Challenges Of Nigerian Capital Market In 2009

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In the annals of the Nigerian Capital Market, year 2009 will remain indelible due to its dismal performance. The banking reforms, global financial meltdown, change of leadership of the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) policies and counter policies within and outside the market inter alia are some of the factors that would make 2009 not to be forgotten in a hurry by many investors and even market operators. These factors made the market to remain on a free-fall during the year under review.

For investors in the market, it was an unpalatable year as by mid December 2009, average year-to-date return at the market stood at a negative of 35 per cent, an extension of the average drop of 46 per cent recorded in 2008.

This implies that an average investor with portfolio spread across the market recorded more than 35 percent loss in its market value during the period. And for those that invested in financial stocks had an average of more than 44 percent; those in the insurance were the worst hit with an average loss of about 64 percent while petroleum stocks generally lost some 61 percent.

A look at the activities in the market showed that within 11- month period ended November 30, 2009 it recorded a turnover value of N638.11 billion as against N2.33 trillion recorded in the comparable period of 2008 indicating a drop of N1.7 trillion or 73 percent.

During the same period, the market turned over a total volume of 95.3 billion units of shares compared with a turnover of 183.45 billion units of shares traded in the corresponding period of 2009. This represents 48 percent decrease in the market turnover during the review period.

The two key indicators for corporate market performance, the all share index and aggregate market capitalisation were also in tailspin. The benchmark index, all share index of the Nigerian Stock Exchange (NSE) closed at 20,795.49 basis points as at December 11, 2009 compared with an opening of 31,446.96 basis points at the beginning of the year indicating a drop of 33.86 per cent.

Also, the aggregate market capitalisation of listed equities which opened trading for the review year at N6.957 trillion fell to N4.990 trillion as at December 11, 2009 indicating a drop of 28.77 percent.

Indeed, the year, 2009 was a bad bargain for investors at the capital market as return on investment (ROI) which come in form of dividend dropped by 65 per cent from N280 billion out in 2008 to N98 billion so far.

The sweeping banking reforms exercise by the CBN, according to market analysts has been the main cause of the prolonged dominance of the bears as it has worsened liquidity crunch and hightened tension in the market.

Many investors as a result took solace in the bond market with minimal risk. In addition to this is the full disclosure policy by the CBN which mandates banks to make public their exposure to toxic loans and assets and make adequate provision for their repayment.

Most of the banks declared losses as the loan provision took toll on their performance while only a hand full made marginal profit.

Analysis of the market performance before the banking reforms revealed that in the first quarter, the market fell by 34 percent as the market indicators, all share index closed trading at 19,851.89 points on March 30, 2009 compared with an opening points of 31,450.78 basis points while the market capitalisation dropped from an opening figure of N6.96 trillion to N4.48 trillion.

There was a turn of event in the second quarter as the market indicators tilted northward with the market capitalisation surging by 33.71 percent to close at N5.99 trillion even as the bench mark index grew by 32.23 percent to close at 26,249.28 basis points.

The indices moved southwards in the third quarter as the market capitalisation declined by 14.36 percent to finish at N5.13 trillion while the all share index went down by 15.94 percent to close at 22,065.00 basis points.

From the fourth quarter to November 30, the market capitalisation decreased 2.57 per cent to close at N4.99 trillion while the index stood at 21,010.29 basis points representing a drop of 4.78 percent.

Ironically, many emerging and advanced stock markets world wide have taken the path of recovery as many have recorded double-digit positive year-to-date returns.

In United States of America for instance the Dow Jones Industrial Average posted a positive year-to-date return of about 19 percent according to reports. The Standard and Poor’s 500 index recorded 22 percent while the Nasdaq gained 39 percent.

The United Kingdom’s FTSE 100 index posted more than 18 percent bench mark return while the CAC 40 index, a major gauge of the French market had 18 percent return.

Others are Germany’s DAX Index, 19 percent, South Africa’s YSE All – Share Index 25 percent, Japan’s NIKKEI 225 Index, 11 percent and India’s BSE 30 Index with a shooping bench mark return of 78 percent.

In spite of the many weaknesses, there is silver linings for the market. But this can only be manifest when a concrete step is taken towards the reality of the take-off of market markets, the new rules on share buy back, reduction in costs of transactions, comprehensive periodic reporting requirements, publication of periodic forecasts of quoted companies, a strict regulatory surveillance by both NSE and SEC among others that would reinforce investors confidence in the market.

The delisting of inactive companies from the Exchange by the NSE will go a long way to help the market and the introduction of rules to check the inefficiencies in the primary market especially in private placement.