'NGX remains the preferred listing platform for capital raising'
NGX

By OKEY ONYEWEAKU

In line with the culture of looking up at the beginning of the year, many investors in the Nigerian bourse are wearing looks of optimism as the new year continues to unfold. While some may have counted their gains, others may, of course, not have recouped as much as they would have loved from their investments.
What ever their respective standings, the equities market closed in the positive as the All share index gained 6.07%. The All Share Index opened the year 2021 at 40,270.7 and closed with 42,716.4 points at the close of trading on December 31st, 2021, representing a 6.07% gain Year to Date.

Business Hallmark investigations revealed that equities market investors earned N1.240 trillion as the market capitalisation for the period settled at N22.297 trillion, up from the N21.057 trillion it recorded at the beginning of the year.
Performance across the major sectoral indices was also positive during the period with the NGX Oil & Gas index leading with 52.52 per cent gain. NGX Premium index followed with a gain of 20.08 per cent, while NGX Pension index up by 16.96 per cent.

NGX Lotus II, NGX 30, NGX Insurance, NGX Banking and NGX Consumer Goods indices closed the year in a positive territory with a gain of 5.74 per cent, 5.01 per cent, 4.54 per cent, 3.32 per cent and 2.78 per cent, respectively. On the other hand, NGX Industrial Goods index declined by 2.15 per cent in the period under review.

Nigerian Stocks had started 2021 on the back of an impressive 50.03% return as local investors staged a remarkable surge in demand for equities. Analysts noted that stocks have struggled since 2021 as demand from local investors cooled amidst little to no interest from foreign investors, higher inflation, a shift in central bank monetary policies, and slow economic growth.

According to FSDH Research analysts said,
“The equity market in 2021 rode on the appreciation of the Oil & Gas Index on the back of the sustained increase in oil prices. The short-term outlook for the global oil market is challenged with the spread of the COVID-19 Omicron variant. This is expected to negatively impact the performance of the Oil & Gas segment of the NGX.

“At the firm level, many large-cap companies listed on the exchange are reporting record performance in their 2021-9M reports, which will spill into their full-year performance and eventual dividend payment. Hence, it will drive positive sentiment towards the equity market in 2022,” FSDH Research analysts also said.

Aside from the rise in the price of crude which maintained a price of about $70 pbd, completing the demutualization of the Exchange helped to fuel the market growth.
The demutualization process ushered in a new non-operating holding company, the Nigerian Exchange Group plc (NGX Group) which created with three operating subsidiaries – Nigerian Exchange Limited (NGX), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent securities regulator, and NGX Real Estate Limited (NGX RELCO), the real estate company.

Whereas expectations have moved to 2022 as no one can predict with certainty the performance of the market in future. But analysts can hazard or conjecture performance by looking at However, the market has opened in a positive note. Already, the market has gained 3.6% in the past 13 days as NGX ASI rose from 43,026.23 basis points in January 2022 to 44,604.74 points on January 13, 2022.
That is a good start with a seeming air of optimism. But there is apprehension given that the macro-economic environment in which the market could only achieve gains of 6.07% in 2021 are still pervasive in the beginning of 2022.

WHAT WILL SHAPE THE CAPITAL MARKET IN 2022?

The market trend in 2022 will take its bearing from all that had taken place in 2021. Though closed in the positive by about 6%,this is a far cry from the wonderful performance which made it attain 50 percent gain at the close of business on December 31, 2020. A more realistic performance at 6% but there are no clear compass that there will be a boom in 2022. Unfortunately, the third or fourth 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 with the growth it experienced in 2020.

Their view is that the market could be reflective of the fundamentals and more realistic this year given the weak economy and its attendant challenges.

Looking more critically, the political atmosphere is still depressing, the economy is still weak despite IMF projection of 2.5 growth in 2021. The level of insecurity has defied all wimpy efforts of the government as many people still leave in fear. Prof. Zulum, Gov. of Bornu State raised alarm that Boko Haram are still superintending and collecting taxes from two local governments in his State.

Unfortunately, while bandits are in every part of Nigeria killing, raping, kidnapping and maiming, business activities have been crippled in most parts of the North even in Katsina State, the home State of President Buhari.

These have heightened economic challenges with inflation still high at above 15%, unemployment is chasing 40%, underemployment at above 25%. These days almost everybody is aware that Nigeria is the poverty capital of the world overtaking India with over 100 million people. The Naira which sold at N220/$ in June 15, 2015 has depreciated by about 100 per cent to N565/$ this January 2022.Nigeria’s reserves id dwindling while our total debt stock which is about N40trillion and still rising. Unfortunately, Nigeria spends over 90% of her revenue to service loans. From early 2020, when Covid -19 pandemic was dictated and its attendant lockdowns and disruptions in supply chains among other challenges which still persist, the Deposit money banks have like many other sectors been struggling. The padded budget of N17.126trillion for 2022, harbours a deficit of N6.25trillion and approximately 3.39% of GDP.
Recently, the PWC noted that the deficit is expected to be financed by new borrowings, privatisation proceeds and drawdown on loans secured for specific projects.

It also explained that Non-debt recurrent expenditure of N6.83tn is the largest expense item, with 60% relating to personnel costs at N4.11tn.

Analysts strongly believe that the equities market may just be flat or achieve about 5 to 6% growth like that of 2021. There is doubt that the government will have time for the economy in an electioneering year as most part of 2022 may dedicated to politicking.

Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, fears that the annual budget and the five -year plan of the government did not seem realistic, noting that FG was going to borrow hugely again to fund the over N6trillion budget deficit in 2022.

He said the revenue was still very low in 2021 at N5.5 trillion for the country to project to raise an ambitious N10.7 trillion this year.
“We never found it in the last eight years. We never did anything better than N6trillion revenue in the best years in Nigeria, so why are we allowing biased revenue projection”, he said.
“Much of the revenue increase expectation is hinged on increased taxes. And it is unreasonable to expect to get more taxes from an economy that is in recession and under devaluation. Who is going to pay the increased taxes? And the deficit would most likely be more than budgeted once revenue disappoints.” He added.

Chief Executive officer of Highcap Securities limited, Mr. David Adonri does not have high optimism for the equities market this year 2022 given the varied financial challenges facing world generally. He thinks that the macro-economic problems in Nigeria cannot lift the market beyond the level it attained in 2021 which is more or less not significant enough to cheer about.

Adonri believes that what moved the market so massively to gaining 50.3% in 2020 was abnormal because that was the year of general decline for the whole world.

‘’So for Nigeria to move contrary to that was an abnormal situation arising from a misplacement of policy intention of the CBN. It was a policy measure that misfired . The CBN went on an expansionary monetary policy by reducing interest rate so that more money will flow to the productive real sector so that the real sector can produce more to mitigate the scarcity of goods that had inundated the economy causing inflation. That was the purpose of that CBN policy measure. But instead of that policy measure making money to flow at low interest rate to the real sector but the real productive sector did not have the absorptive capacity to take the funds so, the monies flowed into the equities market and over-heated the equities market causing massive asset appreciation.’’

‘’So in 2021, when the economy now started opening up, the interest rate that was lowered in 2020 now started recovering by way of yield increasing in the capital market. Then those financial asset that flowed to equities started returning back to debt. That was what made the equities market to just be stable or appreciate a little bit in last year because the equities market was negative in 2021 for a long time. It only started recovering at the tail end of the year. So now at the tail end of the year too, the federal government crowded funds away from the equities market with the issuance of various debt instruments. The federal government issued sukuk and federal government savings bonds. There was also the MTN offering. All these transactions drained money away from the equities market. Now a lot of those monies that were tied to corporate market were now released because most of those applications were not successful so those funds now started coming back to the equities market. That is why we have seen the secondary market in the equities market is bouncing up.’’

According to him, it was also given impetus by the listing of BUA Foods together with that of Airtel, Airtel ran a transaction in East Africa which investors believe will have positive impact on the company. So these attracted funds to the equities market.
He explained that the equities market in 2022 may just be stable just like in 2021.

‘’The reason is because we are in a penultimate general election year. During the penultimate election year the equities market normally suffers, from antecedents, because the activities of governance or politicians is dependent mainly on political expediency. Governance suffers in the penultimate year because of heightened political activities given that they depend more on political expediency. Governance now is based on political expediency rather than economic development. That adversely affects the market negatively.

“From the global economy there is threat of rising inflation. So the advanced economies are heightening monetary policy and that comes with increasing interest rate in their own jurisdiction. This monetary policy will help to retain money or assets in their own jurisdiction and leaving nothing to float to developing economies like Nigeria. So capital inflow for Nigeria will be reduced in 2022. And while they are increasing interest rate, they are also releasing crude oil from their reserve.

Remember that the forecast is that crude oil price will decline to decline. These are negative headwinds that will affect the Nigerian economy and when the fundamentals of the economy is adversely affected it will affect the equities market, he also said.

For Olisa Egbunike of Renaissance Group, he shares the same views with Adonri, saying he does not expect any thing spectacular taking place in the equities market this year given the brand of politics that dominate the Nigerian space.

‘’I don’t see the capital market being boisterous in 2022’’, Egbunike said, explaining that investing in Nigeria has become too risky.
According to him, the bulk of the people that actually play in our market are foreign portfolio investors and one the things that will shape it or attract them will come from the utterances of the politicians on whether Nigeria will still remain a political entity after 2023
He made it clear that in addition to other issues the fiscal and monetary authorities would have to define more clearly their roles in the driving policies that affect the economy.

‘’From the economic point of view, there is the problem of a clear definition of functions between the Ministry of finance , the debt management office and the Central Bank of Nigeria. Since 2015, most of us that have been watching the investment terrain know that the CBN has appropriated both the fiscal and monetary policy functions. That has affected the way the economy has been going. In the saner clime, there is a clear definition of who manages the fiscal policy and who manages the monetary policy.”

He advised that the government must look into reevaluating the purchasing power of the average the Nigerian.

‘’FG is only talking about removing subsidy and giving the poor Nigerians N5,000 every month. What is the value of N5,000 compared to the exchange rate.

And the industry are not operating optimally. Security concerns have also questioned the issue of farming. These will conspire to drag the equities market down. I hope you know that insecurity will increase because of election and that will also increase the apprehension in the market.’’

Analysts at Cordros Research stated,
“According to the data released by the National Bureau of Statistics (NBS), capital importation into Nigeria in Q3-21 increased by 18.5% y/y to USD1.73 billion (Q2-21: -32.4% y/y to USD875.62 million). For us, the increase reflects the favourable base from the prior year as the weak macro narrative and FX liquidity constraints continue to linger. Analysing the breakdown, Foreign Portfolio Investment (FPI) increased by 198.9% y/y to USD1.22 billion – we attribute this to the increase in global liquidity conditions, which has made investors search for higher yields in emerging and frontier markets. On the other hand, Other Investments (USD406.35 million) declined by 36.5% y/y while Foreign Direct Investment (-74.0% y/y to USD107.81 million) remained below its 12-quarter moving average (USD240.22 million). Over the medium term, we expect foreign investors to remain on the sidelines given (1) FX liquidity constraints, (2) increased political risk as the pre-election activities takes centre stage, and (3) inadequate structural reforms to reduce the economy’s vulnerability to external shocks.”

The above scenario do not seem favourable to the equities market, not even now that there is political instability.

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.

The one million question in the mouth of many, is how sustainable is the bullish market?

 

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