The persistent decline in the equities market of the Nigerian Stock Exchange in 2011 and emerging signs have made analysts to adopt cautious optimism about the possibility of better performance this year, UDEME EKWERE writes.

he year 2011 will be remembered by investors in the capital market for the wrong reasons as they watched the value of their investments tumble at an unprecedented level with the dismal performance of equities on the Nigerian Stock Exchange continuing into the New Year.

As at the last trading day of 2011, the market capitalisation of the 186 first tier listed equities had fallen by 17.4 per cent from N7.91tn at the beginning of the year to N6.53tn on Friday, December 30.

The less than satisfactory performance of the equities in the out gone year has made market watchers and experts to scale down their expectations for the year 2012.

The fall in market capitalisation as at Friday translates into a loss of N1.3tn for investors during the year, despite impressive second and third quarter results declared by major companies.

The NSE All-Share Index was also down by 16.3 per cent from 24,770.52 points in January to 20,730.63 on the last trading day of 2011.

According to experts, all the indices of corporate performance at the equities sector recorded dismal performance in 2011 due to some factors, especially the renewed crises in the banking sub-sector in August.

The Central Bank of Nigeria had last August revoked the licences of Afribank Plc,Bank PHB Plc and Spring Bank Plc for their failure to recapitalise in line with the apex bank’s directive.

The affected banks, along with others, had been given up till September 30 to recapitalise or face liquidation, but the Federal Government, after reviewing the situation, concluded that it would be risky to allow the three to operate till that date.

This had led to panic in the equities market as the NSE Banking Index, which measures the performance of the top 10 most capitalised stocks in the sub-sector, fell by 3.7 per cent at the close of trading the following day, the highest percentage fall in 11 months.

The development also dragged down other major market indicators with the market capitalisation of the listed shares and NSE Index bleeding profusely as a result.

Analysts linked the significant losses in the equities to other occurrences within the year, including post general election crises, which made some investors to sell huge chunk of their investments, as well as the political turmoil in the Middle East and some North African countries early in the year.

They also claimed that the Nigerian capital market was not isolated from other foreign challenges, which also dragged down the local market.

Analysts at Vetiva Capital Market Limited said, “Across the globe, it was a dull year for equity markets as uncertainty underlay key economies for the most part of the year. Though emerging markets opened the year on a bright note, violence in the MENA region raised political risk resulting in capital outflows.

“After this, worsening Eurozone debt crisis and the lack of definite direction on solutions to the problem triggered further flight by investors to safety. This was amplified by underlying risks in currency devaluation and inflation in emerging and frontier markets, especially in Africa.”

Further analysis of the performance in the equities sector indicated that the NSE-30 Index fell by 14.6 per cent from the opening 1,081.95 to close at 923.77 at the end of 2011.

The NSE Food/Beverage-10 Index also declined by 24 per cent from 778.47 points at the beginning of the year to close at 589.60 at the end, while the NSE Banking-10 Index fell by the highest margin of 31 per cent from 398.08 to 274.26 on the last trading day of 2011.

Analysts, who spoke to our correspondent on Friday, expressed doubts as to the quick recovery of the equities market in 2012.

According to them, a lot of unaddressed issues in the polity could still lead to instability in the capital market this year.

For instance, the Chief Responsibility Officer, Value Investing Nigeria, Mr. Oluseye Adetunmbi, noted that there might be no major change in the market in 2012.

He said, “Recovery may not be so soon, the truism that it is easier to destroy than to build may play out and is a lesson to be learnt here, because the market, in my opinion, is still on course stabilising.

“The year 2012 market setting or situation still stands more unpredictable with no clear cut position on when and if the oil subsidy will be removed, thus it may be rather ambitious to expect a radical departure from the present trend until fundamental changes take place in the way the national economy is managed.”

Investment advisers at Meristem Nigeria Limited noted that there had been a lot of mixed sentiments, which saw market indices recording improved activities towards the end of November and the second week of December.

They said that investors in the capital market usually respond to activities that happened in the global and local economy, and this was visible from the instability recorded in the market last year.

“Overall market performance witnessed a blend of highs and lows as the bulls and the bears took centre stage at different seasons of the year. This is on the backdrop of mixed investor sentiments driven by economic, political and security issues that played out globally and locally in 2011,” they said.

The Managing Director, Lambeth Trust and Investment Limited, Mr. David Adonri, said that some economic issues, such as government borrowing, had to be checked in the New Year if the market was to record sustainable growth.

Source: Punch