No thanks to the outbreak of the novel coronavirus (Covid-19), records from the first half of the year shows that the nation’s capital market has experienced anything but boom lately if the regularity of losses and declining investment within that space is anything to go by. Ibrahim Apekhade Yusuf and Charles Okonji in this report examine the issues
Nigeria’s economy is in dire straits. That’s the received wisdom out there considering the weak fundamentals and poor financial health of the nation’s hitherto thriving capital market, which has taken a lot of heat since the novel coronavirus scourge swept across the globe some eight months ago.
While it is a known fact that most capital market firms have been facing economic challenges – low interest rates, stringent regulations, and increased capital requirements with high margin pressure, ever before the advent of Covid-19, the challenges have become further exacerbated since the outbreak of the pandemic.
In a report tagged: ‘Nigerian capital market: Pandemic, performance and palliative’ Dr. Timi Olubiyi, an Entrepreneurship and Small Business Management expert, while attempting a prognosis of the challenges besetting the capital market, observed that across the world, the impact of the novel coronavirus is still severe despite the ease of lockdown for economic reasons even as he noted that the uncertainty continues to heighten and no economy is spared from the fallout from the Covid-19 outbreak.
Capital market outlook in Africa
Many African capital markets are bearish, Namibia, South Africa, Mauritius, Egypt, Morocco, Kenya, Ghana, Malawi, and a few others.
…Nigeria not an exception
Citing the performance trend in Nigeria, Olubiyi, who is an investment coach as well as financial literacy specialist, revealed that, the first quarter of the year 2020 in terms of performance closed in the red with a negative return of (20.65 percent), as against a negative return of (1.24 percent) in the first quarter of 2019. The market capitalisation of the Oscar Onyema-led Nigerian Stock Exchange (NSE), which represents the market value of all listed companies, lost about N2 trillion in the first quarter of 2020.
However, surprisingly the performance of the stock market in April 2020 was positive. The market performed with a gain of 8.08 percent to close the month of April at 23,021.01 points, from an opening level of 21,300.47 points at the beginning of the month. In terms of market capitalisation for the period, the value was up by N896 billion as at April 30, 2020, from an opening value of N11.101 trillion on April 1, 2020, to close at N11.997 trillion. In May 2020, the market’s month-on-month performance closed at 9.76 percent as against +8.08 percent gain recorded in April 2020. The performance hinged higher due to investors bargain hunting even though most of the trades were executed remotely.
This surprising feat in Nigeria particularly during the Covid-19 pandemic could be attributed to smart investors bargain hunting and the release of good end-of-the-year financial results by some of the listed companies along with improved dividend declarations in recent time.
Stock performance from January till date
During this period some of the companies that released their financials are MTN Nigeria Communications Plc, Vitafoam Nigeria Plc, Dangote Cement Plc, Julius Berger Nigeria Plc, Nigerian Breweries Plc, Zenith Bank Plc, Transcorp Hotels Plc, United Bank for Africa Plc, Transnational Corporation of Nigeria Plc, Guaranty Trust Bank Plc, Stanbic IBTC Holdings Plc, Access Bank Plc, Fidelity Bank Plc, Sterling Bank Plc, Seplat Petroleum Development Company Plc, 11 Plc, Dangote Sugar Plc, BUA cement Plc Total Plc, Airtel Plc Nestle Nigeria Plc, First Bank, Okomu Oil Plc, and BOC Gases Plc.
Nonetheless, the increasing number in the incidences of Covid-19 in Nigeria has been a huge concern, as analysts argue it could signal weak economic data, decline productivity, and falling consumption rate, which might even affect the overall outputs and performance of the economy eventually.
It is the concern of analysts that if the spread is not curtailed within a reasonable period, it might harm the inflow of foreign direct investments, imports and export trades, manufacturing, tourism, health, hospitality, services, travels and more than likely it might disrupt or crash the economic forecasts and revenue estimates of many businesses particularly SMEs in the country. This pandemic might eventually impact negatively on the performance of the NSE and that of many of the listed companies, given the high uncertainty around production, services, and demands if the Covid-19 continues to spread.
Experts also charged that rather than see the market perpetually closing on negative notes, adequate government policy response is recommended to immediately cushion the effect of the pandemic. Regulators in the capital market, as a matter of urgency need to propose to the government, direct policy responses to cushion the effect of the Covid-19. This is imperative because most of the SMEs and companies listed have experienced supply chain disruption and depressing investment climate. Therefore, government intervention or palliative is required for their sustainability.
All hope is not lost
In the view of Tunde Oyediran, stockbroker and economic analyst, “To remedy this situation, what we expect the government to do is what it has started doing by issuing foreign bonds, which the international market can buy into. In some cases, they give brain bonds which the foreigners bought completely as it is right now, but for the stock, it will take quite some time because this problem is international in nature, it knows no bound. Again, they are also struggling in that place as we struggling here. The earlier we put our own house in order for us to be able to accommodate them again, the better for us.
“However, the government at this critical time need to put in place the appropriate structure, the legal framework and many other things that need attention should be attended to. Also, our government needs to be proactive for the stock market to be attractive.”
Echoing similar sentiments, David Adonri, Managing Director/CEO, Highcap Securities Limited, said, “If the economy is buoyant and fundamentals of companies are strong, equities become very attractive but if the economy declines, there is migration of financial assets to bonds. Due to Nigeria’s economic slowdown which started even before Covid-19, equities market has been depressed while bonds have offered higher yields and more attraction. The damage inflicted on the economy by Covid-19 is so colossal that recovery may not materialise in next two to three years. Within this period, the bond market will dominate activities in the capital market.”
For financial assets to commence their migration to the equities market, fundamentals of the economy must improve remarkably, he stressed, adding, “If government wants equities to become vibrant as profitable investment outlet and to facilitate capital formation for the real productive economy, the focus should be on speedy revival of the economy.”
He was however quick to add that public policies that will facilitate balanced performance of both equities and debt are not different from those that will make the economy strong. They are policies that will facilitate non-inflationary growth of the economy. This will make returns on capital market investments to be very attractive, thus attracting more investors.
Charles Fakrogha, stockbroker, is also on the same page with Adonri. While noting that the Nigerian capital market is not excluded from what is happening globally, he, however, said that the Nigerian capital market has tried its best to be trading at the moment despite the Covid-19-induced crisis.
“Right now, as we speak, I’m trading, which is to say, that despite the situation in the country and worldwide, the operators in the market are still operating. Customers can still buy and sell, issuers can still raise funds and we are all trying to adapt to the new norms, which is trading online. I must give kudos to the Nigerian Stock Exchange and other players in the market for introducing the system and plans to move ahead.
Speaking further, Fakrogha noted that certain factors beyond the market predispose it to some unforeseen developments. “From what we are seeing, we can project that if this continues this way, that investors would have lost money, and this would make it more difficult for issuers to raise more money because of the present conditions.”
Like other respondents, Farogha holds the view and very strongly too that the Nigerian government must do all it can to improve the macroeconomic environment. “If we are not able to do that, we will not experience boom beyond 2021. We need to kick-start the economy to ensure that the economy does not fall into recession in and out. If the government is able to do that, the economy will improve and there will be a lot of employment. If there exist political stability, security and other related issues are fixed, the capital market will experience growth sooner than the Q3, 2021. But if these issues are not urgently addressed, we will not experience growth not to talk of boom till 2025.”
Besides, he said, there is the need for regulators and the operators to restore investors’ confidence. “They should do anything humanly possible to ensure that investors’ confidence is restored and maintained. Once this is done, we will attract not only domestic investors but more foreign investors. And even the foreign investors that left the country would return and the domestic investors would bestow confidence in the market and more issuers and investors would come to the market to raise funds.”
Although some schools of thoughts have argued that it is still too early to measure the full economic impact of Covid-19 on the capital market in Nigeria, however, they consented that early signs do not look good.