The year 2013 now looks like something that happened a long time ago on the Nigerian Stock Exchange (NSE). That was the year the market achieved a total return on 41% and was ranked as one of the best performing stock markets in the world. But then things started to tank in 2014 when the stock market took back half of the positive returns it gave investors a year earlier, returning a negative 20.67%.
However, there was hope that 2015 will be different on the positive side. But if 2014 was bad, the year 2015 is looking really bad for investors on the Nigerian stock market. All indices across all sectors of the Exchange have gone red, leaving investors wondering what went wrong. A comparative analysis of the stock market performance between third quarter (Q3) 2014 and that of third quarter (Q3) 2015 shows how bad the stock market has performed within the period.
As at Q3 2015, the market capitalization of the exchange, which shows the monetary value of all listed securities on the exchange, was in the red by 10.25%. In the same period of Q3 2014, total market capitalization was actually up by 6.92%. Also the market capitalization of the listed equities as at Q3 2015 was in the red by 21.11%. For the same period in Q3 2014, it was up by 16.77%. This shows that the Nigerian stock market not only have experienced a reversal of its positive position in the last 12 months but also turned a deep red crimson with within the period.
Chart 1 shows changes in total market capitalization and equities capitalization between Q3 2015 and Q3 2014
The misfortune the stock market has suffered in the last 12 months is seen in all the major indicators that tracks the average change in the prices of equities listed on the exchange. The NSE 30 Index, which measures the change in the average prices of the top 30 most capitalized companies on the NSE, is down 26.41% as at Q3 2015 compared to a gain of 9.68% in Q3 2014. The NSE All Share Index, which tracks changes in the prices of all listed equities, is down 24.25% as at Q3 2015 compared to a gain of 12.64% made as at Q3 2014.
A closer look of the NSE indices shows where investors are bleeding money the most. The NSE banking index is down 24.93% in Q3 2015 compared to a gain of 9.25% in Q3 2014. The NSE Consumer Goods Index is also down by 21.81% in Q3 2015 compared to gain of a loss of 0.02% in Q3 2014 while the NSE Oil and Gas index is down 25.48% reversing an astronomical return of 152.17% made as at Q3 2014.
Chart 2 shows the sectors that are bleeding the most
Other indices show that trading activities have slowed down on the Exchange significantly within the period. The total volume of securities traded has dropped significantly 9.39% compared to a 22.67% rise as at Q3 2014. Similarly, the total value of traded securities dropped by 48.63% in Q3 2015 compared to a significant rise of 124.17% recorded in Q3 2014. Not surprisingly average value of transactions recorded on the exchange dropped by 20.96% as at Q3 2015 to the slight decline of 4.02% in Q3 2014.
The reversal of fortunes of the NSE in the last 12 months has been blamed on the flight of foreign investors and the lack of interest in the stock market by Nigerians. Total foreign transactions on the NSE from January to August 2015 stood at $3.91 billion. This is 26% lower than the $5.32 billion of foreign transactions that occurred in the corresponding period of 2014. The trend shows that foreign transactions on the exchange in 2015 will not in any way march the total of $8.27 billion recorded in whole of 2014.
Analysts say that foreign investors took flight ahead of the 2015 March/April presidential elections due to uncertainty over the outcome of the elections and fears that it will degenerate into violence. Though the fear of post election violence did not materialize, the post election uncertainty over policy direction has made the foreign stay put in their home markets as they wait for clear policy direction from the new Nigerian government.
But interestingly, foreign transactions still dominate the Nigerian stock market though it is slightly down. Foreign transactions controlled 54.36% of market transactions between Januarys to August 2015 slightly below the 57.4% they controlled in the corresponding period of 2014. This indicates, say analysts, that both foreign and local investors have simultaneously reduced their exposure to the Nigerian stock market. Also where foreign investors have reduced their exposure, the Nigerian investors have not filled the space.
Chart 3 showing Q3 foreign and domestic investor participation in the market.
The managing director of APT Securities, Garuba Kurfi, explains the challenged faced by the Nigerian stock market
“There is a need for strong Nigerian investors’ participation in the Nigerian stock market to enhance stability and development of the economy. The market was stable from inception up to 1999 when 90 per cent participants were local investors and most of them did not have to borrow to invest. They were resilient to the global market downturns. But things changed from year 2005, after the bank consolidation, when bank’s started lending money to investors to buy shares and then the liberalization that followed that allowed foreign investors to invade our market. The stock market has not been the same since then.