• Thursday, March 28, 2024
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11 years after financial meltdown, NSE market returns still lacklustre

11 years after financial meltdown, NSE market returns still lacklustre

On this day, 11 years ago, Lehman Brothers’ action to file for bankruptcy set off a chain of events that led to a financial crisis across the globe. In Nigeria, the aggregate value of all the companies on the stock market halved in response to the crisis and returns have remained static ever since.

Businessday analysis of the All Share Index in that time period show that in the 10 years after the financial crisis, Nigerian stock returns have remained flat. In February 2008, the Nigerian stock market was at its peak point of 65,652.38 index points. 11 months after that, the market had shed 52.09 percent to close the year at 31,450.78 index points.

10 years later, the Nigerian stock market would close the 2018 calendar year with an index point of 31,430.5 index points shedding 6 basis points since December 2008. Average annual returns of the Nigerian equities market in the 10 years after the crisis is -0.86 percent representing a flat growth trajectory since 2008.

Chief economist at EUA Intelligence, Obinna Uzoma stated that “the market has failed to recover from the financial crisis despite the companies faring better. The vast majority of Nigerians still have a mistrust of the equities market due to the perceived high-risk nature of investments and returns on the broad market has failed to bolster this perception, underperforming inflation which is a basic benchmark for investment returns.”

“Typically, the buy and hold strategy is said to be the better than active management of funds. In the Nigerian climate however, save for companies like Nestle, Okomu Oil and Presco who reigned in the 10year challenge of returns, investors would have fared better actively changing positions rather than buying into index funds” Uzoma added

The All share index has not fared any better this year losing over N1.3 trillion in market value from the beginning of the year. Based on a client’s note from EUA Intelligence, up to 100 stocks are in negative return territory since January, while 24 posted positive returns and 40 have remained static.

The year to date market breadth shows that there is an inherent fear in the heart of investors when it comes to investing in Nigerian companies. These companies are in a better position than they were in 10 years ago with admirable growth trends over time but the companies still sell for roughly the same amount they did a decade ago, a sign that many of these stocks are significantly undervalued.