The stock market is a common feature of a modern market economy and it is reputed to perform necessary functions, which promote the growth and development of an economy. This is to compare the two sides of the coin in the performance of the Nigerian Capital Market. The result indicated that there is a significant difference in the performance of the capital market before and after the reformation. This was achieved using the performance indicators which included market capitalization, volume of stocks traded, value of stocks and the share index. This shows that the indicators used increased faster in the post reform period than the pre reform period of 1988-2007.
The result of the analysis, which established positive impact suggest that; the NSE should find means of cutting down cost of raising fund on the exchange so as to allow more companies the opportunity of accessing fund from the exchange. And also, government and stakeholders can strengthen regulation through transparency in all the deals in the market as this will boost and attract more private companies to participate in the market with overall growth of both the market and the economy.
Nigeria’s stock market was the worst performer, compared with other major African markets, and third worst also, in terms of returns, when compared with other global markets in the first-quarter (Q1) of 2014. The first quarter of the year 2014 shows that Ghana grew by 11.2%; South Africa by 3.3%; Zimbabwe 9.7% and Kenya 5.6% while Nigeria recorded 6.2% negative return.
In reviewing the equities market performance for Q1’14, Tola Odukoya, managing director, Dunn Loren Merrifield Asset Management & Research Company, said “Q1 2014 returns for each sector shows that the entire market would have fared much worse, with a much widened negative return, had Dangote Cement not recorded a positive return in the period.”
On the drivers of the negative market returns in Q1 2014, he observed that oil & gas, food & beverages, personal and household goods, banks, chemical and other financial services, recorded strong double digit negative returns. “While single-digit positive returns were recorded in Construction & Materials, Real Estate, Industrial Goods & Services and Health Care. Therefore, the double-digit negative returns eroded gains from the single-digit positive returns, resulting in a negative total return for the entire market in Q1 2014,” Odukoya added.
There had been a far reaching reform program that is meant to address some of the challenges facing the market. There had been less investor apathy and increased certainty of the market at the beginning of the year until the fourth quarter that the election is getting closer. In the past years there were regulatory lapses, many cases of wrongdoing leading up to the crisis and most worrisome; a market that was way below its potential in terms of breadth, depth, liquidity, sophistication and governance.
The SEC took decisions to leverage cooperation within the Capital Market Committee (CMC) to set up industry-wide committees to examine the state of the market and chart its future path. The result of this exercise is the development of a 10-year master plan for the Nigerian capital markets with specific blue prints for capital market literacy and non-interest capital market products. This is in line with global best practice as we have learnt from successful examples from peer emerging markets.
Statistics had shown that Malaysia developed a 10-year master plan for their capital market in 2001. By the end of 2010 they had implemented 95 percent of the recommendations in the plan which led to a doubling of the market size from USD317 billion to USD606 billion. The plan further established Malaysia as one of the world’s most important Islamic finance centres while moving it from a narrow market dominated by equities and bonds to other products like REITs, ETFs, derivatives, and non-interest products. Malaysia’s first master plan was so successful they developed a second one for their market currently being implemented leading to 2020. Closer home, Kenya has also recently launched a 10-year master plan to guide the development of their capital market.
The SEC has ensured that investor confidence is restored, adopting a posture of zero tolerance to wrongdoing, while strengthening its enforcement machinery through partnerships with the Office of the Attorney General of the Federation and the Nigeria Police Force. The commission 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.
The commission has revamped the 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.
The commission reinvigorated the rule making, ensured adherence to the principles of securities regulation as espoused by members of the International Organization of Securities Commission (IOSCO) in which it is a leading member. The commission has also ensured market transparency through implementation of global best practice in corporate governance and financial reporting, issuing a new Code of Corporate Governance and supporting the adoption of the International Financial Reporting Standards (IFRS).
In the stock market, it introduced rules on securities lending and market making to boost liquidity, as it approved new listing rules of the NSE to attract more listings and allow the market do more for Small and Medium Scale Enterprises, SMEs and businesses in strategic sectors.
The Nigerian Stock Exchange (NSE) ended 2014 as one of the worst performing exchanges as the market capitalisation of the listed equities fell by N1.749 trillion from N13.226 trillion at the start of the year to N11.477 trillion globally.
There is empirical evidence that supports that the year following the devaluation of a country’s currency would experience upswing in their capital market. The banking sector, which has been battered, will lead the recovery. They often give over eight per cent dividend yield, hence, they will attract more patronage in the first quarter,” Oyediran said.
Against the negative performance of the stock market in 2014, capital market stakeholders have forecast a better performance and growth in the entire market in 2015. According to a stockbroker with Calyex Securities Limited, Mr Tunde Oyediran, if the stock market direction tends to be positive the fears we are experiencing now would have been allayed.
Our economy like most global market is sensitive to global development, but if we have a strong participation by domestic investors in our economy, it will help to make our economy much more stable.
Investors should invest in companies that depend less on imported materials, companies that had done backward integration. While the general secretary of the Shareholders Association of Nigeria, Mr Adeleke Adebayo, said that the stock market will stabilise in second quarter 2015.
“There are three issues affecting the market: the election, which at the end of the first quarter 2015 would have been resolved; the falling price of the crude oil in the international market, which by March 2015 would be stabilised with the 2015 budget which will be presented based on the bench mark price of oil; and lastly the expectation of end year results of companies which, if turned positive, would boost market performance in 2015,” he said.