Stockbrokers during a trading session at the NSE


Surprisingly, the equities market closed on an unprecedented high last year. Business Hallmark observed that the major twin indexes, the All Share Index and the market capitalization closed the year 2020 at the giddy heights of 50 and 62 per cent respectively. How did the market attain such growth in the midst of a ravaging pandemic, the Covid-19 pandemic and the wobbling price of crude?

There is a consensus by financial experts that the capital market of any country should be a barometer with which to measure her economy. Going by this theory, industry analysts observe that it was not normal for the equities market to have moved in the opposite direction with the economy. Many market watchers were surprised to see the direction of the market turn from a weak position to a strong position and even for the better as at Q3 2020. This wonderful performance, experts said was induced by the Federal government and the Central Bank of Nigeria through a slew of market-favourable policies which included; reducing interest rates, redeeming matured debts instruments and creating a Nigerian Economic Sustainability Plan through which it spent N2.3trillion to shore up the economy, a development that was to push huge amounts of money into the financial system that streamed into equities.

In fact, analysts are of the opinion that the impressive performance of the market which closed at 30 percent positive was deliberately orchestrated or forced by the authorities. So, their view is that the bullish trend is not sustainable. “Expect market correction soon,” many of them have warned.

Analysts had concluded and foreclosed the possibility of any firms flying in such weak economies as Nigeria where the economy which has already shrunk into a recession by 3.2 per cent in the third quarter 2020; where inflation is hitting the roof top at about 13 per cent; where the Naira has lost value and vigour; where the budget deficit stood at -4.69% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; and where economic policies are done to favour a section of the country.

Recently, the government hiked the prices of fuel and electricity for the masses of the country with 82 per cent of its population in the poverty bracket.

‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print.

Yet the equities market grew in leaps and bounds. Unfortunately, this high performance came despite that the fact that the market closed -14 per cent negative at the end of December 2019.

Whereas the market All-Share Index recorded a leap by 9.75 per cent in the early three weeks of the year from 26, 842.07 points as at January 02, 2020 to close at 29,719.41 points on Wednesday 22, 2020, the market capitalization also gained N2.202 trillion or 16.9 per cent, from N12.970 trillion to N15.173 trillion in the same period.

But this hopes were dashed in March when the Covid-19 pandemic pervaded the world and shut down business activities in almost every country, Nigeria not an exception. Nigeria was in a lockdown for five weeks when supply chains and most activities including businesses halted. Supply chains and productive activities were disrupted which caused prices to surge as raw materials and finished goods were hard to come by.


The market trend in 2021 will take its bearing from all that have taken place in 2020. Its impressive performance which made it attain 50 percent gain at the close of business on December 31, 2020 is not sustainable. Unfortunately, the second wave of the ravaging pandemic is becoming stronger and spreading very fast in Nigeria. Many analysts have said that emerging markets sometimes are not driven by fundamentals. In fact, a higher number of analysts told Business Hallmark that the Nigerian equities market belong to the category, especially the growth it experienced in 2020.

Their view is that the market could not have reflected the economy which slipped into recession in the third quarter 2020, at the same time the All share index and market capitalization leapt to giddy heights.

That the market performed well unexpectedly in 2020 may not rub off on its activities in 2021. In fact, industry analysts believe otherwise. They have fingered the weak economy as one of the major challenges that may rob investors of good returns in 2021. The Nigerian economy is already in recession having recorded two successive quarters of negative growth in the Q2 and Q3.

Weak economies come with various challenges which include, weak purchasing, inflation, low productivity, currency depreciation, low capacity to export and high tariff and taxes. These problems among others have already held businesses down in the country.

Beyond comforting talk however, low consumer spending has also been fingered as what may plague the market in 2021. Among the troubles besetting the country is the rising consumer prices scourge and growing volumes of unpaid workers’ salaries in the public and private sectors, in addition to increasing unemployment.

Not even the budget of N13.59 trillion is expected to ameliorate the bleak future of the economy and the market. Sadly, the budget fiscal deficit is N5.601 trillion. The deficit will be financed mainly by new borrowings totalling ₦4.28 trillion, ₦205.15 billion from privatization proceeds and ₦709.69 billion from drawdowns on multilateral and bilateral loans secured for specific projects and programmes. Of course, analysts are not optimistic that much can be achieved with this budget given where the country’s experiences and antecedents.

Whereas analysts believe poverty increases with household size, and reduction in productivity, there is also a consensus that poor people hardly have access to capital with which to build any form of business. These are scenarios that have pervaded the country.

A poor environment will not have much to offer in terms of business activities. Market observers also believe that there will be very low productivity because not many skilled workers can tolerate it; there will be low access to capital, no ease of doing business and almost no job creation.

These have the potential of affecting the capital market in 2021.

A financial analysts with the Renaissance Group, Olisa Egbunike, is not optimistic that the market can perform wonderfully well in 2021 given that emerging markets, Nigeria inclusive, are very much speculative. Mr. Egbunike told Business Hallmark that beside the challenges of the already weak economy and its attendant challenges, government policies and activities would play a great role in determining the direction of the market in the current year.

‘’The aggregation of all the problems of high taxation, high inflation, depreciation of the Naira, low productivity, weak purchasing power, declining man power will affect returns in the 2021’’, he said.

For the Managing Director of High Cap Securities limited, Mr. David Adonri who believes that what fueled the market gains last year were the redeeming of matured debt instruments, the introduction of the Nigeria economic sustainability plan which was to spend about N2.3trillion to shore up the economy and CBN’s reduction of interest rates. While Adonri agrees that those measures are still in place, he cautioned that investors may soon see market correction adding that the current bullish market was forced. Speaking further, Adonri explained that the rising inflation, forex crisis and the weakening of the Naira currently are the consequences of inducing the market artificially.

‘’These led to the spectacular performance of the market and you can see that while the economy was moving in one direction the equities market that ought to reflect or move in the same direction with the economy move in the opposite direction. But it was not a natural movement. It was a forced movement.

“So, sustainability of that movement cannot be guaranteed because it has already caused some dislocations in the macro-economic stability. And a major dislocation is also the over-heating of the foreign exchange. You can see that the naira is depreciating and inflation is also rising.

“These are also sources of worry as to whether the rally in the market is sustainable or not. Therefore, people need to be very cautious concerning their exposure in the equities market. However, now we are in a sellers’ market. People can sell now and make profit and wait for the market to correct itself later,’’ he said.


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