Kayode Ogunwale
20 January 2012
analysis
Lagos — The activities on the Nigerian Stock Exchange (NSE) in 2011 was not comfortable for many stakeholders in the market especially during the last half of the year that witnessed a downward trend.
To put it mildly, year 2011 is a great disappointment to all stakeholders in Nigeria’s capital market. There were high hopes at the beginning of the year because of the positive performance of the market in the first and second quarters; expectations of most investors for 2011 were very high until the third quarter when the downward movement started. For instance, the return on investments on the stocks quoted on the exchange ranked best among other African stock markets in the 2010 financial year and the situation of 2011 was expected to be better.
In 2008, the market dropped by 28.1 per cent from N13.295 trillion to stand at N9.563 trillion by year-end. In 2009, the market dropped by 26.5 per cent, from N9.563 trillion to stand at N7.03 trillion at year-end. The market capitalization in 2011 dropped by N138 billion representing 17.5 per cent from N7.914 trillion it open the year to stand at N6.533 trillion at the closing of the year, while the market All-Share Index (ASI) also dropped 4,039.89 basis points translating to 16.3 per cent from 24,770.52 points to close the year at 20,730.63 basis points.
During the year, all the five NSE sectoral indices close negative. NSE 30 which basically measures the performance of blue chips, opened the year with 1,081.95 points to close at 923.77 basis points and went down by 158.18 point translating to 14.6 per cent.
NSE food and beverages index open the year with 778.47 points to close the year at 589.60 points less 188.87 points which is 25.3 per cent. NSE banking index recorded a loss of 124.82 points which is 31.3 per cent from 399.08 it opened the year to close at 274.26 points; NSE Insurance opened the year with 168.34 basis points to close at 143.54 points dropping 24.8 points representing 14.7 per cent, while NSE oil and gas recorded highest loss of 118.74 basis point translating to 35 per cent from 338.85 basis points it opened the year to close at 220.11 points.
The entire market volume which stood at about 5 billion daily at the beginning of the year went down to 2 billion per day by the end of 2011 with majority of the stock trading done by foreign investors.
The major players in the market during the year are Access Bank, First Bank, Guaranty Trust Bank, UBA and Zenith Bank, Guinness Nigeria, Nigeria Breweries and Nestle Nigeria.
These eight stocks control 70 to 80 per cent of market turnover in the last half of the year because foreign investors believe in stocks with strong fundamental and foreign investors control almost 80 per cent of the market activities.
Among the factors responsible for the downward trend of the market are delisted Nigerian Bottling Company, United Nigeria Textile and Nampak, low liquidities in the market and nationalization of Afribank, BankPHB and Spring Bank.
Nationalization of Afribank, BankPHB and Spring Bank is one of the major factors affecting downward trend of the market as investors’ funds totaling N29.68 billion went down the drain.
The Central Bank of Nigeria (CBN) on August 5, 2011, after the close of normal business withdrew the licences of three banks alleging that they lacked the necessary capacity and ability to beat the recapitalisation deadline.
It became necessary for the NSE to delist the affected banks from its daily official list following the nationalization by the CBN.
The banks were immediately taken over by NDIC through the “bridge bank mechanism” which re-named them Mainstreet Bank (Afribank), Keystone Bank (Bank PHB) and Enterprise Bank (Spring Bank).
On the following day, Asset Management Corporation of Nigeria (AMCON) took over the bridge banks and promised to inject N678 billion into their operations, to keep them alive.
As a consequence of the nationalization and delisting, shareholders’ funds in the banks were effectively eroded. This seriously affected their confidence in the market.
As at the last day of trading on the shares of the banks, Afribank had a total issued shares of 13.56 billion which was sold at N0.64 per share; Spring Bank Plc, with an issued share of 11.32 billion went for N0.84 per share; while Bank PHB Plc, with an issued share of 20.15 billion was being sold at N0.57. Put together, the capitalization or investment value of the banks stood at N29.68 billion.
This affected the market to the extent that it lost over N300 billion in the first three days’ trading sessions.
Most of the stocks slumped to their lowest market value last year in the stock market in the aftermath of nationalisation of the three banks. The massive sell-off of banking shares and attendant steep decline in share prices increased in the last three days when the banking stocks lost N189 billion.
The banking sector is very significant to whatever happens in the market. This is not surprising as 70 per cent of the market volume is controlled by the sector.
To put an end to the downward movement in equity market, the Securities and Exchange Commission (SEC) had said that it is putting plans in place to increase the Nigerian capital market’s depth.
Accordingly, the apex market regulator has developed a road map to ensure that new issuances are brought into the market.
The Director-General, SEC, Ms. Arunma Oteh, decried the fact that within the last one year, the exchange has recorded a decline in the number of issuances.
According to her, if this continues, it would have a negative effect on the market. She said that SEC was, therefore, poised to see that there would be a reversal of trend this year.
She said: “We are aware that new issues and listings would work towards improving and increasing the depth in the NSE and it is important that we, the regulators do all we can to ensure that there are more issuances in the market.
“The situation in the last year has shown that there has been a decline in the number of issuances in the market, and we have taken steps to ensure that this is corrected.”
Oteh said that SEC had been involved in concerted efforts to bring in new issuances, adding that such a move was key to boosting activities on the exchange and attracting more investors.
“We want to do all we can to ensure that the market remains attractive so that more investors, both local and foreign, would be attracted to the market,” she added.
In a bid to reposition the Nigerian capital market, SEC has inaugurated seven sub-committees of the Capital Market Committee that would map out strategies for the revival of the market for better performance.
The CMC is a body comprising officials of the SEC, NSE, operators and other stakeholders in the nation’s capital market.
The seven sub-committees include investors’ confidence restoration, investment management market information/technology, commodities exchange/capital trade points, fixed income securities, products and business development and rules and compliance.
The sub-committees are expected to come up with a road map that would assist in the determination of the direction of the market in 2012 and beyond.
Oteh said the investor confidence restoration sub-committee, for instance, would come up with strategies and home grown policies that would ensure that investors refocused attention on the market and ensure that their needs were adequately taken care of.
Explaining the functions of the investment management sub-committee, she said it would evolve strategies that would ensure greater participation in portfolio investment by investors, whether in stocks, equities or commodities.
“Members of the committee would come out with ways on how portfolio and fund managers can pull retail investors together and give them professional and qualitative advice and services,” she stated.
In his opinion, Managing Director and Chief Executive Officer of APT Securities and Funds Limited, Malam Kasimu Kurfi said year 2011 is much challenged year because the year before, 2010, ended positively.
“Despite that, the half year result of the market recorded positive, the rise in the market did not last because of pronouncement of the CBN governor when he declared some banks nationalized.”
He affirmed that it really affected the market and reduced the morale of investors as many of them dumped their shares and left the market.
“Other issues lingering on the market include margin facilities which related to the dealing member. This matter has been deliberated since last two years and up till now government has not come out with final statement that will relieve the market, we believed this will go to rest by the first quarter of 2012,” he said.
He therefore urged regulators to encourage institutional investors to invest in the capital market.
“There is a need to dialogue and encourage institution investors, Pension Fund in particular which as at today have provision to invest as high as 25 per cent but their exposure shows that most of them invest less than 5 to 8 per cent.”
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