•Spooked by policy gaps, oil price shocks
By Kelechi Mgboji
Assistant Business Editor
The Nigerian capital market may close 2015 as one of the worst performing markets.
Sharing the blame are policy gaps, oil price shocks, pre and post electioneering issues, insurgency conflagration, and economic outlook.
Year-to-date losses so far stood at over N2.07 trillion as aggregate market value of stocks on the Nigerian Stock Exchange (NSE) declined from year opening level of N11.49 trillion to N9.41 trillion, a 18.05 per cent loss as of November 30.
NSE benchmark All Share Index (ASI) shed 0.84 per cent on Monday, November 30 to close at 27, 385.65, a level last seen in December 2012.
At 27,385.69, the index is down 20.98 per cent year-to-date, as against 34657.15 basis points at which it opened for the year.
Market capitalisation has been drifting lower as investors wait for government plans and as the poor outlook for the economy drags down the relatively liquid banking and consumer goods sectors.
All the sectors on the stock market have fallen sharply this year with consumer goods index down 22.4 per cent and the index of the top 10 banks shedding 19.9 per cent.
The economy is hit by more than 40 per cent drop in petroleum prices in the past months, coupled with macroeconomic challenges and electioneering issues, insurgency, and perceived lack of economic direction by the new administration.
All these combined to slow economic growth and further weakened the naira.
The NSE reached its 2015 peak of 35,728.12 basis points on April 2, the day after President Muhammadu Buhari won the election and former President Goodluck Jonathan conceded defeat.
Investors had hoped for a sustained rally after smooth elections in March and peaceful handover of power.
However, the rebound could not be sustained as the new government was perceived as being too slow to tackle economic crisis, and monetary policy issues (with naira seen as overvalued) that kept foreign investors on the sidelines.
Now they are alarmed about the continued slide in the naira and the impact of persistently low oil prices on government finances.
Shares were down 6.5 per cent in October and posted a further 7.1 per cent loss in November as foreign investors took flight for fear of further losses after consistent decline between June and September.
Several companies, especially consumer goods firms, have posted weak profits, attributing the results to the effects of currency controls which have raised costs.
Bank stocks have sold off because of heavier regulatory burden.
High cap stocks which opened the year at higher prices and a large segment of stocks, especially in the banking and oil & gas sectors, are trading either at par value or far below intrinsic value.
Inflation rate stands at 9.3 per cent compared with the inflation-adjusted average year-to-date return at the equities market at -18.83 per cent.
It is an indication that investors have lost more than a double of the real value of their investments in the equities market.
Sectoral indices showed widespread decline in 11 months with the likes of Consumer and Banking Indices leading the chart.
NSE Consumer Index dropped 23.1 per cent from 903.54 basis points to 695.24 basis points, while Banking Index moved from 351.4 basis points to 279.36 basis points, a decline of 21 per cent.
The NSE 30 Index, which tracks the 30 most capitalised stocks on the NSE, recorded a decline of 21.4 per cent from 1,563.22 basis points to 1,229.29 basis points.
Analysts say the capital market, initially bogged down by political and monetary policy risks during the political transition period, was affected by post-transition uncertainties and foreign exchange (forex) crisis, which led to the exit of high net worth investors.
“The role foreign investors play in the Nigerian equity market cannot be ignored … hence the need for the Central Bank and the government to review their stance on forex policies,” said Ayodeji Ebo, head of research at Afrinvest told Reuters.
“We maintain a long term view in the market as we expect the bearish trend to persist unless a deliberate policy is announced to turn the tide.”
As the Christmas festive season and New Year celebrations are around the corner, some analysts believe the equities market will witness massive sell off at give away prices by investors in need of cash, a sentiment that will further drag down the market.
“The market will definitely close the year on a negative note as investors will continue to take profit or offload their portfolio,” a disappointed stockbroker at on the Lagos trading floor told TheNiche.
For NSE Chief Executive Officer, Oscar Onyema, the downturn in the market presents enormous opportunities for investors to take advantage of, regardless of market volatility and investor confidence crisis.
He argued that the capital market is currently a reflection of jthe state of the economy.
“It would be surprising if the market is going up when the economy is having shocks,” Onyema told capital market reporters during an event at the NSE.
“It’s important for investors to also understand that there’s been significant sell-off between last year and this year and it could present opportunity, and again it’s important to do the analysis and understand where those opportunities are and not only in the equities but across the various asset classes.”
The Nigerian bourse ended 2014 as one of the worst performing exchanges as the market capitalisation of listed equities depreciated by N1.749 trillion from N13.226 trillion at the start of the year to N11.477 trillion.
This was despite the listing of companies such as Caverton Offshore Support Group, Seplat Petroleum Development Company and Omoluabi Savings and Loans Plc, which added hundreds of billions of naira to the market capitalisation.
NSE ranked 72 out of 74 exchanges considered with the All-Share Index at -20.67 per cent negative, data compiled by CNNMoney using benchmark year-to-date performances of exchanges showed.
A separate report published on December 24, 2014 by The Telegraph (UK) had ranked Nigeria number three among the worst performing stock markets in 2014, with Columbia and Russia occupying the second and first spots, respectively.
It would have been worse than that but for equities rally in the last days of 2014 which led to an improvement in year-to-date return of the NSE ASI, enabling it to close 2014 with a year-to-date return of -16.14 per cent, the Exchange’s worst performance in years.
The performance was in sharp contrast to that of 2013, which the NSE ended as one of the best performing exchanges in the world with the NSE ASI YTD return of 41 per cent.