Despite all predictions by market analysts that 2014 performance would greatly outweigh that of 2013, bottom-line of the nations stock market as at December, 2014 remained abysmally below expectation as it dropped by 16.70 per cent when compare with 2013 figure. In this special report, our correspondent, Ngozi Onyeakusi weighs some of the market forces, key initiatives and major events that helped to shape the year.
It was indeed the worst performance ever since the nations capital market started showing signs of rebound in 2012 after its crash in 2008. Consequently, the CNNMoney ranked it 72 out of 74 exchanges considered the NSE All-Share Index at negatively 20.67 per cent while the Telegraph UK placed it third among the worst performing stock markets in the world in 2014.
Unarguably, the market prospect was defeated following some external factors raging from delay in 2014 budget appropriation, non passage of Petroleum Industry Bill (PIB), uncertainties surrounding the 2015 general elections to bombing and killings in the northern part of the country.
Others include impact of crude oil price drop which hit the nations economy towards the end of the year, the outbreak of Ebola disease and the devaluation of the naira among others.
Market performance in 2014
Towards last few days to the end of 2014, the market growth indicators, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) and the market capitalization of listed equities depreciated significantly.
The ASI declined by 6,900.37 or 16.70 per cent from 41,329.19 points on December 31, 2013, to 34,428.82 points on December 24, 2014. Specifically, the market capitalisation of equities dropped by N1.82 trillion from N13.226 trillion to N11.402 trillion as at December 24, 2014, compared to the N4.26 trillion gain to close 2013 at N13.226 trillion.
However, Foreign Portfolio Investment (FPI) transactions within the market increased by up by 81.21 per cent from N89.67 billion recorded in January 2014 to N162.49 billion at the end of November, 2014.
On the other hand, domestic transactions dipped from 50.72 per cent to 19.08 per cent while data supplied by the NSE showed a sharp rise in the ratio of total foreign investment outflow from the capital market during the year which totalled N162.49 billion as against N89.67 billion in January, 2014.
Key Initiatives in the market
The NSE within the period under review launched the Corporate Governance Rating System (CGRS) for listed companies in partnership with the Convention on Business Integrity (CBI).
The system aimed at raising overall corporate governance standards in the country, by providing companies with an incentive to develop better governance practices. It is providing opportunities for companies to differentiate themselves in the market place.
Similarly, the Capital Market Committee(CMC) within the period formally unveiled its 10-year master plan, designed to deepen the market.
The launch was commissioned by the Minister of Finance and the Cordinating Minister for Economy, Ngozi Okonjo-Iweala during the CMC meeting held in Abuja.
Speaking at the event, the Director General(DG) of the Securities and Exchange Commission(SEC), Arumah Oteh said that the committee has been involved in a lot of initiatives which include ensuring that investor confidence is restored.
The SEC boss noted that the plan would enable it develop a market that would enable it We want a bond market that will enable us meet the infrastructure deficit estimated at $3.9 trillion over the next 30 years.
“We want a capital market that combines all the elements needed to support Nigeria actualize her aspirations of peace and prosperity for all citizens,” she continued.
Oteh disclosed that the CMC has been involved with key initiatives that has improved thee performance of the market.To ensure sanity in the market, CMC last year adopted a zero tolerance to wrongdoing. This initiative ensure that market defaulters are discipline in line with the rules of the market.
According to Ote: “ We have been involved in ensuring that investor confidence is restored by adopting a posture of zero tolerance to wrongdoing while strengthening our enforcement machinery through partnerships with the Office of the Attorney General of the Federation and the Nigeria Police Force. We instituted legal proceedings against over 260 individuals and entities for various forms of market infractions seeking to disgorge all illegally gotten wealth and restitute investors.”
“We have revamped our investor protection and dispute resolution mechanism by strengthening the SEC’s quasi-judicial Administrative Proceedings Committee (APC), developing a robust complaint management framework, setting up the National Investor Protection Fund and strengthening Anti-Money Laundering and Counter Terrorism Financing (AML/CFT) framework,” she added.
The stock market in 2014 recorded some notable achievements.
The NSE CEO, Oscar Onyema was within the period elected President of the African Securities Exchanges Association (ASEA).
The bourse last year, became a full member of the World Federation of Exchanges. According to Onyema : “WFE membership is an important reference for many international investors. This membership status reflects the exchange’s commitment to implementing the highest standards of international best practices. Our ambition is to become the foremost Stock Exchange in Africa, and today is an important step in that journey.”
Another regulatory development worthy of note was the recent implementation of the five-year exemption of value added tax on stock market transaction fees – which is a welcome development as it will ultimately reduce the cost of transactions for investors and will encourage investments in the Nigerian Capital Market.
New Listing /Delisting of companies
The total number of companies listed on the NSE main board at the end of 2014 stood at 209.
Six new listings recorded within the period with Seplat Petroleum Development Company listing its 543.28 million ordinary shares of 50k each at N567 after a successful IPO on April 14, 2014, and Caverton Offshore Support Group listing on May 20, 2014, listed its 2.35 billion units at N9.50 on the main board of the NSE. Under the ASeM sector, Omoluabi Savings and Loan was listed on November 4, 2014, while Lotus Halai Equity Capital and Vetiva Griffin 30 ETF was admitted under the ETF sector on March 14 and November 14, 2014, respectively.
Pinnacle Point Group, Afroil Plc, Starcomms, Big Treat Plc were delisted from the daily official list of the market.
Funds raise in the capital market
Total amount raised from the market within the period culminated to N515.83 billion . A breakdown of the funds raised showed that
Seplat Petroleum Development Company raised N318.74 billion and Transcorp Hotel raised N8 billion through an Initial Public Offer (IPO).
Diamond Bank raised N50.4 billion and Stanbic IBTC raised N10 billion from its existing shareholders. Others are Champion Breweries, Oasis Insurance, Unity Bank, ETI, Union Bank and Sterling Bank which raised N11.67 billion, N1.03 billion, N39.2 billion, N35.42 billion, N28.87 billion and N12.5 billion respectively.
Oando is currently raising N49 billion from its shareholders, while Presco, Okomu Oil, UBA and Access Bank have gotten approval from their shareholders to source for funds through rights issue.
Impact of crude oil price drop on the market
The stock market is reacting negatively to the decline in crude prices
According to the Managing Director, Highgap Securities Ltd, Mr David Anjorin, that anytime the crude oil price falls, it usually have negative impact on the stock market.
“Foreign investors always pull out of the market because the Nigerian economy depends majorly on crude oil earnings,” he said.
He further stated that it is a market issue but advised the Federal Government to adjust the macro economic variables to ensure stability.
“What the government should do to allay panic is to ensure macro- economic stability. This can be achieved by stabilizing inflation rate and exchange rate,” he concluded.
Another expert who pleaded anonymity stated that “From Platts write-up, it was discovered that for oil prices to go up, there has to first be a production shut-in by all OPEC members, including Nigeria and other producing countries.
“Right now, no country is willing to spearhead the shut-in (reduce supply) because this is currently a price war and a fight for market share.
“Secondly, to try and solve the problem locally, the Federal Government should look towards refining locally and becoming the central supplier of refined product to West Africa at least,” he stated.
Growth Strategies /Prospects for 2015
SEC in the recent past has been in the business of designing programmes that will make the market viable so as to attract huge investors both local and foreign to the market.
According to Ote, “To attract more companies to list, and to attract and retain a larger pool of investors, at the minimum, we must ensure that we maintain stable and consistent policy regimes, uphold fair and orderly markets based on just and equitable principles that will generate and preserve issuer and investor confidence in our markets.
“We realise that to attract more companies to list, we must partner with policy makers to take full advantage of developmental initiatives which require massive capital; for instance, sector-wide policies calling for recapitalisation of and consolidation by operators, and other privatisation/commercialisation pro-grammes in sectors such as telecommunication, extractive industries and so on.”
Also the Group CEO, UBA Capital, Mrs Oluwatoyin Sanni advocated that channelling of pension funds into capital market will increase the value of equities listed into the market from currently N500 billion to N3 trillion by 2019. She called for upgrade of Pension Funds Administrators (PFA) investment guidelines such that it will promote investment in nations capital market to ensure full utilisation of the market. She equally noted that the Nigeria huge potential of large population in excess of 170 million suggested that the feat is achievable. Sanni therefore called for upwards review of 10 per cent equity representation of the pension assets which currently stood at N4.5 trillion.
Reactions from operators
peaking on the performance of the market, the President, Association of Stockbroking Houses of Nigeria, Mr. Emeka Madubuike, said that the performance of the market was positive rather than negative, considering that several of the factors that affected the market were external.
He said, “If anything it (the implication) is a positive one; positive in the sense that it will increase the opportunities for investment, especially for our local investors. It is a good time to invest because most of the companies have seen growth in terms of performance and nothing has really changed with the companies. This is because the major reasons why the market is where it is are external factors.”
Madubuike, however, said there was the need to encourage market participation as the current level was too low when compared with the country’s population.
Also the Managing Director, APT Securities & Funds Limited, Alhaji Kasimu Garba Kurfi, pointed out that from all indication the market performance in 2014 is far below expectation, considering the growth the market had in 2013.
He said that the market has almost wiped off the entire gain it made last year, saying that even analysts did not forecast that the market would perform that badly.
He noted that a lot of factors both within and outside the Nigerian economy affected the market negatively.
“The fall of the price of crude oil had negative impact on the market but we shouldn’t forget this is not the first time. It fell in 2007 when the crude oil was as low as $40 per barrel, this time around it was just around $60 but the capital market was worst hit as a result of the country’s exposure to foreign transaction,” he said.