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After a disappointing 2019: Will investors find solace in 2020?

 

Earlier this week, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Oscar N. Onyema presented the key performance of the Exchange in 2019 and gave a prognosis for the market in the New Year 2020. The event had in attendance the stockbroking community, analysts, media and other stakeholders.

During the year 2019, the performance of the Nigerian capital market mirrored that of the larger economy, which continued its moderate path of recovery, growing by 2.28percent in the third-quarter (Q3).

The pace of the Nigerian economy remained fragile as the economy continued to grow below population growth, leading to per capita income and unemployment challenges.

From an international investor’s perspective, the Nigerian bourse had to compete with developed and emerging capital markets which saw risk-based assets priced and valued more competitively.

In the review year, investors contended with: the macroeconomic landscape; fiscal and monetary policy direction and; a wait-and see attitude given trends in Foreign Portfolio Investments (FPIs).

Despite welcomed stability in the FX market due to the CBN’s intervention, concerns around the stability of the Naira remained prevalent. In regards to corporate performance, their earnings were moderate as at first-half (H1) 2019.

These aforementioned factors impacted the equity market negatively during the year 2019, however the Fixed Income market performed exceptionally well in 2019, reflecting a flight to safety.

Read also: NSE securities lending report shows 20.78million units available

NSE equity product performance

Although the Nigerian Stock Exchange’s All Share Index (ASI or All Share Index) posted a negative return of -14.60percent to close the year at 26,842.07 points, the ASI reached a year high of 32,715.20 points in February 2019.

Furthermore, the equity market capitalisation increased by 10.55percent to N12.97trillion from N11.73trillion in 2018, largely due to sustained primary market activities throughout the year, most notably the listings of MTN Nigeria Communications Plc and Airtel Africa.

NSE indices also posted negative returns during the year with the NSE Consumer Goods Index being the most impacted, declining 20.83percent, followed by the NSE Main Board Index and NSE Lotus Islamic Index, which dropped by 20percent and 17.87percent respectively. The NSE Insurance Index and the NSE Premium Index were the least impacted, declining by 0.52percent and 3.59percent respectively.

Equity market turnover decreased by 19.70percent year-on-year (YoY) from N1.2trillion recorded in December 2018 to N960billion in December 2019. The Financial Services Sector which accounted for over 50percent of total activity remained the highest traded in volume and value, as was the case in 2018.

To support the equity market in 2019, the NSE rolled out various new initiatives such as a new market structure to enhance liquidity and ensure overall market stability alongside efficiency, as well as launched the beta version of the X-Mobile App (a dynamic and user-friendly mobile app) to boost retail investors’ participation.

NSE Fixed Income Product Performance

Our fixed income market performed exceptionally well in 2019, as market capitalisation increased by 20.42percent to N12.92trillion from N10.72trillion in 2018. Turnover also increased by 389.26percent when compared to 2018. Capital raising was dominated by the Federal Government, being responsible for 60percent of bond issuances during the period in a bid to finance fiscal and infrastructure deficits.

The year 2019 saw the groundbreaking listing of Access Bank Plc’s N15billion Green Bond, the first of its kind to be issued by an African corporate. The market also saw the listing of North South Power Company Limited’s N8.5billion corporate infrastructure Green Bond, which was oversubscribed by 60percent, with firm commitments from twelve institutional investors including nine pension funds. Capital raising by corporates increased by 321.61percent with a total of N132.68billion raised in 2019.

In addition to these accomplishments, the Exchange signed an MoU with the Luxembourg Stock Exchange (the largest Green Bond listing platform in the world). The MoU is geared towards promoting cross-listing and trading of Green Bonds in Nigeria and Luxembourg. The NSE believes relationships of this nature, which foster competition further enhances its ability to deliver greater value to our stakeholders.

NSE ETP product performance

The Exchange Traded Fund (ETF) market saw the listing of Greenwich Alpha ETF from Greenwich Asset Management Limited which tracks the NSE 30 index. Despite the 61.37percent YoY decline in trade volumes, 46.43percent fall in turnover, there was a 7.43percent YoY increase in market capitalisation to close the year at N6.58billion. The best performing ETF was the NEWGOLD ETF as it returned 31.75percent indicative of the shift towards more stable investment securities.

Read also: Nigeria rides on Fintech to secure top investment destination in Africa

Also, to optimise investors’ returns, the Exchange partnered with Afrinvest Securities Limited to launch two new factor indices; the NSE-Afrinvest Banking Value Index and NSEAfrinvest High Dividend Yield Index. Similarly, it partnered with Meristem Securities Limited to launch the NSE-Meristem Growth Index and NSE-Meristem Value Index to provide a benchmark for the market to gauge the performance of value stocks and growth stocks listed on The Exchange.

Securities Lending/ Investor Protection

The Exchange worked with securities lending agents to develop a securities lending pool currently worth about N1.07billion. It also sensitised stakeholders on the possibilities that abound with securities lending. Pursuant to the Exchange’s strategic focus on Investors Protection, the NSE facilitated restitutions and recoveries of shares worth N1.436billion for investors in 2019.

“The Exchange showed commitment to achieving its strategic objectives during the year under review. We focused on our key targets to continue to execute on the NSE’s 2018 – 2021 Corporate Strategy, inclusive of restructuring the organization, onboarding new financial instruments and developing the market, as well as focusing on customer centricity. A key aspect to our Vision of becoming Africa’s Preferred Exchange Hub is to successfully demutualise the organisation.

“Having met the necessary requirements of the Securities and Exchange Commission (SEC), The Exchange has obtained a letter of ‘No Objection’ to enable us proceed to the final stages of the demutualisation process. We have also sensitized our stakeholders on the process of demutualization and will continue engagement throughout the process. In anticipation for derivatives trading on The Exchange, the NSE released a derivatives market rule book that will serve as a guide for trading derivatives on the bourse”, said Oscar Onyema, CEO, NSE.

The outlook for 2020

The year 2020 has started on a good note with circa 10percent returns year-to-date (ytd).  The NSE said it intends to work closely with its stakeholders to sustain this growth trajectory.

The NSE CEO is optimistic that market sentiments will be buoyed by a steady and stable recovery in the domestic economy, alongside continued sustainability in monetary policy.

“The signing into law of Nigeria’s Finance bill 2019 and implementation of the 2020 budget may have a positive impact on companies’ earnings as well as consumer spending”, he added. Accordingly, the Exchange said it will continue to advocate for business-friendly economic environment, working in conjunction with both the Public and Private Sectors.

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