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Stock Market

Nigeria @ 60: How the NSE evolved with key national policies

As Nigeria marks its 60th anniversary, it is imperative to review the NSE, considering its key impact on national economy.

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Nigeria got her independence from Britain in 1960. A year later, on September 15, 1961, trading commenced on the Lagos Stock Exchange, later renamed the Nigerian Stock Exchange (NSE) with 19 securities listed, 3 equities, 6 FG bonds, and 10 industrial loans

As of Q2 2020, the NSE is one of the largest in Africa, with 366 listed securities and a market capitalization of $74 billion, which is an 11.23% growth from last year. Average daily transactions grew by 19.64% from last year, these are positives for the NSE. A red flag observed, was the exit of foreign investors, which has continued since 2018 from 50.70% to 39.52%. In dollar terms, this is a fall in transactions from $3.35 billion to $1.03 billion.

READ: Data war: MTN gains 1.69 million subscribers, as Airtel dusts Glo, 9mobile in July

The NSE has been somewhat of a barometer of the Nigerian economy, tracking the different economic models of the government of the day. As Nigeria reaches the 60th year of her independence, it is imperative to review the NSE, considering these key national economic events.

The first big legislation to affect the NSE, was the 1972 indigenization policy in the Nigerian Enterprises Promotion Decrees (NEPC). The purpose of the law was to transfer ownership of foreign-owned firms, listed and/or operating in Nigeria, from foreigners to Nigerians. In banking for instance, Nigerians were to own 60% equity in any bank operating in Nigeria. This policy had its positives and negatives, from just six (6) companies listed from 1960 to 1969, eighty-four (84) firms were listed in the period from 1970 to 1979, mostly in Consumer and Industrial goods, and healthcare. Other policies, including the Income Tax Management Act of 1961 and The Insurance Miscellaneous Provisions Act of 1964, mandated pension and provident schemes to invest at least one third and a quarter of their funds respectively, in Nigerian Government Stocks. The NEPC can be argued to have set up the NSE for growth.

READ: Nigerian banks top list of NSE companies with highest employees

The NEPC, though well-intended, did cause some divestment, especially in financial services. Many banks including Citibank and Standard Chartered completely left Nigeria, others like Chase Manhattan and Bank of America, sold 60% equity and changed their names. The effect of this reduction in majority ownership by large Western banks was that Nigeria lost local credit access to foreign-owned banks. The New York Times article in 1976, asserted that the policy of ‘indigenization’, “will discourage the flow of investment capital to Africa’s biggest marketplace, Nigeria.”

The lasting effect of this divestment was that as federal borrowing increased, the NSE was unable to meet the liquidity needs of the FGN, and the CBN stepped in, funding the government via ways and means in significant amounts, even to this day.

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Another positive from the NEPC, was the creation by the NSE, of the Second Tier Securities Market, which allowed Small and Medium enterprises to access the stock market for funds, expansion, and price discovery.

The next big policy change was the Structural Adjustment Program of 1986 (SAP). As oil prices crashed in the late 1980s, Nigeria ran into significant current account deficits, with crude oil gone temporarily as a source of foreign exchange income. SAP, with structural reforms overseen by the IMF and World Bank, called for liberalization of the Nigerian markets and enhancing the rights of foreign investors. Hence, the NEPC was repealed, the economy was liberalized, then privatization and commercialization of government-owned enterprises soared. This SAP period coincided with a rise in the number of listed companies from 42 in 1978 to 196 in 1999. Its growth was driven by the listing of new banks and financial services; almost 100 new listings, and a direct consequence of the SAP liberalization.

The third big action was a return to democracy in 1999, this enhanced and attracted new capital market flows to Nigeria. Another key positive that has impacted the NSE has been the pension reforms, which have given the market a steady source of long-term financing. As of 30th June 2020, the Pension Asset Managers have about N9trillion of various asset classes, listed on the NSE.

The Challenge

The NSE has from 1961 to 2019, delisted a total of 150 companies, mostly from Financial Services, and Industrial and Commercial goods. To be specific, the NSE has shrunk the number of equities listed, from a high of 217 in 2010 to 163 as of June 2020. Although, the reason for delisting is largely regulatory in financial services. The Securities and Exchange Commission of Nigeria, warns that the NSE must seek to remain relevant, by having more companies listed.

This is the challenge for the NSE going forward; how to attract more companies to list and become a part of her.

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Happy Birthday Nigeria!

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Markets

NSE All-share index plunges as JAPAULGOLD surges

The market closed beneath expectation as JAPAULGOLD led 15 Gainers, and 20 Losers topped by CUSTODIAN.

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Nigerian Stock Exchange market made a BEARISH run at the end of today’s trading session. The All-Share Index decreased by -0.4% to close at 38,712.55 from 38,866.39 index points.

  • Nigerian Stock Exchange market value currently stands at N20.26 trillion. Its Year-to-Date (YTD) returns currently stands at -3.87%.
  • The market closed beneath expectation as JAPAULGOLD led 15 Gainers, and 20 Losers topped by CUSTODIAN with a noticeable bearish movement by the NSE ASI.

Top gainers

  1. JAPAULGOLD up +9.52% to close at N0.69
  2. UAC-POP up +9.33% to close at N 0.82
  3. AFRIPRUD up +8.33% to close at N5.85
  4. ROYALEX up +8.33% to close at N0.39
  5. STERLBANK up +7.69% to close at N1.68

Top losers

  1. CUSTODIAN down -14.29%to close at N6.00
  2. STANBIC down -9.94% to close at N43.50
  3. GUINNESS down -9.93% to close at N26.75
  4. NAHCO down -7.73% to close at N2.03
  5. PZ down -5.15% to close at N4.60

Outlook

Despite prior predictions by analysts, the market trended bearish at the end of trading session on Monday. Speculations are that we might see recovery in the financial and consumer sector that will push the NSE-ASI back to profit.

  • Nairametrics however, advises cautious participation in the stock market in this era of growing uncertainties.

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Consumer Goods

Best performing mining, industrial and consumer goods stocks from last week

The shares of the following mining, industrial and consumer goods companies delivered gains in excess of 6.9% for investors last week.

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Best performing mining, industrial and consumer goods stocks from last week

Market data for the week ended 9th April 2021 revealed that the Nigerian Equity space closed on a negative note, as the All-Share Index and the market capitalization depreciated by -0.66%, to close the week lower at 38,866.39 and N20.335 trillion respectively.

This bearish move has been linked to the conclusion of an impressive annual reporting season, as this leaves few incentives to bet on slightly higher returns from equities, with the rising yields in the fixed-income market.

READ: Shares of these FMCG companies grew by more than 55% in 97 days of 2021

Some industrial, mining, and consumer goods stocks delivered decent returns during the week

Despite the prevailing bearishness in the market which impacted the performance of some key consumer and industrial good stocks on NSE last week, shares of the following industrial, mining, and consumer goods companies delivered decent returns for their holders during the week.

The gains were driven by buying activities on the exchange as some analysts and investors consider them to be trading at discounts, with tremendous value. This made bargain hunters scamper for the shares of these companies during the week ended 9th April 2021.

READ: Nestlé’s capitalization on NSE sheds N103 billion in market value in Q1 2021

Japaul Gold and Ventures Plc (JAPAULGOLD), W-o-W gains: 40%

The rebranded and restructured mining company with a key focus on gold exploration was the best-performing stocks on NSE last week. The company also maintained the status of the best performing mining stocks.

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The shares of the gold exploration company surged by an impressive 40% last week driven by buying pressures in the shares of the company.

The company’s relatively low price driven by the recent sell-down in its shares prompted bargain hunters to accumulate additional stakes in it, in a bid to capitalize on the upward swing in its share price.

This move saw the shares of the company increase from N0.41 to N0.63 per share, representing a whopping 40% gain in just a week.

READ: Nestlé’s capitalization on NSE sheds N103 billion in market value in Q1 2021

Meyer Plc (MEYER), W-o-W gains: 19.51%

The shares of the key player in the paint and decorative industry increased from N0.41 per share at the market open last week, to N0.49 per share, to print a gain of 19.51% at the close of trading activities for the week ended 9th April 2021.

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Prior to this move, the shares of the company declined by 24.07%, from N0.54 at the open of trade this year, to N0.41 per share on the 9th of March 2021.

At this price, buying activities in the shares of the paint manufacturer and marketer surged owing to the actions of bargain hunters. This led to the move up to N0.49 during the week.

READ: NIPC grants tax holiday to Honeywell, Savannah Sugar, 4 others with N175.28 billion investments

Flour Mills Nigeria Plc (FLOURMILLS), W-o-W gains: 6.90%

Shares of Flour Mills Nigeria Plc, one of the biggest brands in the food and agro-allied industry in Africa, surged by 6.9% last week, as the shares of the consumer goods company increased from N29.00 per share to N31 per share during the week ended 9th April 2021.

The impressive N2 per share or 6.9% gain in the shares of Flour Mills last week was driven by the buying interest in the shares of the flour miller, as investors anticipate an impressive financial performance ahead of the company’s earnings season.

This bullish move in the shares of Flour Mills pushed the market capitalization of the miller up by more than N8.2 billion on the exchange from N118.9 billion at market open to N127.1 billion at the close of the market last week.

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What you should know

Ayodeji Ebo, head of retail investment at Chapel Hill Denham in Lagos, in a conversation with Bloomberg revealed that the market will be bearish in the first half of 2021.

He added that after the result season, the investing public should expect a further depression because there will be no further catalysts to drive the market.

Ayodeji suggested that the growing yield in the fixed income space will continue to be a major issue as investors will become more inclined to get a one-year Treasury bill at 7% now, than taking a risk of 8 or 9%.

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