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YEAR IN REVIEW: Stumble, tumble. How Nigeria’s capital market fared in 2019 and outlook for 2020

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2019 Capital Market Review: The good, the bad, the ugly. What prospects for 2020?

Generally, 2019 was a mixed bag of fortunes and setbacks for the Nigerian capital market, even though many events that shaped the Nigerian bourse were significantly gloomy. Government policies had far-reaching effects on investors’ attitude to the equity market just as myriad corporate actions and a number of other factors contributed in no small measure to how the market fared.

 All Share Index

The All Share Index (ASI) which opened 31,430.50 basis points at the beginning of the year closed on 31st December 2019 at 26,842.07 basis points, posting a negative year-to-date return of -14.60%. It indicates a negative growth over the 2016 pre-recession figure of 26,874.62 basis points. The negative year-to-date return posted in 2019 suggested that the Nigerian Stock Market had posted negative return on investment for the second year running. The last time investors experienced annual positive yield was 2017 when an annual return of 42.3% was recorded.

Market Capitalisation

However, the Market Capitalisation opened at N11.721 trillion on 2nd January 2019, hit its year high of N14.288 trillion on 9th July 2019 and ended the year at N12.958 trillion. This suggests a positive growth over the pre-recession figure of N9.25 trillion posted in 2016.

The expansion in the size of this key market indicator was primarily influenced by listing of the shares of two telcos namely MTN Nigeria Communications Plc and Airtel Africa Plc. Between them, they added N3.192 trillion to the market capitalisation.

The number of companies listed on the main board of the Nigerian Stock Exchange, according to analysts at the Financial Derivatives Company Limited (FDC), shrank from 175 to 166 during the year.

Mergers and Acquisitions

The Nigerian Stock Exchange (NSE) recorded a good number of mergers and acquisitions in 2019, a couple of which were milestone deals. The biggest obviously was the marriage of Access Bank Plc and Diamond Bank Plc into a single entity reputed to be Africa’s largest retail bank by customer base.

Only weeks ago, independent oil and gas exploration firm, Seplat Petroleum Development Company Plc completed the full acquisition of Aberdeen-based Eland Oil and Gas in an ambitious deal said to be in the region of £382 million.

In April, Olam International, a subsidiary of Crown Flour Mills Limited, completed a takeover of Dangote Flour Mills Plc after the board of the loss-making business unit resolved to sell all its issued and outstanding shares, not owned by Olam International, to Crown Flour Mills. The deal was valued at $361.11 million (about N130 billion) and subsequently led to the delisting of Dangote Flour Mills Plc from the main board of the Exchange.

June 2019 saw Abdulwasiu Sowami-led Prudent Energy acquire a majority stake of 74.02% in Ardova Plc (formerly known as Forte Oil) after billionaire mogul, Femi Otedola, divested his entire shareholding in an ambitious deal estimated to be N65 billion. Prudent Energy took a more aggressive move towards the end of August when it informed the Exchange of its intention to acquire a further 500,000 units (representing 0.04%) of Ardova Plc’s common stocks.

That same month, agribusiness firm, Ellah Lakes Plc, acquired Telluria Limited in a debt-to-equity swap. The strategic deal enabled Ellah Lakes, hitherto known for fish production, to diversify into palm oil milling and refining.

Foreign Portfolio Investment (PI)

Foreign investment determined the direction of the market in the larger part of 2019. Foreign investors were the net sellers of Nigerian equities throughout the year except for the months of August and September when positive net flows were posted. By implication, foreign investors lost confidence in the Nigerian stock market in the greater part of the year, causing them to divest their investment from time to time.

Read also: 2019 ECONOMY ROUNDUP: Inflation, Policies, Appointments, Sanctions, GDP. What’s in stock for 2020?

Factors responsible for this were multifarious, ranging from poor corporate earnings and unfriendly regulatory guidelines by the CBN with attendant uncertainties in the banking sector to susceptibility of Nigeria’s volatile economy to external shocks and growing uncertainties regarding implementation of structural reforms.

According to FDC, however, Foreign Portfolio Investment into the Nigerian economy stood at $14.438 billion in December 2019 compared to the pre-recession period of 2016 when the value was $1.813 billion.

Sub-Index Performance

All the sectoral indices closed lower at the end of December 2019. The Insurance Index, which opened at 126.48 basis points at the beginning of the year closed at 125.82 at year end. The Oil and Gas Index followed suit, plunging from the 302.23 basis points it opened with at the beginning of the year to close at 262.54. The Banking Index opened at 398.94 basis points to close at 354.84. The Consumer Goods Index nosedived from the 748.83 basis points it began the year with to 592.85 at 31st December, 2019.

Outlook for Q1 2020

Analysts at FDC have projected that bullish investors’ sentiment will be witnessed in Q1 2020. This is likely to be driven by early positioning on the part of investors seeking investment in stocks with high-yield dividends.

Declining yields on fixed income instruments compel investors to look the way of stock investment in the short term. Similarly, the need for institutional investors to rebalance their portfolios may trigger a lot of activities in the market.

Bargain hunting opportunities may prompt retail domestic investors to take advantage of undervalued stocks. It is anticipated also that foreign investment in equities will witness steady growth.

It is also said that litigation will increase owing to various policies of the government. Long-term investment decisions remain pretty unlikely given policy uncertainties and volatility of exchange rates.

It is worthy of note also that gradual loss of trust in government and policy makers might make investors to exercise restraint in the decision to invest.

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