NSE in 2017: Towards economy revival, market rebound

2016 was certainly a difficult year for the investing community of the Nigerian Stock Exchange (NSE) as major market indicators, at the end of the year, showed that equities market capitalisation lost 6.12 per cent to close at N9.225 trillion against N9.859 trillion in 2015, while total market capitalisation dipped 4.81 per cent to close at N16.185 trillion in contrast with N17.003 trillion in the preceding year.

Despite an unbecoming 2016, for this year, a lift in the market has been projected by operators of the Nigerian capital market, just as shareholders had raised concerns over the lull which capital market is now being known for.

Giving an outlook on the nation’s capital market in 2017, the Chief Executive Officer of the NSE, Oscar Onyema, had expressed optimism that the nation’s economy and the equity market would rebound shortly even as the right economic policies and strategies are being put in place.

Predicting that Nigeria’s economy would recover from recession in 2017 with a modest Gross Domestic Product (GDP) growth forecast of 0.6 per cent, Oscar noted that the economy would be driven by vigorous fiscal policy implementation with focus on articulation of the desired goals.

The Nigerian economy, being dependent on oil with had been highly volatile in the past year, and this was a major contribution to the economy recession.

Onyema observed that lower rates of disruptions to oil infrastructure from resolution of the Niger Delta conflict would increase foreign exchange inflows which in the past year had declined by 69.79 per cent year to date, while adding that rise in crude oil prices above the Federal Government’s budget benchmark of $42.5 per barrel and positive impact of the war against corruption would enhance investor confidence.

Similarly, Onyema said the Exchange supports the unbundling of the nation’s refinery as this will mitigate draw down on government’s spending. He added that such funds could be channelled appropriately to other projects, noting that the unbundling of the refineries will bring about the listing of the companies on the floor of the stock market, thereby causing the equity market to have a robust bottom-line.

“We are cautiously optimistic as consensus estimates suggest a moderate recovery for Nigeria in 2017, provided that policy makers implement the right combination of measures.”

He assured investors that the exchange would promote its unique value proposition to both global and domestic investors to increase market activities, noting that monetary policy would continue to play a vital role in determining activity in the market.

While not just proffering solutions to the Federal Government, Onyema said that the exchange would work with policy makers to drive policies that would free the system and promote ease of doing business in Nigeria. In this regard, the Exchange said it has put modalities in place at ensuring that Federal Government’s recent 10-point roadmap at reviving the economy becomes a success, as the capital market tends to act as barometer of any economy.

Oscar believed that as a stakeholder in the domestic economy, the NSE has put modalities in place by way of making the necessary expertise available to the government to make success of the roadmap in both the short and the long term period, while noting that the new government’s roadmap would definitely assist the government in navigating the economy out of the woods it has found itself.

On policies, the leadership of the Nigerian Bourse noted that this would continue to play a vital role in determining activity in the market. “With forecasts for inflation expected to moderate due to the base effect, we believe that all things being equal, monetary authorities will have more flexibility with respect to interest rates and FX regime. Hence good coordination between fiscal and monetary policy should result in resolution of aforementioned structural deficiencies and drive economic growth. We expect investors to continue to keep a close eye on the divergence between the interbank FX rate and other exchange rates in the country.

Accordingly, a convergence of FX rates in the country and the performance of listed corporates will determine the level of market activity in the short term,” Oscar said.

While not playing its own part, Oscar explained that NSE strategic outlook would take cognisance of the ever evolving economic realities on ground, while taking an adaptive approach to strategy execution in 2017. “In the immediate future, the NSE will focus on achieving its goal of becoming a more agile and demutualized exchange and will fast track efforts towards developing innovative products such as exchange traded derivatives to provide investors with tools to better weather economic realities in 2017. We intend to strengthen our thought leadership efforts with policymakers to drive policies that will free up the system and promote the ease of doing business in Nigeria,” he added.

The NSE CEO, however, called for incentive schemes for sectors of the economy that could support export for enhanced foreign exchange earnings. According to him, systematic removal of impediments to doing business and reduction of leakages will attract private sector investments.

He explained that the NSE would focus on achieving its goal of becoming a more agile and demutualised exchange in future.

Onyema also said that the exchange would also hasten efforts toward developing innovative products such as exchange traded derivatives to provide investors with tools to better weather economic realities in 2017, while assuring investors that the NSE would enhance its cross-border integration efforts via African Securities Exchange Association and African Capital Market Integration programmes to enhance capital market liquidity.

Onyeama said: “We will also continue our engagement efforts with the government to promote the listing of privatised state-owned entities as well as engage the private sector issuers for listings across all of our product categories,” just as he announced the listing of Medview Airlines, and the prospects of an MTN listing.

Giving 2016 market recap, Oscar explained that the major market indicator, NSE All

Share Index (NSE ASI), after peaking at 31,071.25 in June 2016, an increase of 8.48 per cent over the 2015 closing value, it began to retreat to negative territory as total foreign inflow dropped 45 per cent between June, at N42.46 billion, and July, at N23.43 billion, due to loss of confidence in the implementation of an announced free floating foreign exchange regime, weak corporate performance and second consecutive quarter of negative economic growth in the period resulting in the economy entering into a recession.

“Accordingly, we witnessed the lowest levels of foreign portfolio and domestic trading activity post the global financial crisis, with a Y-O-Y decline of 69.79 per cent and 56.79 per cent, respectively. This trend is consistent with the inverse correlation observed between the value traded on the NSE’s equity market and the spread between the parallel and interbank FX market rates, suggesting that both domestic and foreign investors seek stability in monetary policy.

“In addition to sluggish performance in secondary markets, primary market activity was nonexistent as there were no IPOs for the year, although there was one new

company listed by introduction in the period.”

However, the Nigerian capital market did experience some resilience by year-end as the NSE Premium Board Index ended 2016 in positive territory, advancing 6.98 per cent, while the NSE Banking Index inched up by 2.17 per cent.

He further noted that the ASI, after declining by 21.60 per cent to a low of 22,456.32 in Q1 2016, rebounded by 19.68 per cent from its January low to close the year down by 6.17 per cent mirroring the 6.12 per cent decline in the equity