Nigeria’s capital market in the last one year recorded low trading activities. In this report AMAKA IFEAKANDU examines the key factors that affected the performance of the market under the current administration.
In the last one year, the nation’s capital market witnessed low activities following the fall in the prices of crude oil in the international market, which reduced the revenue base of government. The scarcity of petroleum products and the wind of change which started blowing in the economy with adoption of single accounting system impacted on every sector of the economy including the Nigerian capital market.
The withdrawal of about N2 trillion government funds from the banking system following the implementation of Treasury Single Account, (TSA) and the decline in private and public sector expenditures drained liquidity in the financial system and discouraged investment in the equity market. Apart from fuel scarcity that led to the increase in transport fares, goods and services, elongation of the tenure of state government loans as well as loans to the oil and gas sector and the non-payment of salaries by both states and local governments worsen the liquidity conditions of banks and slowed down activities in the Nigerian equity markets. For instance the market capitalisation of listed equities which closed higher at N11.658 trillion on May 31, 2015 went down to N9.313 trillion on May 20, 2016, shedding N2.345 trillion or 20.12 per cent. Also the NSE All Share index dropped by 7193.92 basis point or 20.97 per cent to 27116.45 points as at May 20, 2016 from 34,310.37 it closed a year ago.
An analysis of the market performance showed that between May and December 2015, the value of equities dipped by N1.808 trillion or 5.5 per cent to N9.850 trillion from N11.658 it closed in May. Similarly, the NSE Index fell by 5668.12 basis points from 34310.37 points it opened in April last year to 28642.25 point in December 2015. The market also dipped further between January and May 2016, as market cap closed lower on Friday May 20, shedding N537 billion or 5.45 per cent to N9.313 trillion against N9.850 trillion it opened for the year while index loss 1525.80 basis points or 5.32 per cent from 28642.25 points it closed last year December.
Commenting on the performance of the market, Managing Director of Bulls Capital Limited, Mr Matthew Ogagavworia said Nigeria capital market does not operate in an isolation, adding that uncertainty that exist in the Nigerian economic and business activities affected every sector of the nation’s economy, including equity market. “If the nation’s economy goes down or up, it affects every sector, including equity market.”.
“The market is the reflection of what is happening in the economic system. We have harsh economic environment as regard scarcity of foreign exchange. Business activities are declining on daily basis across the country because of fuel scarcity. Life is becoming very difficult for people as prices of goods and services increase on daily basis,” he added. He said that the government delay in the passage of 2016 budget impacted negatively on the system as government is the highest spender in the economy.
He, however, said that liquidity squeeze being experienced in the financial system also discourage savings and investment in the stocks market, stressing that before now foreign investors participate fully in the stock market but they have withdrew their investment because the current exchange rate regime maintained by the Central Bank of Nigeria has been less than transparent. He said that the apex bank has been trying to manage the exchange rate by attempting to control demand thereby discriminate in its forex allocation.
Managing Director APT Securities and Funds Limited, Malam Garba Kurfi said the capital market performance for the last one year of the present government is nothing much to cheer as the All Share Index has lost about 13,157.35 basis points within the period. In terms of market capitalization , he said investors have lost about N3 trillion, adding that the major contributory factors to low performance of the market was the fall in oil price which declined as low as $35 per barrel from $110, a lost of over 65 per cent during the period under review. This according to him affected the amount of foreign exchange that Nigeria can generate to support the naira.
He said that the situation compel the CBN to adopt different measures to control the out flow of foreign exchange. He said that the capital restriction discourage many foreign investors who constitute more than 50 per cent of the market turn over from investing in the market. He said that withdrawal of foreign investors from the market and the removal of Nigeria from Morgan sterling frontier index also impacted on the Nigeria equity market. In addition to that, he said the delay in constitution of the Federal Executive team who will give the policy direction of the economy and non declaration of the economic policies by the federal government and the power tussle between the National Assembly for approving and signing of the budget slow down investment, as operators are yet to understand the economic policy agenda of the newi administration.
Kurfi said that the decision not to devalue the naira and not to open the official window of the foreign exchange market contributed to the scarcity of exchange rate in the financial system, causing the naira to depreciate against the dollar.
Kurfi however said that despite the low performance of the market, there are some sectors of the equity market that performed exceptionally well. He said the NSE ASEM index gained 27.68 per cent during the period under review. The NSE OIL & GAS index also grew high to closed with the marginal gain of 6.79 per cent.
He said the growth might be due to the recent deregulation of the downstream oil sector, adding that this single policy has help the market to recover within the month to date gaining more than 7.34 per cent other wise the loss could have been more than what was reported.
He however said that the federal government needed to implement the palliative measure on time to not only lessen the deregulation of the oil sector pain but kick start the economy to boost business activities in the system. He said that there was need to devalue the naira to encourage foreign investors to invest their funds in the country in order to revive the economy and support the growth of the GDP that grew by 2.87 per cent from 6.23 per cent it recorded previously.
He urged government to privatize the refineries and encourage Telecom companies and power companies to be listed on the Nigerian Stock Exchange in order to increase the depth of the market. He enjoined the government to ensure full implementation of the budget and also continue with the fight against corruption and insurgent in order to encourage foreign investor inflow into the country.No tags for this post.