The Nigerian capital market experienced a bullish trend especially from the year 2007, into 2008. Following the market trend in years 2006 and 2007, athe Nigerian stock exchange (NSE) management and many other investors predicted an unrivalled bullish trend in the month of January 2008. Consequently the year was revealed to be a major year for investors, both for good and for worse. Buoyant trading activities heightened both the equities and bond trade-offs as investors and stakeholders leveraged on diverse financial opportunities. The most recent influx of capital flow in the capital market can be traced to some previously enforced regulations. In the Banking and Finance sector, the Central Bank of Nigeria (CBN) in 2004, mandated all banks to meet a minimum bank capital base of N25billon from the previous N2billion before December 2005. From the previous 98 banks, the reform saw bank mergers, acquisitions, and other sorts of business restructurings that resulted in only 25 banks. The consolidation effect attracted capital from foreign banks and other creditors/investors. Similarly, in the Insurance industry, directives were issued in 2006, a minimum of N1bn capital base was expected, and it generated the same effect as that of the Banking sector. The Nigeria capital market thus, was a direct beneficiary of such regulations. As at the first quarter of 2008, precisely 5th of March, the impact of the pressure on prices in the stock market resulted in the market capitalization peaking at an all-time high of N12.6 trillion. In January, it stood at N10.5 trillion with an all share index of 57,845.50.Â
It is worth recalling that as the market reveled in boom, unwholesome practices among which include deceptive price manipulation by banks in subtle agreement with stockbrokers, and sharp practices of some investors, stirred imbalance in the system. Stock prices were greatly overvalued and investors were hoodwinked by the deceptive allurements for profits. This trend was further accentuated and sustained by margin facilities from the now newly capitalized banks. Thus with the withdrawal of margin facilities came a reversal to bearish market sometime around April. Coincidentally too, the upward trend was slowed down by massive decline in the global economy. The global financial crisis had a ripple effect on all world capital markets from the United States to United Kingdom, Europe and Asia, up till Africa and particularly, Nigeria. The shrink in the foreign economies orchestrated capital flight from the Nigerian capital market as most foreign investors sought to make up for the deficits in their home countries.
The bearish trend deepened for seven months with a temporary market bottom out in November, when market capitalization hit N7.4 trillion. Part of the change was as a result of the Nigerian Stock Exchangeâ€™s (NSEâ€™s) subsequent removal of the price depreciation benchmark known as â€œcircuit breakerâ€, among other initiatives. Although positive reactions trailed the changes, it was short lived (for only 10 days) as the market resumed its nosedive. Notably, as at December 2008, the market has lost over N6 trillion in total cumulative losses, and records reveal that the bearish trend might persist.
On the other hand, the Nigeria stock market failed to respond to the various regulatory and other intervention measures taken to stem the declining trend. The federal government had put in place an intervention package in which the capital market scantily responded. The results so far have revealed a negative response in market value. But largely, barring any unforeseen circumstances in the future and the hopeful correction of the market, a market recovery of about 30 to 50 percent is expected by the end of third quarter of next year.
Major activities during the boom period (January â€“ March)
During the first quarter of the year, the market was driven by activities in the Banking and Insurance sub- sectors. In January for instance, in the equity market, a turnover of 4.72 billion shares worth N59.4 billion in 93,219 deals were recorded. Out of this volume, trading activity in the insurance sub-sector was most prominent with 2.5 billion shares worth N11.6 billion in 26,998 deals. While, it was followed by the banking sub-sector with a turn over of 1.4 billion shares valued at N34.8 billion in 37,590 deals. In the same month 90 stocks appreciated while 45 stocks depreciated. On the other hand, the bond Market equally experienced some trade activity. A total of 114.13 million units worth N117.1 billion in 847 deals were recorded. The most active bond (measured by turnover volume) was the 4th FGN Bond 2010 series 14 with a traded volume of 16.4 million units valued at N16.55 billion in 154 deals.
While, in February, for the equity market, a total of 7.5 billion shares worth N94.6 billion in 109,859 deals were recorded. The most active sub sectors were insurance with 4.32 billion shares worth N19.94 billion exchanged in 31,540 deals, followed by the banking sub-sector with turnover of 1.8 billion shares valued at N49.64 billion in 35,892 deals. 109 stocks appreciated in price, while Forty two stocks depreciated in price. In the bond market, about 169.01 million units worth 173.4 billion in 1,132 deals were recorded. The most active bond (measured by turnover in volume) was the FGN Bond 2011 contractors debt with a traded volume of 23.8 million units valued at N23.8 in 4 deals.
Further in March, in the Equity market a turnover of 3.9 billion shares worth N60 billion in 78,491 deals was recorded. The most active sub sectors include Insurance with 1.7 billion shares worth 7.4 billion exchanged in 17,504 deals, followed by the banking sector on the activity flow with a turnover of 1.3bn shares valued at N33.81billion in 30,038 deals. Â
Also, investors reaped massive profits from the oil sub-sector due to the oil boom which eventually peaked around the month of July to an all time high of $147/1 barrel.Â
Interventions by the regulatory bodies
During the year, the turmoil in the capital market attracted several policy reviews and enforcement of regulations, principally for the control of the continuous market decline. Disturbed by the tumbling prices of stocks and bonds, government and key stakeholders sought ways to halt investorsâ€™ dwindling fortunes in the equities market. In a meeting on August 28, in Abuja, the Federal Government and stakeholders in the Nigerian capital market resolved to adopt measures to checkmate the bearish trend in the market. The Central Bank of Nigeria, Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange took strategic decisions. For SEC, it reduced its fees by 50 percent, while rules on share buy back were released. However, a 20 percent limit was placed on the total shares that a public company could buy back in line with the provision of CAMA. Next, it went further to release the guidelines for market makers on the Nigerian stock exchange. On the part of the CBN, progressive steps for liquidity ease included: Reduction of Monetary Policy Rate(MPR) from 10.25 percent to 9.75 percent; Reduction of Cash Reserve Requirement (CRR) from 4 percent to 2 percent; Reduction of liquidity ratio from 40 percent to 30 percent; approval of Repo transactions against eligible securities for 90 days, 180 days and 360 days; CBN will now buy and sell securities through the two-way quotes; and directive to banks to restructure margin loans up to 2009. Whilst the NSE on its part emphasized strict enforcement of NSEâ€™s listing requirement with zero tolerance for infraction. It also took administrative actions to stem the rate of new listings until the market stabilizes. Furthermore, the NSE had reviewed its policy on share price movements by placing a one per cent benchmark on share price depreciation in the exchange. It was considered as part of the measures put by the federal governmentâ€™s committee to halt the financial meltdown in the market. Under the new dispensation share prices could appreciate by a maximum of five per cent but could only depreciate by a maximum of one per cent. The mechanism served the intention of slowing down share price depreciation.Â
Of all the major decisions arrived at, the following could be considered direct implications. First, the Central Bankâ€™s liquidity provision is to avail investors of opportunities in acquiring stocks with strong growth potential but largely under-priced. Second, the vari0us cuts in fees and transaction costs both by SEC and CBN were supposed to induce various investors and stakeholders to take more risks with minimum cost of capital. Third, selling pressure by most stock broking firms at lower prices in order to payback their loan facilities would be of no use due to the tenure restructuring of their facilities. Fourth, with such regulations imposed, including the delisting of moribund companies, several non functional companies will be removed from the listed stocks. Fifth, with the strict control of stocks listing in the Stock exchange, funds can now be channeled from the primary market and secondary market. And finally, it is expected that investorsâ€™ confidence in the market will be restored as the market gradually rebounds.
Activities during the year
During the year, capital market activities persisted. The pressure in the capital market was worsened through the months as the global economic activity level decreased. Activity categories and companies involved are presented in schedule 1 below.
Activity Categories and Companies Involved
Initial Public Offer
Honeywell flour mills, Custodian & Allied insurance plc, National sports lottery plc and Nigerian Bag Manufacturing company plc
Supplementary Share Offers Costain (WA) plc, AIICO Insurance plc, Deap Capital Management &Trust plc, African Petroleum, Zenith bank, Transcorp of Nig plc, Thomas Wyatt Nig plc, First inland bank plc, Skye bank, Trans-nation Wide Express plc, Nigerian Wire industries plc, and Union Bank plc, DN Meyer,
Mergers and Acquisitions
IBTC-Chartered Bank plc
First City Monument Bank Plc pursuant to the Global Depository receipts (GDR). Deap Capital Management& Trust plc; sterling bank plc. IBTC- Chartered Bank and Stanbic Bank (Nig) Ltd, Access Bank, Nigerian Aviation Handling company plc. Dangote sugar refinery plc, R.T. Briscoe (Nig) plc, Benue cement company plc, Thomas Wyatt Nigeria plc, Mobil Oil Nigeria plc, Eterna Oil & Gas plc, Guarantee Trust Bank plc, National salt plc, Beta Glass Co., AG leventis Nig plc, UTC Nigeria plc, Zenith Bank plc. Academy Press Flour mills plc, Diamond bank, Intercontinental WAPIC Insurance, Sovereign Trust Insurance plc, Ashaka Cement plc, Neimeth international pharmaceutical plc, Union homes Savings and loans plc, Afribank Nigeria plc, Custodian & Allied insurance plc, AIICO Ins plc, Skye bank plc, Afribank, FTN cocoa.
Zenith bank plc and Skye bank plc
Eterna oil & Gas plc, Nigerian Aviation Handling company plc, Custodian & Allied Insurance plc
Nigerian Aviation Handling company plc, Thomas Wyatt Nigeria plc, Afribank plc, Custodian & Allied insurance plc and AIICO Insurance plc
Dangote flour mills plc at N15.00, Universal insurance at 1.85, Goldlink Insurance company at 1.80. Consolidated hallmark assurance plc at 1.85. Skye Shelter fund at N100, Aso savings & loans plc at N3.50, Nigerian Bag Manufacturing company plc at N3.90. Regency Alliance Insurance at N1.75 , Investment & Allied Assurance plc at N1.30 per share, Omatek Ventures Plc at 4.90, tantalizers plc at N3.50.Starcomms plc at N13.65 , FTN Cocoa processors plc , Capital hotels plc at 6.50 and Union diagnostics & clinical services plc at 3:00 per share.
Kakawa Guaranteed Income Fund of 1.00 each
In the bond market, the following bonds were delisted from the daily official list. The FGN Bond 2011 (Local Contractors Debt). The FGN Bond 2012 (Local C0ntractors Debt Series 3) and also, 150 billion 3rd FGN bond 2011 (Local Contractors Debt 2).
Further delisting of dormant companies by NSE were done to ACEN Insurance plc, Amicable Assurance plc, BAICO Ins, Atlas Nig plc, Ceramics Manufacturing plc, Beverages (WA)Nigeria plc; Enpee plc, Tate industries plc, Maureen laboratories plc and Riezcot Nig plc.
Special Sales and Share Reconstruction
Also there was a special sale of 637,919,840 shares of capital hotels sold by FGN through BPE, while the share reconstruction of sterling bank plc was concluded with the listing of 12,563,091,545 shares at 5.36.Â
Cutix plc migrated from Second â€“tier Market and was reclassified in the Engineering technology sector in the first tier market.
Change of Name and sector reclassificationÂ
Royal Exchange Assurance (Nig) plc was changed to Royal exchange Assurance Plc following business restructuring. The firm was moved from Insurance sector and listed in the financial sector. Also, West African Portland Cement co. plc was changed to Lafarge Cement Nigeria plc.
Some of the companies had sanctions imposed on them by the (NSE). Full suspension was imposed on Nampak Nigeria Plc following suspected accounts mis-statement by the company, it was also imposed on Afroil plc and capital oil plc having received formal letter from SEC. It was further followed by investigations by the apex ruling body. Similarly, it was imposed on Chevron oil Nigeria based on some investorâ€™s divestment. This was however lifted after several reviews and satisfactory explanations were given. Further, full suspension was given to John Holt plc. It was lifted after satisfactory assurance about its resuscitation was received. Similarly, full suspension was imposed on Spring Bank, but was later downgraded to technical suspension. This was premised on the fact that the management of spring bank were to improve on the internal disorders within the bank. Full suspension was also imposed on Cadbury plc until the company complies with the decisions of the Administrative Proceedings committee (APC). Technical suspension was imposed on Transnational Corporation of Nigeria plc following controversy that resulted from the reversal of the sale of NITEL/MTEL to the company by the Federal Government.
Technical suspension was also imposed on BAICO insurance based on reports of the companyâ€™s inability to meet minimum recapitalization requirement. Having previously imposed a technical suspension on Ecobank Nigeria plc and sterling bank plc, it was lifted on receiving confirmation on stoppage of merger discussions.
While the above listed companies were suspended on other grounds, the under-listed were suspended for breaching postâ€“listing requirements regarding the submission of their quarterly and annual report overtime. They include: Aba textile Mill plc; Aviation Development co. plc; African Paints plc; Albarka Air plc; Amicable Assurance plc; Arbico plc; Asaba Textile Mill plc; Atlas plc; BAICO Insurance plc; BCN plc; Beverages (WA) plc, Ceramic Manufacturing Nig plc; Enpee plc; Epic Dynamics plc; Ferdinand Oil mills plc; Grommac Industries Plc; Intra Motors plc; Maureen Laboratories plc; Nigerian Textile Mills plc; Nigerian Yeast & Alchohol Manufacturing plc; Nigerian lamps industries plc; Oluwa Glass co. plc; Onwuka Hi-tek ind plc; Rietzcot Nig. Plc; Security Assurance plc; Sun insurance plc and Tate Industries plc.
The market in early January demonstrated bullishness from the first trading day which was Wednesday. The All-Share Index (ASI) of the Stock Exchange rose by 589.55 points or 1.02 per cent from 57,990.22 points at which it closed in the last trading day of 2007 to close at 58,579.77 points. Market capitalization rose by N100 billion or one per cent to N10.3 trillion. The ASI closed at 57,845.50 and market capitalization also closed lower at N10.51 trillion.Â
In February, the market was very bullish. The All-Share Index recorded an historic highest on Friday February 22, closing at 64,128.69, while market capitalization stood at 12.30 trillion.Â
Nevertheless the month of March witnessed a reversal. Bears got hold and equity prices began to fall. In the first week of the month, though, the ASI rose to 66,121.93 and market capitalization went to N12.6 trillion, in the second week, ASI went down to 65,005.48, and market capitalization fell to N12.4 trillion. By March ending, the ASI dipped to 63,147.04.Â
Continuing in April, bears started reigning massively in the market. The prices of equities began the free crash and the All Share Index fell to 60,339.68 and market capitalization was down at N11.68 trillion.
As at the end of May 2008, the All Share Index slightly went up to 60,570.30 and market capitalization to N11.93 trillion. In June, the All Share Index closed higher at 54,905.36 and market capitalization also closed higher at N10.72 trillion. During the month of July, bears reigned supreme and the All Share Index closed lower at 50,422.78, while the market capitalisation went down to N10.10 trillion. In the month of August, the All Share Index and market capitalisation dropped to 47,789.20 and N9.74 trillion respectively. Though the ASI further plummeted to 46,216.13 but market capitalisation went up marginally to N9.84 trillion in September.Â
In October, price movement went for a free fall following the removal of the restriction of one percent maximum downward movement of share prices, which was introduced by the NSE as a solution to persistent fall of equitiesâ€™ prices. All share index stood at 36,325.86 while market capitalization remained at N7.96 trillion. Â
As at November, the All-Share Index opened at 36,325.86 points, falling to 33,754.11 points on the 5th. Although during the month, from 6th to 17th it had a record level high of an All Share Index of 38,018.44, it fell at the end of the month precisely 28th November, to close on an All Share Index of 33,025.75. The volatility in the market, and subsequent downtrend was propelled by the actions of profit takers who disposed stocks in order to reap off quick gains. Examples can be traced to stocks like First bank plc. It rose on the 17th from N19.10 to N29.01. Also GT Bank plc appreciated to N18.48 up from N13.88 gaining 33 percent. During this period from 6th to 17th stocks were fast disposed with profits collected. As such, the All share index dropped from the intra-month level high of 38,018.44 to close down at 33,025.75. The market capitalization for the month stood at N7.39trillion. The traded value fro 28 November 2008, stood at N2, 611,835,089.75 for a volume of 294,985,493 traded.
In the month of December, on Tuesday, December 16, the closing figure of N6.21 trillion market capitalisation was recorded, while the All share index stood at 28,085.01. Suddenly, the stock market staged a rebound and recovery. It suddenly starting recording gains, both in volume traded and most especially, by price appreciation. The market suddenly took an upward movement on Wednesday December 17, when it closed at N6.28 trillion, while the All Share Index recorded was 28,390.83 basis points. It further continued on Thursday, December 18, as the usual market activities witnessed a sharp rise also. The market capitalisation stood at N6.4 trillion, while the All Share Index stood at 28,985.70 basis points. Furthermore by Friday, December 19, 2008, the market capitalisation had risen to N6.54 trillion, while the All Share Index stood at 29,551.84. Â
From a holistic perspective, during the period - January to December 19, 2008 - All-Share Index fell from an unprecedented high of 66,121.93 in the first week of March to 29,551.84 shedding 36,570.89 or 48.1 percent, while market capitalization went down from N12.6 trillion in the same period to N6.54 trillion, losing N6.06 trillion in seven months.Â
In retrospect anyway, before the recent crash, investor confidence was lifted by economic reforms that began in 2003, earning Nigeria a BB minus credit rating, which led to a US$18bn debt write-off and created pension funds which now have several billions invested in Nigerian securities. The Nigerian stock exchange launched a secondary market in treasury bonds in the middle of 2006 and volumes traded in the second half of that year surpassed the value of equities traded during the whole year. Due to the banking sector reforms mentioned earlier, capitalization levels were raised and mergers surfaced thereby fuelling a boom in the equitiy market. Most Nigerian bank stocks doubled in value, despite billions of dollars of new shares being issued, with some stocks more than quadrupling in value in less than a year. Companies kept the free float of offers which were greatly matched by demand. The capital market thus became the haven for profit taking.
OUTLOOK FOR 2009
Before the meltdown initially triggered by the flight of hedge funds hit the market, capitalization stood at N12.6 trillion. More of the institutional investors appear to be trapped. By simple reasoning for instance, we can deduce that at present, the pension fund managers have the highest level of inflexibility in the market. These are compelled by law to invest and hence have no other choice or escape route than to sink their funds in several areas of the stock market. The Pension Act of 2004 makes it mandatory for pension fund managers to invest 35 per cent of the funds in the NSE. However, the terms by the Act is stiff as such only 25 of the more than 300 companies listed in the NSE are qualified to attract pension fund. Based on this limitation, it will be of little or very much insignificant effect for these pension fund manager to cause a reckonable up-shake to herald a market boom in 2009.
Ultimately also, the crisis of confidence ravaging the Nigerian capital market is yet to be forgotten. The foreign portfolio investors are also pulled down in their home countries due to the globally sweeping crises. The recession in the United States, Europe and Asia is a paramount setback for the Nigerian capital market. Each of these countries is strongly attempting to make up for their deficits. Besides, the unprecedented losses sustained in the last seven months have greatly threatened some hedge fund managersâ€™ confidence in the Nigerian capital market. Since the underlying motive for investments include profit, or at least in the minimum, breaking even, huge losses only erode investor confidence. And in situations where some other countries capital markets are so attractive and pose considerably less risk, the NSE needs a far more reaching technique to attract foreign investors on one part, and ensure that their confidence is met on the other hand in 2009.
Another factor that is of great threat to the capital market is the availability of other reliable investment frontiers. For instance, investors are being propelled by the huge profits being derived from the real estate market. The current demand for housing units in the Nigerian market indicates a point for profit taking assurance. The situation where rents are measured in foreign currencies, and payments in two years upfront, coupled with other charges, are alluring. Â Based on the above indices we conclude that assuredly, the market will not encounter the melt down which it has faced this year. This is already proven by the recovery experienced in the period between the days of December 16 and December 19, 2008 in which the market recovered up from N6.21 trillion and N6.54 trillion respectively. Cumulatively it gained about N33o billion or 5.31 percent. Also by the end of the third quarter of 2009, it is expected that the market will recover about fifty to sixty percent of its current value. This means that the market capitalization is expected to hit about N9 trillion to N10 trillion in the coming year.
Thursday, Dec 12th
Last update06:20:39 PM GMT