The Capital Market: 2012 Performance Review

The Nigerian equities market (Nigerian Stock Exchange, NSE) started the year on a bearish note with the NSE All-Share Index (ASI) depreciating by 32.63 points or 0.15% and the market capitalisation dropping to ₦6.533 trillion. At the end of the year, the market recorded an impressive year-to-date (YTD) performance of 35.4% gain, hitting a 34-month high of 28,078.81 basis points up from 20.730.63 points recorded at the beginning of the year.

The Nigerian capital market has become a force to be reckoned with in the global economy, owing to its performance over the last few months. The market garnered above 7,000 basis points amid weak and mixed daily average turnover recorded in the year. This was however achieved with 70% foreign participation; a far cry from the 53% recorded in 2008 –and a source of concern about the dearth of domestic investors’ stake in the push for market recovery.

The 35.4% year-to-date market gain is a significant increase when compared to the performance of major markets in the global economy. In the United States of America, for instance, the Dow Jones Industrial average added nearly 6% in 2012. The S&P Index gained about 11%. While the NASDAQ Composite Index was up by 12% and the FTSE 100 finished up with a gain of 5.84%. In South Africa, the Johannesburg Stock Exchange fared better, albeit not as good as the Nigerian market, as it closed 23% better.

The German market outperformed the US and South African markets, with the DAX gaining 29.5%. France’s CAC finished with a 15.5% gain; the Italian market rose by 7.8%, but Spain was down by 5% on fear of contagion. However, the performance of markets in the rest of Europe was more mixed, which is not a surprise, given the continuing worries about the Eurozone.

Foreign investors demonstrated confidence in the country’s economy in 2012. The equities market remained the most attractive investment to foreign investors, accounting for over 70% of total capital investment in different sectors of the economy in the year 2012.

Data obtained from the Central Bank of Nigeria’s Statistics Database indicates that total value of capital imported into Nigeria stood at $12.64 billion in last quarter of 2012, out of which investments in equities accounted for $10.34 billion.

This is the first time in four years that the Nigerian market is making a reasonable attempt to break the long drawn recession that has seen investors lose a cumulative ₦8 trillion since March 2008. Questions are being raised about the sustainability of the current trend.

NSE Initiatives Which Helped in Driving the Market in 2012
Some of the events that shaped the stock exchange in 2012 were:

  • The reconstitution of the Council members.  After a two-year legal battle over the moral implication of his position as the president of council of NSE, Alhaji Aliko Dangote returned as the President.
  • A Market Segmentation exercise was completed to rebrand the stock market and boards, and align industry sectors under which companies are listed, which brought the sectors down to 12 from 33.
  • To address market depth, The NSE introduced a series of new products –the SIM Capital Alliance Value Fund, the ABSA NewGold ETF and the NSE-Lotus Islamic Index. They provide investors the opportunity to gain exposure to gold, a concentrated portfolio of value stocks, and to Shari'ah-compliant companies.
  • Within the year, the NSE announced the appointment of ten market makers to conduct market making activities. This was launched along with Securities Lending and Short Selling.

Market Makers
1    RenCap Securities (Nig.) Limited
2    Stanbic IBTC Stockbrokers
3    Future View Securities
4    Vetiva Capital Management
5    ESS/Dunn Loren Merrifield
6    WSTC Limited
7    Capital Bancorp
8    FBN Securities
9    Greenwich Securities
10    CSL Stockbrokers

  • The NSE revised its listing rules and effectively brought down the listing fees, realigned free float for quoted companies and other minimum requirements for new listings in a bid to attract more companies. It also deployed systematic sector-board-product-specific marketing strategies, and introduced value-added services to address specific concerns hindering market growth. To protect minority shareholders, The Exchange kicked off a financial literacy program to educate investors on portfolio construction and the benefits of diversification.
  • The NSE introduced the Investor Protection Fund (IPF), a vehicle instituted to provide a buffer for losses investors may suffer as a result of the bankruptcy, insolvency, negligence or unprofessional activities of Dealing Members at the Nigerian Stock Exchange. However, there are concerns, in the short term, about the size and utilization of the fund.  
  • The NSE made history as the first capital market operator in Africa to introduce a Market Quality Report –The "NSE X-QuaIReport" which is designed to disclose the extent to which equities traded on The Exchange provide executions at prices better than the prevailing price quotes before an investor places an order among several initiatives.
  • Following the appointment of Stanbic IBTC Capital as the sole government stockbroker for Federal Government Bonds, the Debt management Office, DMO, announced the commencement of bonds trading on the secondary market.
  • The issue of margin loan was settled with extension of ₦22.6 billion forbearance package to 84 stockbrokers believed to have been heavily involved in the margin trading. Waiver of stamp duties and exemption of VAT on transactions on the exchange was also granted by the federal government towards end of the year, while those commissions payable to the NSE, SEC and Central Securities Clearing System were removed and included in the list of VAT-exempt goods and services.

New listings
The Nigerian Stock Exchange witnessed a few new listings during the year. Among the companies listed are; Austin Laz Nigeria Plc, Forties Microfinance Plc and Geo-Fluids Plc.

Meanwhile, a total of 12 companies were delisted from the daily official list for non-compliance to post-listing rules. Some of the companies include Aluminium Manufacturing Company of Nigeria Plc, Capital Oil Plc, W.A. Glass Industry Plc, Union Dicon Salt Plc, Hallmark Paper Products Plc, Nigeria Wire Industry Plc, and Rokana Industry Plc. Others are Lenards Nigeria Plc, Udeofson Garment Factory (Nig) Plc Abplast and Confidence Insurance. Patina Computer System voluntarily delisted.

“Going forward, we anticipate the stock market to sustain the momentum it ended with in 2012. There is a consensus of optimism that the capital will perform above average in 2013 due to a number of far-reaching initiatives by the regulators. Confidence-boosting measures by the NSE in trying to enforce compliance by listed firms in filing quarterly reports will no doubt buoy the market.

The current macroeconomic outlook is positive as Nigeria’s economic growth is one of the fastest in the world at low debt levels. From a relative standpoint, asset values on the Nigerian Stock Exchange remain significantly undervalued when compared to similar assets in other markets

The early passage of the 2013 budget is a pointer to improved economic activities during the year, which is believed, will translate to increased activity on the Stock Exchange and enhance better performance.
Factors to watch: Corporate profits, Inflation, Exchange Rate, Economic activities as measured by the Gross Domestic Product (GDP), Stock Valuations, Mergers and Acquisition, Fiscal Policy and Global Economy.