The Nigerian capital marked has crashed for the second time in seven years, leaving investors pale with losses almost half the national budget.
Investors lost N2.2 trillion at the close of transactions in 2014, N1.74 trillion of it related to equity investors, while N470 billion resulted from loss in the value of listed bonds on the Nigerian Stock Exchange (NSE).
Total market capitalisation, which stood at N19.08 trillion in 2013, declined 11.53 per cent to N16.88 trillion in December 2014.
Market capitalisation of the equities segment, worth N13.23 trillion in 2013, dropped to N11.49 trillion or 13.15 per cent.
Bonds market capitalisation declined 8.03 per cent to N5.38 trillion, from N5.85 trillion in 2013.
The NSE All Share Index, which measures performance of the equities, dipped 16.14 per cent to 34,657.15 points from 41,329.19 points.
Blue chip stocks worst hit
The decline affected heavily capitalised stocks the most as share prices shed significant weight.
The stocks, also referred to as large-cap stocks, shed 21.43 of their index weight. In some cases their share prices dropped to a 10 year low.
Seplat Petroleum, listed in April last year at N576 per share, has since crashed to a little above N300 per share; just as the likes of Dangote Cement crashed to new lows.
Bank stocks dipped below support levels after regulatory headwinds from the Central Bank of Nigeria (CBN) foreclosed the profit outlook of most of lenders.
The share price of First Bank dropped to about N7 per share; Zenith Bank N16 per share; UBA and Access Bank are trading a little above N4 per share. The stocks are trading at their lowest prices in about 12 years.
Small-cap stocks were the best performers, recording 32.78 per cent growth rate, followed by mid-cap stocks which were up 23.53 per cent.
New listings reduce losses
But for new companies admitted to the official list of the NSE, the quantum of losses would have been more devastating.
Five new equity listings were recorded last year; two on the Main Board, one on ASeM, and two Exchange Traded Funds (ETFs). The Bond market recorded 12 new listings.
The value of these new listings, including blue chip Seplat listed at market price of N576 per share in April 2014, helped to shore up the total market capitalisation in 2014, thereby reducing the level of drop.
Factors that crippled the market
Reviewing the market performance in 2014 and the outlook for 2015 NSE Chief Executive Officer, Osacr Onyema, explained on Wednesday, 14 January 2015 that “bearish sentiments prevailed for most of the year, as foreign investors steadily withdrew from the Nigerian market, due to currency risk and the recovery of developed economies, and the effects of the U.S. Federal Reserve tapering off its quantitative easing (QE) policy.”
He said macroeconomic factors which contributed to the decline in market performance included tumbling crude oil prices, pressure on the naira, impact of CBN’s monetary policy changes, declining foreign reserves, insurgency in the North, uncertainty about the 2015 elections, and weak corporate earnings.
NSE charts four year plan
Onyema said his previous forecast of $1 trillion market capitalisation by 2016 is not realisable, and that the NSE National Council (Board) has approved the revised 2019 NSE Corporate Strategic Plan, detailing new growth strategy for the next five years, leading up to 2019.
This revised strategy seeks to encourage entrepreneurial growth.
It focuses on initiatives to achieve three strategic objectives – increase the number of new NSE listings across five asset classes, increase order flow in the five asset classes, and operate a fair and orderly market based on just and equitable principles.
Capital market crash 2008
The capital market crash in 2008 left a devastating blow particularly on local investors, wiping off more than N6 trillion from the value of equities investments.
It stoked strong apathy to equities investment by those who blamed the crash on regulatory slumber, graft, and insider deals that created an unsustainable bubble that eventually bursted.
It was against this background that former Securities and Exchange Commission (SEC) Director General (DG), Arunma Oteh, was appointed in 2010; and she moved to reform and sanitise the market.
Oteh who, last week, handed over to SEC Executive Director (Operations), Mournir Gwarzo, as acting DG, could not secure another five year tenure following a lot of controversies around her.
Although Oteh made radical efforts to instill sanity into market operators by improving corporate governance codes and regulatory rules, investor confidence remains an issue in the market place.
Besides, most of the reforms failed to translate into sustainable recovery of the stock market.