The challenges in the global economy have raised issues concerning the sustainability of emerging capital markets, especially the Nigerian market. In this piece, UDEME EKWERE X-rays the prospects of the market and how to boost patronage.

With the ongoing Greek crises resulting in decisions tending towards the development of austerity measures, fears are being expressed over the stability of the Nigerian capital market in year 2012.

This is especially true when the fact that foreign investors account for over 70 per cent of investments in the Nigerian equities market is considered.

Across the globe, the year 2011 was a dull year for equity markets as uncertainty underlay key economies for the most part of the year and as the worsening Eurozone debt crisis and the lack of definite direction on solutions to the problem triggered further flight by investors to safety.

For instance, United States stock index futures fell on Friday, indicating that the Standard & Poor’s 500 Index would snap three days of gains, as one of the three party leaders supporting Greece’s government said he could not vote for the current austerity package.

Bank of America Corporation fell by 1.6 per cent and JPMorgan Chase & Company lost 1.2 per cent in early New York trading.

Futures (SPH2) on the S&P 500 expiring in March fell by 0.9 per cent to 1,336.5 in New York, while the Dow Jones Industrial Average futures dropped by 0.7 per cent, to 12,758.

The Head of Investments at Robeco Gestions in Paris, Mr. Yves Maillot, said, “For many days and weeks, we have been hearing that negotiations will soon be over.

“Things are getting stuck a bit on every front. The big European countries must dig into their budgets to help Greece.”

Analysts have said that this was amplified by underlying risks in currency devaluation and inflation in emerging and frontier markets, especially in Africa.

In a recent survey conducted by PricewaterhouseCoopers, Chief Executive Officers of major companies around the world expressed fears over a bullish year for capital markets in 2012.

The CEOs, who predicted this in a survey, were pessimistic over profitable activities in global capital markets by the end of the year.

The survey showed that 64 per cent of global CEOs said there would be relative instability in the market this year.

The CEOs explained that their prediction was based on the fact that the global economy has been fraught with so many challenges in recent months.

According to them, the effect of these global challenges, which affected most markets in 2011, was likely to spill over to this year.

The Nigerian market has recorded some instability since the beginning of this year, with the market capitalisation of the listed equities dropping by N77bn or 1.2 per cent from N6.579tn at the beginning of February to N6.502tn on Thursday.

Similarly, the Nigerian Stock Exchange’s All-Share Index has recorded a decline by 244.45 basis points or 1.2 per cent in the similar period.

The Chief Executive Officer of the NSE, Mr. Oscar Onyema, said recently that despite the Eurozone and Greek crisis, there was still opportunity for growth in the Nigerian market.

He noted that as against the 17 per cent loss recorded in equity trading activities in 2011, activities were likely to close positively this year.

He made this projection based on some initiatives undertaken by the Exchange from the end of last year, which according to him, is expected to boost activities in the market.

He noted that some of the initiatives undertaken by the Exchange to move the market and attract more investments especially from the foreign investors included the market segmentation as well as the introduction of the Exchange traded Funds.

He said, “We know that the global challenges experienced by some top economies in the world would open up some new opportunities for the Nigerian market, and we intend to put things in place to ensure that we take advantage of the opportunity that it will present to the market.

“This year, we are going to be involved in various activities and reform aimed at improving the market and attracting more investments, and there will be focused goals towards deepening the already existing products in the market.

“We believe that we should concentrate on building our bond market to ensure more participation and so, we would revitalise the secondary bond market, provide investors with a wide range of choices regarding investment options and help stockbrokers tap into the opportunities inherent in trading in bonds.”

The CEO Proshare Nigeria, Mr. Olufemi Awoyemi, said that with the efforts by the capital market regulators to reshape the market and realign it with standards of more developed markets, it was possible that activities would be boosted this year.

According to him, the market, especially foreign investors, might react positively to the equities market.

He said, “The developments and new initiatives in the market undertaken last year were perceived as the right steps in the right direction. The new market segments have aligned our market with International Standard and global best practice which will make it more accessible and easy to evaluate not in isolation anymore but along with its counterpart.

“The recent moves by the NSE on the new market segmentation is likely to usher in more companies on the bourse particularly in the power sector of the economy as the utility sector is yet to be active while the introduction and listing of first ETF on the bourse is commendable as one of the initiatives in the pipeline to deepen the market and attract more foreign participation.”

He added that another factor that could boost activities was that the banking sub-sector closed with lesser number of banks as a result of successful merger and acquisition that took place in the sector within the year.

“The market closed with 15 stronger and healthy banks as against 21 banks that started last year, while their books have been cleared of non-performing loans by the Asset Management Corporation of Nigeria, and in this regard, we expect improved lending in the economy in the coming periods as the banks are healthy to recommence active lending on a clean slate,” Awoyemi noted.

Also, analysts from Afrinvest, in their 2012 Nigerian Market Outlook, noted that the reforms undertaken in the market within the last one year would help to boost investor confidence this year.

They added that the reforms, which were targeted at enhancing a fair and transparent market place, enhanced investor confidence, and improving market depth, was on course for boosting investors’ confidence this year.

“The need to capture a significant portion of emerging market portfolio inflows necessitates a quantum leap in regulatory and administrative oversight, including high corporate governance standards, on the Nigerian bourse in line with acceptable global standards,” they stated.

The analysts revealed that having initiated varied reforms, which are targeted at enhancing fair and transparent market place, enhanced investor confidence, and improving market depth, the bourse is on course for boosting investors’ confidence.

According to the analysts, policies such as the introduction of market making, securities lending, short selling and introduction of ETFs need to be accompanied with effective regulatory oversight, while their general acceptance and participation by the investing public will largely depend on improved investor education going forward.

Source: Punch