Oscar Onyema says that he is optimistic that Nigeria will get to the emerging markets index.
Despite concerns about Nigeria’s political, currency and interest rate risks, the Chief Executive Officer of the Nigerian Stock Exchange, NSE, Oscar Onyema, has said the projections for the Nigerian capital market are largely positive for the year.
Speaking on Wednesday to journalists and analysts at the NSE’s yearly review for 2013 and outlook projections for 2014, Mr. Onyema said he is optimistic that Nigeria will get promoted to the emerging markets index.
“We expect Nigeria to be a key beneficiary of the MSCI 2013 annual market classification review, which will see Qatar and UAE (together accounting for 30 per cent), transition from the MSCI Frontier Markets Index
to the MSCI Emerging Markets Index. Cautiously, we will watch for the effects as Nigeria’s weight in the MSCI Frontier Markets Index shifts from the current 13.8 per cent to 19.7 per cent, making it the second largest market
in the index,” he said.
But the NSE Chief said the movement to emerging markets should not be expected this year.
“Our goal is to get promoted to the emerging market Index,” he said.
He pointed out some specific criteria which must be met, to be qualified. One of them, he said is that the exchange would be on the watch list for over one year.
“It is not something that would happen this year,” he said.
On the flipside, he said, emerging markets are more vulnerable to market sentiment than they were five to ten years ago, and Nigeria is not immune to the negative implications of higher yields, globally.
“The decision by the U.S. Federal Reserve to start cutting its monthly bond purchases, initially to $75 billion from $85 billion, is expected to have a residual effect on the Nigerian equity, bond and currency markets later in 2014, affecting foreign portfolio investment (FPI) and the strength of the naira against the dollar,” he said.
On bonds, he said the heightened appetite for sovereign debt is expected to resurface in 2014, as the federal government seeks to reduce its domestic debt, flattening the bond market for states.
However, as Nigerian government bonds have historically offered high yields, this will remain an attraction for investors seeking those high returns.
“Meanwhile, we anticipate that the corporate debt market would continue to struggle as the cost of issuing corporate debt (long term) remains higher than accessing short-term debt from the banks” Mr. Onyema said.
“In line with the federal government’s reforms, we anticipate achieving greater strides in our objective to support development of the real economic sector as a result of our new corporate strategic direction” he said, highlighting NSEs objectives and key initiatives for 2014.
He said NSE’s five strategic objectives for 2014 – 2016, derived from the NSE’s new corporate strategic plan are: increase the number of new listings across five asset classes; increase order flow in the five asset classes; operate a fair and orderly market based on just and equitable principles; champion the development of enabling laws and policies to drive capital market development; and diversify income streams.
“In 2014, the Exchange’s primary focus will be on growing the capital market in preparation for achieving emerging market status. The NSE will facilitate access to and participation in the market; increase our footprint on the continent; and deploy a risk framework to safe-guard the market venue,” he said.
At the end of year 2013, NSE’s equity market capitalization surpassed the market cap at the peak of the market in 2008 (N13.23 trillion vs. N12.62 trillion). The capitalization of listed equities grew by 47.33% (44.03 per cent in $-terms) from N8.98 trillion ($57.49 billion) to N13.23 trillion ($82.80 billion); the NSE All Share Index (ASI) gained 47.19 per cent; and average daily turnover for equities was N4.17 billion ($26.10 million), up 57.36 per cent (53.83 per cent in $-terms).
The NSE closed the year with two new equity listings on the Main Board, while the Bond market recorded 19 new listings with a slight uptick in the value of new issues. The NSE successfully launched its new trading platform, X-Gen, which supports trading of cash equities, bonds, and ETFs, and the first-ever issuer reporting portal in Nigeria, X-Issuer. The bourse also re-launched its Alternative Securities Market, ASeM, for small and medium companies, and introduced a new market structure for trading equities, along with fixed-income market making.
Total market cap rose by 28.92 per cent (26.03 per cent in $-terms), from N14.80 trillion ($94.74 billion) at the start of the year, to N19.08 trillion ($119.41 billion) on the last trading day of 2013. Equities market capitalization ended the year at N13.23 trillion ($82.80 billion), a significant milestone in the Nigerian capital market’s recovery from the 2008 ‘bust’.
Similarly, May 30, 2013 marked the first time since May 2008, that equity market capitalization rose above N12 trillion ($75.09 billion), and the NSE ASI crossed 38,000 points, closing at 38,016.80; and, for the first time in the history of the Exchange, the share price of a listed company crossed the N1,000 mark. June 01, 2013, also recorded the largest single transaction on the NSE trading floor valued at N45.75 billion ($286.31 million).
“Key contributors to the upward movement of share prices include: strong corporate earnings by blue chip companies, such as banks and manufacturers of fast moving consumer goods (FMCG), increased capital inflow and portfolio investments, and tight regulatory oversight, aided by stronger enforcement by the Securities and Exchange
Commission (SEC) and the NSE,” the exchange boss said.
He said on-going reforms in various sectors of the Nigerian economy also yielded positive results and despite certain national and market-specific challenges, almost all NSE indices topped their performance pre-global financial meltdown.
Compared to other global indices, the NSE ASI gained 47.19 per cent in 2013.
More impressively, the NSE Oil/Gas Index soared 122.26 per cent, the newly-introduced NSE Industrial Index grew 81.43 per cent, and the NSE Lotus Islamic Index rose 61.84 per cent. The NSE 30 Index appreciated 42.75 per cent, the NSE Banking Index added 31.86 per cent to its 2012 value, and the NSE Consumer Goods and NSE Insurance Indices both expanded by 31.14 per cent and 29.01 per cent, respectively. The NSE ASeM Index was the only index to buck the trend, shaving 0.24 per cent off its 2012 value.
The number of listed companies and the number of listed equities at the end of 2013 were 190 and 198, respectively. The market for initial public offerings (IPOs) and new equity listings was flat with no IPOs recorded, and only two (2) new listings on the Main Board, while six companies were delisted in 2013.
Small-cap stocks experienced the greatest growth, recording a 56.34 per cent increase, followed by mid-cap stocks which were up 53.67 per cent and large-cap stocks, 31.61 per cent. The Exchange recorded an increase in the value of shares traded (turnover) in 2013 – up 58.66 per cent to N1.04 trillion ($6.51 billion), and significantly higher than the 3.67 per cent reported for 2012. Average daily turnover was up 57.36 per cent, and as at November 2013, 49.06 per cent of all market activity was by local investors.
The bond market was, however, stagnant in terms of market capitalization at N5.85 trillion ($36.61 billion) with four new state and municipal bond issues, one corporate bond issue, one supra-national bond issue and one government bond issue.
Mr. Onyema said as countries in developed markets emerge from their economic troubles, the Nigerian capital market, and indeed the nation’s business, will be impacted by shifts in investor demand.
“Achieving competitiveness and enhancing the NSE”s value proposition are important to our success in 2014, however safe-guarding against potential shocks, both local and international, and maintaining a high level of attractiveness with a strong regulatory framework, are equally critical to the Nigerian Stock Exchange”.
“While the NSE’s focus from 2011 to 2013 has been on restructuring, improving technology, product development, and advocacy for changes to policy, in 2014, we will shift gear to drive innovations centred on increasing global visibility into the Nigerian capital market, developing a larger footprint on the continent, and ultimately,
targeting emerging market status. We believe that these steps are critical to NSE becoming the foremost securities exchange on the continent,” he said.