Political uncertainty, economy stall equities market by N2.28trn in 2018 

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The equities market performance this year has been on dwindling position for several reasons that include buildup towards the 2019 election, foreign investors exit, among others. Kayode Tokede and Olabode Jegede examine the equities market in 2018 and reactions from key stakeholders.

The 2019 political uncertainty forced investors both foreign and institutional to trade in the equities market with cautions, coupled with attractive interest in the US Federal Reserve this year.

The Independent National Electoral Commission (INEC) had scheduled the 2019 Presidential and National Assembly elections for Saturday, 16th February, while the Governorship and State Assembly/Federal Capital Territory (FCT) Council elections have been scheduled for Saturday, 2nd March 2019.

However, the equities market had opened for trading this year at N13.619 trillion to close last week at N11.337 trillion, representing a decline of N2.28 trillion or 16.76 per cent.

The NSE All-Share Index also dropped by 18.84 per cent or 7,205.47 basis points to 31,037.72 basis points from 38,243.19 basis points equities market opened for trading this year.

The equities market of NSE in 2017 was ranked within the top 10 best-performing equities markets globally with average full-year return of 42.30 per cent, equivalent to net capital gain of about N4.36 trillion.

The ASI, which also doubles as Nigeria’s sovereign equities index, had opened 2017 at 26,874.62 basis points and closed the year at a high of 38,243.19 basis points.

Hitherto, the equities market had gained N1.38 trillion in first three months of 2018 as price of blue-chip companies appreciated over stability in foreign exchange market.

The market capitalisation of the Exchange opened trading this year at N13.609 trillion to close on March 28 at N14.993 trillion, an increase of about N1.38 trillion or 10.2 per cent.

The equities market early in the year started on a positive note over the Central Bank of Nigeria (CBN) foreign exchange intervention and federal government liquidity injection boosted investors moral to trade in chip and fundamental stocks listed on the bourse.

The International Monetary Fund (IMF) last year projected Nigeria’s Gross Domestic Product (GDP) growth of about 2.1 per cent in 2018 due largely to dependency on oil revenues.

The report by IMF pointed out that in the absence of new policies, the near-term outlook remains challenging for Africa’s power house.

The Federal Government’s economic agenda, fiscal policies, as well as projected incomes and expenditures for the period 2018-2020 had projected GDP at 3.5 per cent in 2018, while inflation is expected to moderate to 12.42 per cent.

Meanwhile, the National Bureau of Statistics (NBS) announced GDP growth of 1.81 per cent in third quarter (Q3) of 2018 from 1.50 per cent in second quarter of 2018.

With a positive prospect, findings by our correspondent revealed that the equities market gained N247 billion in first half year (H1) of 2018 despite global macro economic challenges and domestic political risk, attributable to impressive performance by blue-chips companies listed on the bourse.

Analysts had expressed that federal government late passage of 2018 signaled caution trading as most investors were much interested in money market instrument where their investment is secured.

For the first six months of 2018, key market indices considered by Nigerian NewsDirect recorded marginal growth with exception of Insurance Index that increased significantly by 7.94 per cent in the period under review.

As the buildup to the election was close, the equities market in 11 months ended November 30, 2018 depreciated by N2.35 trillion as profit-taking was recorded most especially in the banking stocks, Industrial good and Consumers goods.

Analysts in the capital market had attributed the sell-offs to a combination of low liquidity, capital outflows, mixed performance of listed companies and political uncertainties as well as the declining buying pressure as revealed by volume traded for the period.

The Chief Executive Officer, NSE, Mr. Oscar Onyema early in the year said, “the outlook for the Nigerian capital market is encouraging. Indeed, to some extent, political activities and currency movements will have an effect on the market, but we expect that such impacts will be short-lived and the performance of the underlying business activities will ultimately determine market performance.”

The Managing Director, Cowry Assets Management Limited, Mr. Johnson Chukwu explained to Nigerian NewsDirect said, that the nation’s economy in 2018 was facing domestic and foreign challenges.

According to him, “Nigerian economy is facing internal and external challenges. At a moment, Nigeria is facing political risk and foreign investors who are the major participants are not aggressive in the nation’s equities market.

“Also, Investors prefer to trade in fixed income instruments rather than equities market where the yield is attractive.

“Foreign investors pulling out as a result of reforms in monetary policies in Western Countries- The United States Reserves bank and the Bank of England have normalized interest rate which is part of what is discouraging foreign investors to come into the nation’s equities market.”

He explained that equities market performing would not change but there will be economy stability.

“Second half of 2018 will witness more political activities and we expect the US Federal Reserve to increase interest this year. We will actually see more pressure at the foreign exchange market in H2 which may force Central Bank of Nigeria (CBN) to mop-up and interest on Treasury bill will go up. We don’t expect the equities market to improve unless other activities evolve that are not currently in review,” he explained.

Management fails to deliver on demutualization promise

The council of the NSE failed on its promise to deliver market demutualization this year.

The former council president, NSE, Mr. Aigboje Aig-Imoukhuede had promised that the demutualization exercise would be completed in months in September 2017.

According to him, “And for this reason, I convinced my colleagues in Council and our Management team to accelerate our timetable for completing the demutualization of the NSE. “Today, I am proud to report that this process which had lingered in The Exchange for several years, has now advanced to the point of near completion and by God’s grace will be concluded within the coming months.”

Onyema early 2018 said, “the NSE is on track to become a more agile and flexible demutualized securities exchange. We are hopeful that the Demutualization Bill will be signed into law in 2018, and are working assiduously with our Advisers to fine-tune outstanding aspects of the demutualization project as well as providing clarity on the process via regular engagement with all our valued stakeholders.”

In September 2018, The Exchange announced that it has finally crossed a major hurdle in its demutualization processes as President Muhammadu Buhari has finally signed the bill into law that will transmute the Lagos based bourse from a mutual association of exchange members to a limited liability company which is accountable to shareholders.

A demutualised NSE will allow the stock exchange become a company limited by shares; having share capital or shareholders, a board of directors, management that is separate and independent from the board and subject to rules and regulations of company operations in Nigeria.

“The exchange is empowered to adopt any process, procedure, structure or plan as may be required by its council for the purpose of converting to a public company limited by shares provided that the prior authorization of the Securities and Exchange Commission (SEC) has obtained and all the procedures and requirement of the demutualization rules of SEC have been complied with,” the Demutualization of NSE Act 2018 stated.

NSE amended Par Value amidst uncertainty

The Exchange in January announced that the amended Pricing Methodology and Par Value Rules of the Exchange, which had been approved by the Securities and Exchange Commission (SEC) become effective January, 2018. The new Rules can be found in Rules 15.29 and 15.30 respectively of the Rulebook of the Exchange, 2015 (Dealing Members’ Rules).

The Exchange’s trading engine on the effective date, specified the revised price limit, price movements and tick sizes i.e. price floor, minimum pricing increments and minimum quantity to be traded that will change the published price. The rules also classify equity securities into different price groups in order to achieve this.

Findings by our correspondent revealed that Insurance stocks that comprises of over 20 companies were affected as investors were taking profit.

Head, Market Surveillance and Investigations Department, NSE, Mr. Abimbola Babalola said, “The amended stratification of price movements, price limits and tick sizes aims at improving liquidity, narrowing spreads, and ensuring that all price improving (up/down) transactions are material, making the market more efficient for all participants”.

NSE supports FG in capital rising exercise

The NSE in 2018 supported the federal government in capital raising exercise meant to finance key projects across the country.

Specifically, the NSE announced the listing of the N100billion, 7-year, federal government Ijarah Sukuk with a rental rate of 16.47% on the floor of the Exchange on April 10, 2018, by the Debt Management Office.

Sukuk are bonds structured to generate returns to ethical investors without infringing on the Islamic law which forbids interest payments. It represents an ownership interest in the asset to be financed rather than a debt obligation.

According to the Director General, DMO, Ms. Patience Oniha, the listing of the FGN Ijarah Sukuk bond is about financial inclusion and deepening of the country’s financial market. “The Sukuk will encourage financial inclusion by providing an avenue for non-interest investors to participate in the fixed income market. In addition, the Sukuk provides an opportunity to further develop the savings culture in Nigeria, particularly among individuals and other retail investors”.

She also noted that the FGN Ijarah Sukuk was designed to finance critical road infrastructure across the country. “The proceeds will be used to further support the construction and rehabilitation of 25 roads across the 6 geopolitical zones of the country”.

The bourse also list N10.69billion, 5-year, Federal Government Sovereign Green Bond at coupon rate of 13.48% on the Exchange by Debt Management Office (DMO) on July 20, 2018.

Oando suspension divides market stakeholders

The suspension placed on Oando Plc divided market shareholders though it latter lifted by Securities and Exchange Commission (SEC). The indigenous Oil & gas company siege led to the suspension of Director -General, SEC, Mr. Mounir Gwarzo and appointed of Acting DG, Ms. Mary Uduk.

The apex capital market regulating body in 2017 conducted a preliminary investigation of Oando, based on petitions received from shareholders of Oando., and a whistleblower.

Based on some of the findings from the preliminary investigation, the Commission took steps to preserve shareholder value and protect the investing public.

Consequently the SEC placed the shares of Oando on technical suspension and ordered a forensic audit of the affairs of Oando Plc.

Subsequently, two lawsuits were respectively filed by Oando., and some shareholders of Oando Plc, mainly to restrain the SEC and the NSE from effecting a technical suspension on the shares of Oando and the SEC from appointing a team of forensic auditors to conduct a forensic audit of the company.

Oando has withdrawn the pending lawsuit against the Commission by an application heard and granted by the Court of Appeal on March 05, 2017.

Also the application for withdrawal by the shareholders was heard and granted by the Federal High Court on February 21, 2018.

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