The capital market braced the odds and surpassed expectations on many fronts. With Nigerian equities on the top global returns chart, the primary market was the bulwark for governments and companies in the face of a tightened global market. Deputy Group Business Editor, Taofik Salako, reports that despite the gains, the market remained constrained by misalignments in fiscal and monetary policies, which overshadowed the economy
The Nigerian equities market is well on the uptrend for its third consecutive year of positive return. Benchmark indices for the Nigerian stock market are bucking the largely negative global market performance, providing a rare balance of exciting returns across spectrum of Nigerian fixed and non-fixed income securities.
Average year-to-date return for Nigerian equities opens today at 15.45 per cent, within the world’s 10 highest returns this year. This implies that investors in Nigerian equities have garnered more than N3.44 trillion in net capital gains so far, even as the market heads to its traditional year-end rally, the Santa Claus rally.
The All Share Index (ASI)- the common value-based index that tracks all share prices at the Nigerian Exchange (NGX) is trending towards the 50,000 mark, closing weekend at 49,316.29 points as against its 2022’s opening index of 42,716.44 points. This implied average gain of 15.45 per cent.
Aggregate market value of all quoted equities has also risen from the 2022’s opening value of N22.297 trillion to close weekend at N26.861 trillion, representing an increase of 20.47 per cent or N4.56 trillion. The difference between the ASI and aggregate market value growth rate was due mainly to new primary listings during the year including large-cap listings by BUA Foods Plc and Geregu Power Plc.
Nigerian equities had closed 2021 with average return of 6.07 per cent, equivalent to net capital gains of N1.278 trillion. The Nigerian market had in the throes of the outbreak of COVID-19 pandemic in 2020 recorded average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
The rally at the Nigerian market also has a political context. Investors appeared to have hugely discounted political risks and less fearful of the outcomes of the February 2023 national elections, a major upturn from the observed pattern of trading in previous pre-election years; which were marked with palpable fears and selloffs at the stock market. Nigerian equities had lost 16 per cent in 2014 ahead of the 2015 polls and repeated the same pattern with 18 per cent average loss in 2018 prior to the 2019 general elections.
Running ahead the world
The sustained bullishness of the market highlighted the positive in a global market troubled by energy crisis and conflicts. For instance, while the Nigerian ASI rallied net gain of 0.89 per cent last week, most global markets across America, United Kingdom, Europe and Asia closed negative. United States of America (USA)’s benchmarks, S & P 500 and Dow Jones Industrial Average (DJIA) dropped by 1.0 per cent and 0.8 per cent respectively. United Kingdom’s FTSE 100 Index depreciated by 0.7 per cent. Japan’s Nikkei 225 Index dipped by 1.3 per cent while China’s SSE Index declined by 1.2 per cent. The regional indices also mirrored the major markets. Europe’s STOXX 600 Index declined by 2.1 per cent. The MSCI EM- which tracks emerging markets, dropped by 1.8 per cent while the MSCI FM- which tracks the frontier markets, dipped by 0.8 per cent.
The mid-month performance mirrored the recent global trend in share pricing. An 11-month global return data provided by Bloomberg and Afrinvest Securities showed that eight out of 22 leading global stock markets- drawn from advanced, emerging and frontier markets and region, had positive returns. With 11.57 per cent return by the end of November 2022, Nigeria ranked fourth behind Turkey, United Arab Emirates (UAE) and Egypt, which posted average 11-month return of 173.3 per cent, 24.3 per cent and 12.1 per cent respectively. Other positive markets had included Brazil, 7.3 per cent, India, 8.8 per cent, South Africa, 2.7 per cent and Qatar, which posted average gain of 3.1 per cent. All other advanced and emerging global stock markets were in the red with USA’s benchmark showing average decline of 14.4 per cent. Others included United Kingdom,-1.4 per cent, Germany, -9.1 per cent, France, -5.8 per cent; Japan, -2.0 per cent; Hong Kong, -19.9 per cent; China, -13 per cent; Russia, -29.3 per cent; Ghana, -11.8 per cent and Kenya, which posted average loss of 13.9 per cent for the 11-month period.
The upwardly pricing trend at the Nigerian market is also reflective of increased momentum of activities at the secondary market. Latest data showed that total turnover at the NGX in the first 10 months of 2022 rose by 34.6 per cent to N2.079 trillion compared with N1.545 trillion in the corresponding period of 2021. The increased market activity was driven by improved sentiments from both domestic and foreign investors as well as retail and institutional investors. Foreign transactions rose from N329.62 billion by October, last year to N349.59 billion by October 2022. Domestic investors’ turnover jumped to N1.730 trillion in first 10 months of 2022 as against N1.215 trillion recorded in comparable period of 2021. Retail domestic investors had increased trading from N494.87 billion to N580.83 billion while institutional domestic investors had increased turnover from N720.3 billion to N1.149 trillion.
A comeback for foreign investors?
Nigerian investment reports have also shown that foreign investors were becoming more active and showing stronger interest in the Nigerian portfolio investments. Latest trading data on foreign portfolio investments (FPI) had shown that foreign transactions had risen, both in proportion and the positive direction of flows. The 10-month report for the period ended October 31, 2022 showed that total foreign transactions had risen to N349.59 billion compared with N329.62 billion recorded in the comparable period of 2021. Foreign portfolio inflows were higher at N178.21 billion as against outflows of N171.38 billion in 2022, indicating a surplus position. These compared with deficit position in corresponding period of 2021 when foreign outflows of N173.32 billion outweighed inflows of N156.3 billion. When inflows outweigh outflows, it simply means foreign investors are buying more investments than they are selling and when outflows outpace inflows, it implies that foreign investors are selling more of their investments than buying more investments. Thus the position of FPI surplus or deficit.
The increased level of activities and return to positive position represents a recovery for the Nigerian market, after a long period of decline. FPIs in Nigerian stock market had dropped consecutively to lowest levels in recent years. FPIs had dropped by 40.4 per cent in 2021 to its lowest level in five years. Active participation of foreign investors in Nigerian market declined by 11 percentage points from about 34 per cent of total market transactions in 2020 to about 23 per cent in 2021. Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. Nigeria’s FPI had slipped into negative with a net deficit of N66.2 billion in 2018 after a world-leading stock market rally left the country with a surplus of N336.94 billion in 2017.
Depth of primary funding
Preliminary data showed that the government and companies have so far raised more than N9 trillion in new debt and equity capital from the capital market. A 10-month report by FMDQ showed that the Federal Government raised about N7.4 trillion in the first 10 months of the year while companies raised N1.022 trillion in new debt capital through issuances of corporate bonds and commercial papers (CPs). The NGX indicated that it facilitated about N4 trillion for Federal Government, state governments and several companies. In its effort to diversify funding instruments, the Federal Government returned to the capital market with a new Sukuk issuance, raising N130 billion in a highly ove4rsubcribed issue.
Beside providing the much-needed bridge to fund Nigeria’s 2022 budget deficit, the capital market played major roles in financing the private sector. Companies that accessed the market during the year included Dangote Group, Lekki Free Zone Company- the owner of the celebrated Lekki deep seaport, Ardova, Presco, Capital Hotels, E-Tranzact International, ABC Transport, NPF Microfinance Bank, Family Homes and Abbey Mortgage Bank Plc. The listing of BUA Foods and Geregu Power also boosted the market, adding nearly N1 trillion to market capitalisation. Conversely, the delisting of Union Diagnostics and Clinical Services and Studio Press Nigeria underlined the spate of voluntary delistings and reversion to private company status.
Market developments
A revised master plan aimed at leveraging the potential of the Nigerian capital market formally came into effect during the year. The revised Capital Market Master Plan is seen by stakeholders as a major driver that will accelerate the growth of the nation’s capital market and increase both domestic and foreign investor participation. With a vision to be Africa’s most modern, efficient, and internationally competitive market that catalyses Nigeria’s economic growth and development, the revised master plan provides a blue print for Nigeria’s capital market to remain up to date with emerging trends and future realities. One of the targets of the new masterplan is to deepen the alternative investment market to market capitalisation of N5 trillion. The revised master plan also proposed changes to the implementation governance structure to make the Nigerian market more efficient, flexible and globally competitive.
As part of efforts to enhance market integrity and investors’ protection, an enhanced customer identification framework was also launched during the year. The new amendments to the capital market’s rules on clients identification, which were approved by Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), disallow opening account for or trading on the existing account of any person without a complete three-layered identity that seeks to harmonise transactions with the government’s national register.
The NGX launched its exchange traded derivatives (ETDs) market, blazing the trails in the Sub-Saharan African market. The ETDs market has already commenced trading activities. ETDs are standardised, highly regulated, and transparent financial contracts listed and traded on a securities exchange, and guaranteed against default through the clearing house of the derivatives exchange. NGX ETDs market will complement existing asset classes, provide investors and other market players with the necessary tools for tactical asset allocation, as well as improve risk and cost management for effective portfolio management. It will further enhance the participation of domestic and international investors in Nigeria’s financial markets, which will positively impact the performance of the economy.
With the nation shrugging off most vestiges of the COVID-19 restrictions, the capital market also witnessed the gradual return of physical activities. The NGX reopened its iconic Lagos trading floor and opened its door to corporate events. A guideline that allows companies to hold their annual and other general meetings mainly through the use of proxies will expire by December 31, 2022. The Corporate Affairs Commission (CAC) has said the guideline, which was introduced in the wake of the COVID-19 pandemic, will cease to apply effective January 1, 2023.
With the recurring problem of unclaimed dividends, SEC started plan to rebuild the E-Dividend Management Mandate System (e-DMMS) platform in a fresh move to forestall and curb unclaimed dividends in the capital market. The enhancement of the e-dividend platform would include having a centralised submission of E-dividend mandate forms, Application Programming Interface (API) for banks and registrars, and a revamped web interface among others.
On continental scale, Africa’s dream of creating a continental marketplace came alive with the switch on of a continental trading engine that allows on-line trading across Africa’s securities exchanges. With this, investors can buy and sell shares listed on the continent’s largest economies and capital markets while companies and government can raise funds across the markets seamlessly. Seven securities exchanges serving 14 African countries were hooked to the system, which provides trading data in three major languages of English, French and Arabic. African countries participating in this first phase of the cross-border trading included Nigeria, South Africa, Egypt, Kenya, Mauritius, Casablanca, Benin, Burkina Faso, Guinea Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo. The exchanges in the first phase included Nigerian Exchange (NGX), Bourse Régionale des Valeurs Mobilières (BRVM)- which serves eight West African countries; Casablanca Stock Exchange (CSE), The Egyptian Exchange (EGX), Johannesburg Stock Exchange (JSE), Nairobi Securities Exchange (NSE) and Stock Exchange of Mauritius (SEM). BRVM is a regional stock exchange serving eight West African countries of Benin, Burkina Faso, Guinea Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo.
Macroeconomic constraints
Nigeria’s galloping inflation rate, which peaked 17-year high at 21.47 per cent in November 2022, its 10th consecutive increase, and the steep depreciation in naira value undercut the global attraction of the Nigerian investment market. A gripping foreign exchange (forex) liquidity crisis has continued to weaken foreign investors’ appetite for the Nigerian market. Foreign portfolio investors who historically accounted for nearly half of Nigerian market have remained on the sidelines, watching the naira riveting from the wide gap between the official and parallel exchange rates. Central Bank of Nigeria (CBN)’s hawkish stance saw consecutive increase in the benchmark Monetary Policy Rate to 16.5 per cent. Policy risk remains key constraint, with the apex bank and key government economic agencies at variance on major policy decisions, including the redesigning of the currency notes and withdrawal limits on cash transactions.
Overall, for the capital market, 2022 has been a year of more positives than negatives. It’s a year of the bulls.
