Goddy Egene writes that a growth of 35.4 per cent recorded by the Nigerian equities market in 2012 is a confidence-building development for investors
The Nigerian equities market outperformed analysts' forecast for 2012 and raised investors' hope going forward after a dismal performance in 2011.
The market, measured by the benchmark indicator of the Nigerian Stock Exchange (NSE) All-Share Index (ASI), the equities market ended the year with a growth of 35.4 per cent, compared with a decline of 16.3 per cent the previous year.
Although market analysts had expected a rebound in the market in 2012, they had expected a growth below 15 per cent. But a combination of some factors boosted the growth beyond the expectations of pundits.
Specifically, the ASI, which opened 2012 at 20,730.63 rose to close at 28,978.81,while the market capitalisation of equities grew from N6.533 trillion to close at N8974trillion.
Events that Shaped 2012
After a decline in 2011, the market had opened 2012 on negative note as investors maintained cautious approach. This led to a negative return of 0.38 per cent in the first quarter (Q1). As the year rolled by, investor confidence began to build up, leading a positive return of 4.5 per cent in Q2. The Q3 saw a big leap of 20.4 per cent helped by impressive half year results released by some companies. This growth was sustained in the last quarter, causing the market to return a "post 2008" high of 34 per cent.
However, there were some developments that affected the market both negatively and positively. The major negative event was the probe by the House of Representatives Committee on Capital Market and Other Financial Institutions of the near-collapse of the nation's capital market.
The committee under the chairmanship of Herman Hembe began the probe last March but ran into trouble the second day over bribery allegation and counter allegations.
While the Director-General of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh, said she was being vilified by committee because she refused to accede to its demand to facilitate the probe with N39 million, Hembe denied demanding any bribe from the SEC DG. According to him, he rather fought hard to resist such temptation from the commission to bribe the committee members.
Hembe stepped down as the chairman of the probe panel while an ad hoc committee headed by Ibrahim El-Sudi continued with the investigation. The committee later recommended the sack of Oteh.
Before then, the former board of SEC had sent Oteh on compulsory leave over alleged mismanagement of 'Project 50' funds. However, she was recalled by the Federal Government, saying she was not guilty of financial impropriety allegations leveled against her.
Despite the challenges and distractions, the SEC DG was able to sustained some of the initiatives she introduced aimed at helping in restoring investor confidence to the market in 2012.
Prominent among the initiatives was the Capital Market Committee (CMC) annual retreat, which made stakeholders in the market to bond and tackle issues jointly. The first retreat took place in Uyo, Akwa Ibom State in 2011 and the second one was held in Warri, Delta State in 2012.
While the full impact of the CMC retreat may not be have been felt in the market yet, operators believe that the impact would be seen this year and beyond.
Apart from SEC, the management of the NSE also introduced some initiatives that contributed to the growth witnessed in 2012. One of such initiatives is the introduction of market making and securities lending.
A total of 10 market makers where registered by the exchange in April for the market making while the market making programme commenced in September.
Besides, the NSE introduced some disclosure measures that enhanced informed decision by investors on companies and operators. They included X-compliance and Broker Trax.
The X-Compliance report is designed to maintain market integrity and protect the investors by providing compliance related information on all listed companies.
On the other hand, the Broker Trax is a campaign by the NSE against market infraction by its dealing members. It enables investors to make more informed decisions about where to invest by viewing names of Dealing Member Firms that have been found liable for contravening market rules.
The last major positive development in the market was the forbearance package by the Federal Government and tax waivers announced in the last month of 2012. A forbearance package of N22.6 billion was unveiled for 84 stockbrokers that have been weighed down by debt overhang which resulted from margin loans.
Assessing the Market Performance
Stockbrokers and market operators are unanimous in their assessment of the market performance that it is a commendable one, attributing various reasons for the impressive performance.
For instance, Managing Director/Chief Executive Officer Quest Advisory Services Limited, Mr. Bayo Rotimi, said one of the factors was the clean-up of the banking industry through the efforts of the Central Bank of Nigeria (CBN) and Asset Management Corporation of Nigeria (AMCON).
"This has resulted in stronger corporate earnings driven by the removal of toxic assets from the balance sheets of banks, improved risk management and corporate governance, greater disclosure and financial reporting standards," he said.
Rotimi added that improved regulatory oversight and coordination between the various regulatory authorities have also contributed to the positive performance in the market.
The, regulators, he explained have adopted a zero-tolerance for infractions
"The introduction of market makers, short selling and securities lending. Significant inflow of foreign direct investment into the Nigerian capital markets, which demonstrated the continued confidence by foreign investors in the Nigerian capital markets equally helped in what we are seeing today," he said.
To the Managing Director/Chief Executive Officer of Partnership Investment Company Plc, Mr. Victor Ogiemwonyi, the growth in the stock market in 2012 could be attributed to several factors which included a stabilising market after the crash.
He said: "The economy has also shown promise despite the many challenges, it is the opportunities that have attracted many foreign investors to the market. They now constitute over 70 per cent of investors in the market. The clean-up in the banking industry has also spurred investors, especially following the good results they have also published confirming that they are now truly healthy.
"The work of regulators in pushing through reforms has also helped in bringing confidence back to the market. The current surge can be attributed to the forbearance for stockbrokers which has finally removed the debt overhang that weighed on the market these last three years," he said.
Speaking in the same vein, the Managing Director/CEO of APT Securities and Funds Limited, Mr. Kasimu Garba Kurfi, said the performance was driven by the half year results declared by most of the quoted companies.
This, he said, reawakened investor confidence and brought inflow of foreign funds.
"The insistence by the management of the NSE for submission of quarterly and annual accounts as at when due encouraged the informed investors to participate more in our market. Banking reforms by CBN also yielded positive result in the banking performance, AMCON's acquisition of non-performance loans from the banks also enhanced their performance," Kurfi said.
He added that the NSE reforms including reclassification of the companies into more of international classification brought more understanding of the market by foreign investors, while introduction of market making, securities lending, short-selling and increase of band limit from five per cent to 10 per cent for selected market making stocks equally contributed to the growth.
Assessing the market situation in 2012, the Executive Director, Ess Investment and Trust Limited, Mr. Idowu Ogedengbe, said the fall in interest rates on fixed income securities provided an opportunity for some funds managers who had earned good returns on fixed income securities to seek better returns from equities market.
He added: "Similarly, the introduction of market making obviously influenced market performance in 2012. Some of the investors that have remained on the sidelines returned to the market in expectation that the stock market will rebound thereby providing them a viable window for short term profit taking.
"The intervention provided by AMCON in absorbing some of the toxic assets in the banking industry that were occasioned by the exposures to the capital market, in the form of margin loans, and the oil and gas sector, was also a positive factor."
Ogedengbe explained that the publication of impressive results by quoted banks enhanced investor confidence in the banking subsector of the Nigerian equities market, which has historically accounted for the highest contribution, about 70 per cent, of the value of trades executed on the Nigerian bourse.
"Arguably, the recent announcement by the Ministry of Finance of N22.6 billion forbearance/bailout package for 84 stockbrokers could also be a factor that influenced market performance. The forbearance, which relieved these stockbrokers of the debt overhang, notwithstanding, the illiquidity in the market, however, remained a constraint to market performance in 2012," he said.