Rebased GDP reinforces more investible securities for NSE

The Nigerian Stock Exchange (NSE) would have to be innovative, through introduction of investible securities, so as to leverage on the opportunity presented by the rebased Gross Domestic Product (GDP) of $510 billion that has made the country’s economy  the largest in the continent, analysts have said.

The analysts also argue that the capital market, with the current 38,560.69 points All Share Index (ASI), N12.70 trillion or $79 billion market capitalisation as at yesterday, is a far cry from the projected $1 trillion by the year 2016.

Consequently, they argue that the liquidity of the market remains thin by emerging market standards, and shallow, with less than 1.0x of GDP, compared to South Africa with 2.3x of its GDP), a development, they say, could prove less attractive to foreign portfolio investors.

The rebasing, they further argue, has provided opportunity for the management of the Exchange to devise means to woo equity investors, even as they observe that the present pace of progress shows no signs of meeting the target unless new strategies are adopted, through an array of investible securities, to deepen the market and make it attractive to investors.

Ayodeji Ebo, head of research, Afrinvest, says the rebased GDP has revealed the new structure of the economy, where the services sector emerged as the highest contributor to GDP and the fastest-growing sector.

However, he adds, with a shallow capital market (i.e., less than 1.0x of GDP compared to South Africa with 2.3x of its GDP), foreign portfolio investors may not be attracted as the value of available securities (fixed and equities) is small relative to the investible funds.

“Although it is possible that a number of equity investors may be positively influenced by the size of the economy or changes in income per capita and disposable income, and the effects this may have on long-term stock valuations, the reality is that the liquidity of the NSE remains thin, by emerging market standards,” says Samir Gadio, emerging markets strategist, Standard Bank, London.

“The Nigerian Stock Exchange trades on average $20 million a day, compared to more than $1 billion in South Africa, while the universe of investable assets is also limited versus more mainstream markets,” says Gadio.

Giving the summary of the rebasing, Bismarck Rewane, chief executive, Financial Derivatives Company, in this month’s Lagos Business School (LBS) breakfast meeting release, says Nigeria is now a $510 billion economy, rose by 82 percent from $280 billion, and now is the largest economy in Africa and 26th in the world.

He, however, observes that the economy is still dependent on primary commodities and financial market, with infrastructure gap remaining. “New growth numbers do not mean increased development; inequality/poverty gap increases,” he adds.

Rewane further notes in the release that the ASI went down marginally by 0.67 percent in April, with 6.7 percent recorded year-to-date (YTD), adding, “It started with a 1.69 percent increase before reversing trend. NSE is underperforming, compared with global equity markets.”

Only two companies, Seplat Petroleum Company plc and Caverton Off Support Group, are making effort to increase the liquidity of the market, the former raising gross proceeds of about $500 million, equivalent to N82.5 billion, and Caverton expecting to add about N32 billion through listing of 3.35 billion shares at N9.50 per share next Tuesday.

John Omachonu