NSE targets derivatives market in 2016 growth plan

Nigerian Stock Exchange (NSE) is looking to prioritise three initiatives in 2016, which include establishment of a Derivatives Market; Demutualisation – listing own shares on the Exchange, and monetising market services.

The exchange-traded derivatives market, which goes live this year at the NSE, is in line with the Self Regulatory Organisation (SRO) market deepening initiatives aimed at providing a range of products that will allow investors to create well-diversified portfolios of uncorrelated asset classes.

These three key initiatives, according to the NSE, are strategic in line with its objectives of increasing the number of new listings across five asset classes; increasing order flow in the five asset classes, and operating a fair and orderly market based on just and equitable principles.

Oscar Onyema, CEO, NSE, said Thursday in Lagos at the 2015 market recap and 2016 outlook that “the Exchange wants to ensure that it provides a range of products that will allow investors to create well-diversified portfolios of uncorrelated asset classes.”

The capital market has an opportunity to effectively finance the Federal Government’s proposed budget deficit for 2016 and the implementation of its Medium Term Expenditure Framework (MTEF).

“With greater clarity on policy direction, we anticipate the return of investors who had remained on the sidelines throughout 2015.  This return is predicated upon return of investor confidence as a result of: effective implementation and communication of the government’s economic blueprint; credibility in monetary policy stance; relative stability in the macro economy (oil price stability above benchmark targets, increase in tax collection to GDP ratio, etc.); improved security,” Onyema further stated.

Despite weak emerging market growth rates, coupled with domestic security challenges, declining oil prices, and a volatile currency trend, the Nigerian economy is still expected to have grown by an estimated 4 percent for 2015, illustrating Nigeria’s resilience.

The NSE appointed consortium of financial advisers, as well as legal consultants and tax advisers to drive the Exchange’s demutualisation process.

The year began with the continued depreciation of the naira against the dollar and uncertainty around the direction of economic policies, which fuelled an already prevalent bearish sentiment in the Nigerian capital market.

The downturn from 2015 has already continued into the New Year.  The NSE anticipates 2016 to be a challenging year for the capital market and the domestic economy.

“We intend to continue our collaborative efforts with the new administration and other private sector players to create a framework for financing the Nation’s infrastructure and capital requirements.  Additionally, we plan to work with the FGN to ensure that the appropriate messaging is conveyed to the investor community”, he said.

Though the current state of the stock market creates both challenges and opportunities for investors with a year-to-date (ytd) loss of about N1.5trillion in 2016, the NSE believes that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market.

Throughout last year, the Exchange focused its priorities on restoring and upholding investors’ confidence in light of the headwinds facing the African marketplace.

Except for one, all the African stock exchanges were negative in US dollar terms for 2015.  Despite the downward trend in the stock market, the NSE still recorded several positive milestones in executing its strategy.

In sub-Saharan Africa, while the recent performance of Nigeria and South Africa has been lacklustre, the overall region has weathered the commodity slump better than Latin America and elsewhere, with growth slated at 4.3 percent in 2016, up from 3.8 percent in 2015.

This growth is expected to be supported by the moderate recovery in the global economy, and growth in low-income developing countries which compared to 2015 are projected to grow by one more percentage point to 5.8 percent in 2016. 

Uncertainty and volatility dominate forecast for the New Year and beyond as Nigeria struggles with commodity price shocks and the resultant impact on the naira.  This is also in the context of adjusting to new government policies targeting import substitution, inclusive growth (lower income focus), security, and eradicating corruption.

In 2015, the NSE’s flagship index, the NSE ASI, declined by 17.4 percent in 2015 closing the year at 28,642 points after starting the year relatively flat.

This is due to a combination of aforementioned factors including political risk, currency volatility, and uncertainty in global crude oil prices.

The NSE Banking Index was the worst hit plunging 23.6%, followed closely by the NSE 30 Index and NSE Main Board Index, (both down 17.6%); all the NSE market indices performed poorly, relative to their 2014 performance, except for NSE Industrial Index which saw an uptick of 1.3%.

The market for new equity listings was flat for the year, with only four (4) new equity listings, one (1) on the Main Board, and three (3) Exchange Trade Funds (ETFs).

In contrast, five (5) companies were delisted in 2015, bringing the number of listed companies and number of listed equities to 184 and 190, respectively.  Turnover velocity declined through 2015 by 17.0%, with equity turnover declining 28.8% to N952.8 billion ($4.8 billion), and a foreign and local participation rate of 54.24% and 45.76%, respectively, in total value traded.  Average daily turnover was also down 28.5%.

In the NSE bond market, market capitalisation jumped by 32.7% to N7.14 trillion ($35.82 billion) as corporates took to the debt market to raise a total of N112.0 billion ($562.0 million) in 7 new listings; majority from financial services sector. The Federal and State Governments raised N76.5 billion ($383.7 million) and N35.8 billion ($179.6 million) in debt capital, respectively.

Iheanyi Nwachukwu