growth in 2014 appears a herculean task. Analysts insist that achieving between 50 per cent and 60 per cent growth in 2014 could be modest.
Even if the trend continues through to 2015 and 2016 it may not add up to a $1 trillion capital base.
The actualisation or otherwise of the NSE forecast will demonstrate whether Onyema did his homework well.
