Nigeria capital market defies global rout
Though Nigeria’s recent hike in monetary policy rate to 13 percent is expected to usher in sellers who could be considering higher yields in the fixed income market, the nation’s equity market has this year disconnected from global market rout.
The market has maintained bull run year-to-date following new listings, oil price rally, better-than expected companies’ full-year earnings and dividend payments as well as their positive first-quarter (Q1) scorecard. Market data as at May 27 show the value of listed stocks has risen to N6.86 trillion. The market continues to impress investors who are seeing encouraging signs of Nigeria’s economic recovery.
Nigeria’s Gross Domestic Product grew by 3.11 percent (year-on-year) in real terms in Q1 of 2022. Equities market’s key performance indicators – the Nigerian Exchange Limited (NGX) All-Share Index and market capitalisation – have risen from year-open lows of 42, 716.44 points and N22.30 trillion to 54,085.3 points and N29.157 trillion as at May 27. Also, the stock market’s positive return year-to-date has increased to 26.61 percent.
In Q1, the NGX listed on its platform new issuance worth N1.701 trillion and Eurobonds of $4 billion. These issuances listed across both equities and bond markets are integral in deepening the market, improving liquidity and tradability, as well as increasing access to capital to fund growth initiatives.
Debt capital market records growth
FMDQ Securities Exchange’s financial markets monthly report for April shows that turnover in FMDQ markets for the month ended April 29, 2022 was N19.34 trillion, representing a month-on-month (MoM) and year-on-year (YoY) increase of 27.57 percent (N4.18 trillion) and 19.53 percent (N3.16 trillion) from turnover in March 2022 and April 2021 respectively.
Total turnover for spot and derivatives markets was N15.86 trillion and N3.48 trillion respectively in April 2022. Spot FX market turnover was N3.81 trillion ($9.13 billion) in April 2022, representing a MoM increase of 39.61 percent (N1.08 trillion) from the turnover recorded in March 2022 (N2.73 trillion).
In the derivatives market, total turnover in the FX market segment was N3.48 trillion ($8.34 billion), representing a MoM increase of 70.49 percent (N1.44 trillion) in April 2022. This is even as Nigerian companies are increasingly leveraging the cheaper short-term funding opportunities at the commercial paper market, thereby attesting to the highly efficient time-to-market and uniquely tailored listing and quotation service offered by the FMDQ Securities Exchange.
There is still need for diversification of portfolios
The NGX, which recently highlighted five major focus areas in 2022 in line with its efforts to deepen access and attract new generation of investors to the market, has also emphasised the need for diversification of portfolios by investors to ensure enhanced return on investment.
“In spite of the current appreciation in prices of equities in the country, opportunities still exist for investors in other assets classes,” said Temi Popoola, chief executive officer of NGX. As a multi-asset exchange, NGX has various products for every investor regardless of what their investment goals, risk appetite or return expectations might be – equities, fixed income, Exchange Traded Funds and derivatives.
According to Popoola, there are opportunities in every segment of the market. It is important for investors to do the analysis, understand where those opportunities are, as there are opportunities, not only in the equity side but across the various asset classes.
He stressed that diversification of the portfolio would go a long way to reduce risks, explaining the need for investors to re-balance their portfolio.
Investors earn over N1.1trn from dividends
Dividend payment is one of the very few ways available for investors to earn a constant stream of income. It is also the main reason shareholders hold onto their shares in a company. It brings great satisfaction to investors when companies declare dividends to their shareholders.
This year, investors in the Nigerian capital market have earned over N1 trillion from dividend payout by 57 listed companies across 11 sectors of quoted companies on the NGX.
Dangote Cement, MTN Nigeria and eight others emerged as highest companies in terms of total dividends paid while Nestle, TotalEnergies and eight others emerged as highest in terms of dividend paid per share.
NGX data showed that 22 companies from the financial services sector paid dividends, nine companies from the consumer goods sector and four from the industrial goods sector.
Four companies from the healthcare sector paid dividends, three companies each from the oil and gas sector and the ICT sector, two companies from the conglomerates, agriculture and construction sector while one company from the natural resource sector.
SEC upbeat in market regulation
In a move to protect both domestic and foreign investors from investment losses, the Securities and Exchange Commission said that the Identity Management System being developed by the capital market would tackle the lingering identity management issues while allowing room for scalability as technology evolves.
Lamido Yuguda, director-general of SEC, described identity theft as a fraudulent practice of using another person’s name and personal information to obtain shares, credit and loans, among others.
He said the commission decided to engage relevant stakeholders in a bid to resolve issues of identity management to tackle the problem of unclaimed dividends. At the recently held first Capital Market Committee meeting, the SEC DG said the e-dividend portal will be automated by third-quarter of 2022.
Making Ponzi Schemes unattractive
Till date, many investors patronising Nigeria’s growing Ponzi Schemes seem to be ignoring the obvious “red flags” raised by the promoters of the pyramidal schemes that promise above-average returns which ordinarily defy market trends and signal potential fraud. The apex regulator of the capital market has come to the realisation that the more Nigeria can create alternative options, the easier it is to pull people away from unregulated space.
“In this market what we have seen is that where people do have ready access to interesting products in the regulated market they then gravitate towards the parallel markets and the Ponzi schemes and really the task of the Commission is to as much as possible move money to the regulated market away from the Ponzi schemes,” Yuguda had noted during a meeting with a team led by the British Deputy High Commissioner, Ben Llewellyn-Jones.
The SEC believes that the upsurge of these Schemes has undermined the reputation of the capital market and dampened investors’ confidence, among other things. The regulator noted that this has also created a considerable challenge to the growth of the Nigerian capital market, adding that the Commission is striving to change the narrative by instilling a fair, transparent, and orderly market.
In a bid to combat the menace of Ponzi schemes and ensure that the apex regulator of the capital market is well equipped to stem the tide, the National Assembly has moved to empower the Securities and Exchange Commission to impose stiffer punishment on promoters of Ponzi schemes and other unregistered investment schemes. This is part of an amendment to the Investment and Securities Act (ISA) 2007 at the House of Representatives.
The amendment is titled “A Bill for an Act to Repeal the Investments and Securities Act, 2007 and Enact the Investments and Securities Bill to Establish Securities and Exchange Commission as the Apex Regulatory Authority for the Nigerian Capital Market as well as Regulation of the Market to ensure Capital Formation, the Protection of the Market to ensure Capital Formation, the Protection of Investors, Maintain Fair, Efficient and Transparent Market and Reduction of Systematic Risk; and for Related Matters”.
Stakeholders believe the capital market can actually do more
In April when a team from the Nigerian Economic Summit Group (NESG) visited the SEC towards the development of the economy, it was noted that the capital market can actually do more in the areas of provision of necessary infrastructure for the country to support the government in its developmental efforts.
Laoye Jaiyeola, chief executive officer of NESG, expressed worry that the banking sector was being overstretched, urging governments and corporate organisations to look towards the capital market for their funding needs.
Jaiyeola said transactions could be restructured to raise bonds, bills and others that will fund whatever it is that needs to be funded without going through banks.
He said, “The securities market needs to take the bull by the horn, otherwise we are going to be in perpetual debt as a nation and that will not help us. That is one of the reasons we say let’s re-engage, how can we get an Investments and Securities Act that will ensure that the needed funding for development in Nigeria is given priority and then we can fund Nigeria for a longer term.
“The short-term funding cannot help us; we need to begin to move to long-term. We are passionate about it and we need to raise these funds for the needed development funding for Nigeria.”
“Our collective economic power is bigger than the government, and in many countries, you find out that the capital market is actually funding the government. When you save, the finance is used to create economic value that actually enhances your standard of living and this is a win-win. You get financial returns and also get utility from the investments and this is actually achievable,” said Yuguda.