Nigeria: Stock Market Grows 71% in Nine Years - Report

21 September 2020

The market capitalisation of the Nigerian equities market has grown by 70.7 per cent or N5.594 trillion from N7.91 trillion to N13.51 trillion in the last nine years under Mr. Oscar Onyema as the Chief Executive Officer (CEO) of the Nigerian Stock Exchange (NSE) amidst challenging economic terrain, according to a report.

Onyema assumed office as CEO of the exchange in 2011 following the exit of Prof. Ndi Okereke-Onyiuke in 2010. The management of the exchange led by Onyema had come in with lots of enthusiasm and prospects to upgrade the local equity market through the introduction of market makers; achieve $1 trillion market capitalisation by 2016, and bring in a framework to allow Small and Medium Enterprises (SMEs) to gain access to the stock market.

But, in a special report titled: 'NSE 10 years after a takeover: The good, the bad and undecided,' Proshare, research, data, news and analysis services firm, said the stock market has had a difficult period since Onyema took over the running of NSE.

However, despite the difficult period, the market capitalisation of equities, which is the value of equities listed on the exchange rose from N7.91 trillion at the beginning of 2011 to N13.51 trillion at the end of 2019.

NSE All-Share Index (ASI) grew by a marginal 8.4 per cent in the same period, rising from 24,770.52 to 26,842.07.

In the nine years, the market recorded a decline in six years and appreciated in only three years.

It declined in 2011, gained in 2012 and 2013, but fell in 2014, 2015 and 2016. It recovered in 2017 only to decline again in 2018 and 2019. And so far the market has recorded a year-to-date decline of 4.7 per cent.

Breaking down the performance of the market, Proshare said the stock market has had a difficult period between 2010 and now, noting that turnover velocity for equities dipped from 12.51 per cent in 2010 to 7.55 per cent in 2019, representing a decline of 4.96 per cent.

"The reduction in velocity reflected a gradual rise in investor interest in public sector traded debt instruments such as treasury bills and treasury bonds and the gradual shift of local and foreign direct investors (FDIs) from equities to the fixed income market.

"The swing explains why by 2019 the value of bond capitalisation on NSE squared up with the size of its equity capitalisation even though the bond market was almost non-existent in 2010," it said.

Proshare disclosed that as of August 11, 2020, NSE bond market was at N15.83 trillion as against FMDQ market value of N30.19 trillion and the equity market value of N12.98 trillion.

"A sour point in the 2010-2020 decade of market development has been the tumbling of newly listed equities. New equity issues slumped from 31 in 2010 to 17 in 2019. Despite the growth in trading activities on NSE in the last decade, corporations have been wary of raising fresh capital from the market and diluting existing shareholder interest by way of an Initial Public Offer (IPO) or by a Rights Offer (which would retain existing shareholder equity interest but increase the number of shares in issue). The stock market over the past decade has been sustained principally by foreign investor interest as the gradual weakening of the naira and the fall in equity prices has engineered hidden-value opportunities above those in competing frontier markets (FMs). The high trade-influence of foreign investors between 2010 and 2020 contrasted sharply with the heavy domestic investor participation in the market between 2000 and 2009," it added.

Proshare noted that over the years, Onyema has pushed for a stronger, deeper and broader local stock market.

"The alumni of the New York Stock Exchange (NYSE) had no illusions about the challenges he would face in a market hamstrung by narrow asset classes and relatively low domestic liquidity, but he was optimistic that things could be made better," the research firm said.

Proshare explained that the period between 2010 and 2015 saw heightened market awareness and a tougher regulatory push towards global best practices, but the raw emotions of individuals, institutions and vested interests made for an impossible sequence of unwinnable skirmishes.

"Onyema has brought some saneness to the fistfights between stock market regulators and legislative oversight bodies, while making effort to upscale market sophistication. However, despite Onyema's best efforts, the equities market still shows considerable weakness concerning the number of traded instruments available and the volume of free float for prime market traded instruments," the firm said.

Looking ahead, Proshare said that a few local equity traders note that the domestic stock market requires support whether solicited or unsolicited since the consequence of unfettered market action could prove damaging to the stability of society.

"NSE, therefore, needs to build upon its progress in the last two decades to reach the next level of its evolution where more instruments of bellwether industries are listed on the exchange and more sophisticated trading activities take place.

"The Growth Board creation is a step in the right direction, but it must move from the realm of the drawing board to the realm of action. Also, the demutualisation of NSE needs to be concluded quickly to bring the market to the contemporary standards of equity trading platforms in Europe, Asia and the United States of America(USA).

"The demutualisation of the exchange would move it from being a broker-dominated exchange to an investor-oriented exchange with higher governance standards," it said.

Proshare added that the derivative market has been an area that the Onyema-led NSE has shown a keen interest in initiating and developing but stockbrokers have been reticent.

According to one broker, "you build a derivative market on a fundamental understanding of asset classes and the pricing of their spin-offs; traders in Nigeria still have a knowledge gap that would need to be closed if they desire to trade in this neck of the woods," he said.

However, the trader further noted that "derivatives can be very risky and require high technical competence. As things stand today, local market traders have neither the risk appetite nor the basic skill sets to handle such sophistication. This is where I think less is more, and for now, we should continue to dip our feet in a slow-moving river rather than take a dive into a deep blue sea."

Proshare added that while the observations of the broker may be true, it said not filling the "white spaces" open in the domestic financial market, traders would be allowing for inefficiencies in asset pricing and limiting the breadth of asset categories.

"An improvement in asset classes could likely increase capital importation and strengthen the country's foreign exchange rate. Besides, with more tradeable assets available on NSE, the market would become more attractive to both local and foreign investors and lead to domestic asset deepening," it said.

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