By Okey Onyenweaku

The recent classification of the Nigerian equities market as the best performing in the world impressed many. That the market also gained 50 per cent at the end of the year was also heartwarming.

BH Research reveals that this performance has been the highest in the past seven years. Details show that the All share index closed at an unprecedented high of 40,270.72 as at December 31, 2020 while market capitalization hit the giddy height of N21,056trillion.

Indeed it was a bullish market and many investors smiled to the banks.
This bullish market notwithstanding, many analysts observed that whereas the market recorded unprecedented growth, it seemed to also have the telltale marks of a speculative market in relation to its fundamentals.

There was in fact, and indeed a consensus of sorts that it was a CBN policy-induced bullish trend. It was also observed that the market defied normal regular trends, having grown to such giddy heights even when the countrys economy was deep in recession.

Of course the, former Chief Executive officer and now Group CEO of the currently demutualized Nigerian Stock Exchange (NSE), Mr. Oscar Onyema was to explain that the market was riding on some positive policies of the CBN and the opening up of economies in the world in addition to the strong fundamentals of the companies to turn around the market.
His words; Nigerian economy and the market like every other economy in the world have been greatly impacted by Covid-19 and associated economic challenges. So, we saw a lot of volatility in the market similar to other markets in March time frame when the Covid-19 actually hit Nigeria.
Since then a number of policy changes that have occurred and as the world is now in a recovery mood and economies are opening up we are seeing investors react to these policy changes. And as you know the markets are forward indicators of what will happen in the economy.

So, the equities market is reflecting that. I must say some of the policies I made reference to include the CBN policy that domestic institutional investors should stop participating in the OMO market. That has driven significant funds into the NTB market. Some of these have found their ways into the equities market. We have also seen cut in interest rates, that is a significant move to support equities as an asset class because what investors tend to do is to look for yields and returns. So, as the Nigerian economy has shifted into a negative real interest environment.

With those types of cut you must look for investments that will give you higher yields and higher returns. Given the record dividend yields that are available in the Nigerian market and given the strong fundamentals of the a number of the companies that are listed on the exchange it makes sense that as investors try re-balance their portfolios they will look at equities.

There are also a number of fiscal policies that have happened that are very supportive of the market. So, I commend the CBN and the CBN Governor for their thoughtful leadership and generally their leadership in attacking the pandemic and taking measures to cut interest rates.
Despite this explanation, the one million naira question however is how sustainable will the seemingly bullish trend be? Investors seem to be asking.

Analysts have expressed their reservations over the trend and indeed do not want to be carried away by what could be described as a flash in the pan. The Nigerian economy has not been strong and no immediate indication shows that. Of course, at the end of the day the market closed on a very high note.

However, the market which gained 50% at the close of business December 31, 2020, is drifting to the south now probably to begin to reflect its fundamentals. Already, the market had lost almost 4 per cent before retreating to close at -2.6 per cent negative year to date.
There is a consensus that the market operates in cycles of the Bulls and the Bears.

But analysts believed that the market hung on speculation to make unprecedented gains, but was yet to reflect clearly the hopelessness in the economy which appears not have any direction. They explained that the market would go further down in order to adequately reflect the true situation of the gloomy economy
Many are seemingly certain that the economy which has just crawled out of recession to see a GDP growth of 0.11% at end of year was still very feeble. The one million naira question is how sustainable will the seemingly bullish trend be? Investors seem to ask.


Analysts have expressed their reservations and do not want to be carried away by what could be described as a flash in the pan. The Nigerian economy has not been strong and no immediate indication shows that. The economy only recorded a paltry growth of 0.11 per cent in 2020 after a recession of -3.2 per cent in the second quarter and slid further down by -6.10 per cent in third quarter 2020. Recent statistics revealed that the rate of unemployment, the second highest in the world is 33%; Underemployment rate stood at 22%; inflation which is hitting the roof top at 17.33 per cent is the highest in the last seven years; diaspora remittances inflow in the country fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.

Unfortunately too, the 2021 budget runs a deficit of N5.2trillion representing 3.6 per cent, while the country owes N33trillion ($82bn) debt. The fear here hinges on the fact that federal government spends about 60 per cent of its revenue to service debt.
The major revenue earner for the country, crude oil price, which has retreated from $70 bpd to $62.46 bpd as at March25, 2020 still fluctuates.

Insecurity has not only hobbled agriculture, many parts of the Northern part of Nigeria have been taken over by bandits that not much business activities can subsist.
With the fearful scenario above, economic trajectory of the country is still on certain. This is because even the apex bank has warned that care must be taken to galvanize and push the economy out of slumber.

Can the market grow without strong fundamentals?

There is still hope that the economy has potentials to grow. After all, the equities market all over the world has the bullish and bearish periods. And this period may be a bearish season even though, the market indicators have not fallen to rock bottom. On this score, the market which was down by almost 4 per cent a few weeks ago has settled at -2.6 per cent loss.
On the other hand, the market which market capitalization was up by 62.42%, from N12.97 trillion in 2019 to N21.06 trillion in 2020; the market which turnover saw an uptick of 7.25%, from N0.96Tn in 2019 to N1.03Tn in 2020.

NSE reckons that, although Initial Public Offering activity was mute, the value of supplementary issues increased dramatically from 2019, rising by 851.37% to N1.42 trillion, from N148.77 billion. Also noteworthy is that for the second consecutive year, equity market transactions were dominated by domestic investors who accounted for 65.28% of market turnover by value (Retail: 44.98%; Institutional: 55.02%) while foreign portfolio investors accounted for 34.72%.

Capital-raising activities in the fixed income market increased significantly in 2020. The NSEs bond market capitalization rose by 35.52% from N12.92 trillion in 2019 to N17.50 trillion. Continuing the trend in recent years, the Federal Government of Nigeria dominated issuances, raising over N2.36 trillion which comprised ~92% of total bond issuances. Corporates also leveraged the low yield environment to fund expansion objectives and pursue debt refinancing, raising a total of N192 billion.

Such market, analysts agree nurses the potentials to repeat the above feat in the years ahead.

After all, the market appears to be garnering momentum again given impressive results that are trickling in from companies. Most banks and other firms are also paying good dividends in the period ended December 31, 2021. In fact, Stanbic/IBTC took it further when it gave a bonus of one for one. These activities and events seem to have boosted confidence in the market as well as propelled a surge. Yields on bonds are also rising giving the market a semblance of charting its own course.

One other significant issue that could boost the market is the recent completion of its demutualization. On that score, Oscar N. Onyema, the new Group CEO of NGX Group Plc, said: The Nigerian capital markets should play a role commensurate with Nigerias status as Africas largest economy. At the Nigerian Stock Exchange, we have a vision that the new group will become the premier exchange hub for Nigerian businesses and for the African economy. We are implementing a series of measures towards this goal, demutualisation being a critical milestone. The completion of demutualisation is a truly significant moment, and we welcome the new possibilities that have opened up for us today.

He explained that, Demutualisation of the NSE is pivotal in that it creates new strategic opportunities that will enable the Group realise its vision of becoming Africas leading capital market infrastructure provider. The creation of a holding company and a new capital structure will also enable NGX Group Plc to form new dynamic relationships, drive strategic partnerships and gain capital-raising flexibility. It will be recalled that NSE members approved at its last AGM, the listing by introduction of NGX Group Plc on NGX Limited.

But a few persons are finding it difficult to believe that the macro-economic conditions has the fundamentals to propel the market.

There is actually little for the common man and the reason is because of the rising inflation. And inflation is actually generated by possibly the most fundamental area that impacts the well fair of the common man and that is food security. There is also energy inflation that is the consistent increase in prices of petrol and that of electricity have all impacted very severely in the welfare of the common man, says David Adonri, MD/CEO Highcap Securities.

BH recalls that in the corresponding period of 2008, the market maintained a bullish disposition and investors smiled to the banks.

The major indicators attained unprecedented heights. The market capitalization peaked at about 13.1trillion and the All share Index gained a giddy height of 66,551.84 basis points on March 5, 2008. Most of the equities grew bullish and the Nigerian Capital Market was thrown into frenzy.

The market became the toast of the Nigerian Business community, with traders, civil servants, farmers and even students making equity investments.

Many analysts noted that the Nigerian Stock Exchange (NSE) became a beehive of activities with both investors and speculators scrambling to make a kill. Some individual stocks recorded over 100% appreciation while others edged up by 50% and above.

Again we return to the central poser. And that is the one million question on the lips of many: how sustainable is the bullish market?


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