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Stock market value rises to N12.87tn

By on December 31, 2013

The equities segment of the Nigerian capital market, which has posted impressive annual returns in the last two years, has reached a new high in terms of value.

On Friday, the market capitalisation, which measures the value of the listed equities, rose by N120bn or 0.94 per cent to N12.875tn, further surpassing its 2008 peak of N12.62tn by 1.98 per cent.

The 2008 peak had first been surpassed in June 2013 when the market capitalisation rose to N12.64tn.

The crash in the capital market caused the market value to fall from N12.6tn in the first quarter of 2008 to as low as N4.47tn in 2009.

Despite reaching a new high in terms of value, the market has not completely recovered the loss of N8.17tn made during the crash as the Nigerian Stock Exchange All-Share Index has yet to regain its pre-crisis peak.

On Friday, the NSE ASI, which measures the performance of quoted stocks, was up by 0.94 per cent to close at 40,231.68 basis points. The figure pegs the NSE ASI year-to-date return at 43.28 per cent as against a 35.45 per cent annual return in 2012.

But this is still a long way off the 63,371.20 basis points the ASI attained in 2008. Analysts and stakeholders are, however, confident that it is now only a matter of time before that peak is also surpassed.

According to them, the continued growth and returns in the last few years, which have pushed the market capitalisation to a five-year high, are due to returning stability to the global financial scene, reforms and initiatives by stakeholders in the Nigerian capital market and strong fundamentals by many of the listed companies.

They explained that these factors have helped to boost investors’ confidence, adding that more investment in equities meant more room for growth and full recovery from the recession.

The President, Association of Stockbroking Houses of Nigeria, Mr. Emeka Madubike, said, “It (the growth) is the result of a continuous effect of all the reforms that have taken place in the market, especially those by the NSE.

“You will find that it has been a steady movement, especially in the last quarter of 2012. Last year, there was a yearly upward movement of about 34 per cent. This year, we have over 40 per cent annual return.”

He explained that the growth was another signal for domestic investors to become more active in the market.

He said, “Imagine somebody, who invested in a good stock at the beginning of the year in terms of capital appreciation, he would have hit between 30 and 40 per cent return, not to talk about the dividend the person would have got.”

Also, the Chief Executive Officer, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, said the resurgence of the various blue chip companies and the steady recovery of investors’ confidence had a huge impact on the market.

However, he said a more responsible factor was the fact that the banking sector no longer had dominance over the market capitalisation.

He said, “We now have a situation whereby the high cap stocks with good fundamentals are beginning to rule the market. And these ones have maintained a steady growth with investors developing a big appetite for them.”

There have been several changes – reforms and initiatives – in the market within the last five years.

Some of them are the granting a forbearance package to troubled market operators, the introduction of market makers, new over-the-counter markets for trading in unlisted securities and inauguration of a new trading platform by the NSE.

Others are better regulation of the market and good corporate governance as well as improved transparency and stiffer penalties for market infraction.

The Chief Executive Officer, Trust Yield Securities Limited, Alhaji Ola Yussuf, explained that in addition to the domestic efforts, developments on the global scene were vital.

“We must not look at this out of context; we have to take a global look at everything. Look at what is happening in New York; the Dow is also reaching a record level this time of the year,” he said.

He said the rise to new highs at year-end, when the index mostly trends downwards, was partly as a result of the fact that investors were adopting a more holistic approach ahead of 2014 based on the fact that the US economy was presumed to be recovering.

He added that even the European economy had shown strong signs of recovery.

“So, there is an indication of a global economic recovery and that is reflected in indices all over the world. And Nigeria is no exception,” he said.

On the sustainability of the growth, Yussuf said the fact that it was spread across the sectors was a positive sign going into 2014.

Madubike also said that the growth being witnessed in the market would be sustained as long as no policy capable of distorting the market was introduced.

“The market needs stability and so, we hope that there would be no policy from the government or its agencies or regulators that would cause any upheaval in the market.”

The General Manager, Client Services, Compass Investment and Securities Limited, Mr. Sam Ndata, has a similar opinion.

Ndata, who has always been optimistic about the recovery of the stock market, said, “I said it before that the market would bounce because of what the regulators, ASHON, Chartered Institute of Stockbrokers and other stakeholders were doing. And I’m glad that is happening now.”

He added that he was optimistic that the growth would be sustained because the reforms had not stopped.

Like Madubike, he said now that the market was recording continued growth, policies that could shake up the stability in the market should be avoided.

An example of such a policy, according to him, is the decision by the Securities and Exchange Commission to increase the minimum capital requirement for operators.

“The only thing that can make the market to shrink is a policy like the one SEC is introducing now,” he said.

Under the new capital requirement structure, brokers/dealers have their capital requirement increased from N70m to N300m.

For broker only, the capital requirement is now N200m – up from N40m, while for dealer only, it is now N100m –up from N30m.

Although SEC said it had approved the new requirement pursuant to Section 313(6) of the Investments and Securities Act 2007, capital market operators expressed reservation about the move.

Ndata explained that such a jump in capitalisation contributed to the problems of the past as some operators turned to unethical deals in order to meet the requirement.

“That caused problems before because many people tried to do unethical things to recapitalise,” he said.

He said that considering the harmony among stakeholders at the moment and the fact that the market was performing well, care should be taken to ensure there was no upheaval.

 

 

[Punch]