The Nigerian Stock Exchange ended 2014 as one of the worst performing exchanges as the market capitalisation of the listed equities fell by N1.749tn from N13.226tn at the start of the year to N11.477tn.
This is despite the listing of companies such as Caverton Offshore Support Group Plc, Seplat Petroleum Development Company Plc and Omoluabi Savings and Loans Plc, which added billions of naira to the market capitalisation.
As of December 24, data compiled by CNNMoney using benchmark year-to-date performances of exchanges showed that the Nigerian Stock Exchange ranked 72 out of 74 exchanges considered with the NSE All-Share Index at 20.67 per cent negative.
A separate report published on December 24 by The Telegraph (UK) ranked Nigeria number three among the worst performing stock markets in 2014, with Columbia and Russia occupying the second and first spots, respectively.
Although a rally by equities in the last days of the year led to an improvement in year-to-date return of the NSE ASI, enabling it to close 2014 with a year-to-date return of -16.14 per cent, it was the Exchange’s worst performance in years.
The performance was in sharp contrast to that of 2013, which the Exchange ended as one of the best performing exchanges in the world with the NSE ASI YTD return of 41 per cent.
In 2014, of the 10 market indicators, only two – the NSE Oil and Gas Index and the NSE Alternative Securities Market – closed the year higher.
While the oil and gas index rose by 11.83 per cent, the ASeM index was up by 26.08 per cent.
The NSE Lotus Islamic Index and the NSE Banking Index declined the most as they fell by 21.63 per cent and 21.53 per cent, respectively during the year.
The NSE 30 Index, which measures the performance of the 30 most capitalised stocks on the Exchange, shed 18.03 per cent, while the NSE Consumer Goods Index and the NSE Industrial Index were down by 17.88 per cent and 15.98 per cent.
The NSE Insurance Index recorded the least decline, falling by 2.10 per cent.
Although analysts did not expect the Exchange to match its 2013 performance in 2014, the outlook for the year had been positive.
But 2014 started poorly due to the quantitative easing tapering in the United States, increase in Cash Reserve Ratio on public sector funds by the Central Bank of Nigeria and the sudden suspension of the erstwhile governor of the bank, Mallam Lamido Sanusi, among others.
As a result, at the end of the first quarter of 2014, the NSE ASI year-to-date had turned negative at -6.24 per cent.
A rally between April 1 and June 30, however, helped the index to close the first half of the year on a positive note, with a year-to-date return of +2.79 per cent.
At the end of the first half of the year, the Chairman, Lead Securities and Investment Limited, Mr. Abimbola Olashore, said that the country remained an investment destination for foreign investors going by their continued dominance of the capital market despite the tapering by the United States Federal Reserve authorities.
He said, “Given the developments in the first half of 2014, we maintain our prognosis’s for 2014 that the NSE All-Share Index will hit 45,000 points by year end; the market turnover will remain between an average daily range of N2.45bn and N4.5bn.”
But whatever the hope the performance of the market in the second quarter gave investors and market analysts was dashed as oil prices, which had started declining in June, continued to slide leaving investors, who were already concerned about the forthcoming general elections and the political risks in the country, with economic concerns.
This coupled with less-than-impressive results by banks, which were grappling with the impact of regulatory headwinds, and consumer goods companies, which were witnessing declines in sales as a result of a drop in the disposable incomes of Nigerians, helped turn investor sentiment negative.
When the CBN devalued the naira in November, the move had been expected to, among other things, help to stop foreign portfolio investors from pulling out their investments. The impact, however, lifted the market for only a few days.
The Chief Executive Officer, Highcap Securities, Mr. David Adonri, told our corresponded that the failure of the move to calm the market over a longer period was largely due to the continued decline in oil prices.
He said, “Before the devaluation of the naira, the market had already reacted significantly to falling oil prices and it was expected that remedial tools including devaluation would be applied. That was a very proactive action by the market. As such when the devaluation was announced, the market was calm.
“However, the price of oil has continued to decline and that is responsible for the reaction you are seeing,” he said.
Asked about the implication of the poor performance of the stock market in 2014, the President, Association of Stockbroking Houses of Nigeria, Mr. Emeka Madubuike, said it was positive rather than negative, considering that several of the factors that affected the market were external.
He said, “If anything it (the implication) is a positive one; positive in the sense that it will increase the opportunities for investment, especially for our local investors. It is a good time to invest because most of the companies have seen growth in terms of performance and nothing has really changed with the companies. This is because the major reasons why the market is where it is are external factors.”
Madubuike, however, said there was the need to encourage market participation as the current level was too low when compared with the country’s population.
He stressed that the performance of companies did not really affect the market and that the major issues were the slump in the price of crude and foreign exchange.
On the outlook for this year, he said, “What will happen this year has to do with those factors; will they change? Are we likely to see oil prices go up? The answer, I think, in the short to medium term might be ‘no’. So, it is unlikely that we will see the market rally soon.”
He, however, noted that the fact that the market rose by up to 13 per cent in the last sessions of 2014 should encourage investors to invest.
In September, the Chief Executive Officer, NSE, Mr. Oscar Onyema, had said he expected activities to pick up in the market after the general elections.
Onyema, who was responding to questions about the performance of the market, had said, “A lot of people are probably on the sidelines and we are probably seeing concerns around the security situation in the country.
“As you know, the market is a forward indicator – in Nigeria, it is not necessarily a very strong forward indicator; it just indicates peoples’ views as to where the economy is going in the short-term, maybe six months.
“We anticipate that once the elections are out of the way and we have a better clarity of the security situation, you should see a more definite movement in the market.”