By Chinwendu Obienyi
The year 2020 will long be remembered as the year of the COVID-19 pandemic in which the rapid spread of the virus had a devastating impact on global economies.
The pandemic prompted shut downs in socio-economic activities across nations in an attempt to contain the spread and the Nigerian economy was no exception to the shutdown due to the fact that a combination of declining oil price and spillovers from the COVID-19 outbreak led to a fall in the demand for oil products and also stopped economic activities from taking place for several months when social distancing policies were enforced.
Similarly, many African capital markets such as South Africa, Mauritius, Egypt, Morocco, Kenya, Ghana, Malawi and few others remained bearish. It was no different in Nigeria’s stock market as the first quarter (Q1) of 2020 in terms of performance closed in the red with a negative return of 20.65 per cent, while market capitalisation of the Nigerian Stock Exchange (NSE), which represents the market value of all listed companies, lost N2 trillion.
Surprisingly, the performance of the domestic bourse in the month of April and May 2020 was positive and its performance, according to pundits, was hinged on bargain hunting by investors (even though most of the trades were executed remotely) as well as earnings from quoted companies.
For the month of June, the equities market closed in red as it witnessed renewed sell pressure to dip by 3.12 per cent. However, the negative performance did not deter the confidence of investors as the month of July and August 2020 saw the NSE market capitalisation increased by N146 billion as market watchers suggested that the capital market was appearing to be an investment haven for investors (particularly the domestic investors) due to stability in the foreign exchange market.
After lockdown
Following the restart of economic activities, Nigerian equities closed the month of September 2020 positive as the market witnessed improved bargain hunting, resulting in a 5.94 per cent gain. Also on the back of positive sentiment surrounding third quarter (Q3) earnings results for 2020, investors pocketed a gain of N1.93 trillion in the month of October despite the ENDSARS protest.
Circuit Breaker
History was made on the floor of the Nigerian Stock Exchange (NSE) after a market-wide circuit breaker kicked in at exactly 12:55p.m Nigerian time, when the NSE All-Share Index (NSE ASI) rose beyond the set threshold of five per cent, triggering a 30-minute trading halt of all stocks on November 12, 2020.
Investigations done by Daily Sun revealed that the circuit breaker protocol was triggered by the increase of the NSE ASI from 33,268.36 points to 34,959.39 points. However, the market closed the month of November with aplomb posting the biggest monthly gain in almost two years as investors garnered a total of N2.35 trillion.
Analysts who spoke with Daily Sun said that the market is primed to finish the year on a strong note as the market’s year-to-date (ytd) return for the index currently stands at 44.5 per cent. They further suggested that the outlook for the Nigerian Capital Market (NCM) in 2021 remains positive.
Analysts’ forecast for 2021
Speaking on the theme; COVID-19: Impact and Opportunities for the NCM during the Capital Market Correspondents Association of Nigeria (CAMCAN)’s 2020 Annual Workshop in Lagos, Financial Economist and Professor of Capital Market at the Nasarawa State University Keffi, Professor Uche Uwaleke, noted that the impact of the COVID-19 pandemic caused severe bruises to economies worldwide.
While stating that the weak macro economic performance was tied to international crude oil price, over exposure to foreign investors poor savings mobilisation, infrastructural deficit and widespread insecurity as legacy issues affecting the performance of the capital market, Professor Uwaleke noted that the outlook for the NCM’s outlook in the post COVID-19 era is positive and added that the economy is likely to recover in the first quarter (Q1) of 2021 once the government implements what it has in its economic sustainability plan, barring unforeseen circumstances.
“The market has performed well despite the COVID-19 pandemic. However, the second wave of COVID -19 in developed countries like the UK and US is likely to have an impact on capital importation especially foreign portfolio investments. Furthermore, there is likely going to be a possible collapse in international crude oil price, depletion of external reserves and exchange rate pressure if the pandemic is not contained effectively.
We have had good news that there is a vaccine and so what the government needs to do is to pursue aggressive export base diversification to reduce vulnerabilities to external shocks and boost external reserves, tackle insecurity and continuously improve ease of doing business, address infrastructure gaps through PPP, issue more of infrastructure bonds such as Sukuk and Green bonds which are tied to self-liquidating projects and deploy policies favourable to stock market growth and which support economic recovery”, he explained.
Chief Executive Officer, Emerging Africa Capital, Oluwatoyin Sanni, who spoke to Daily Sun, believes that the outlook for capital markets globally is positive and will be driven by the gradual return to businesses.
Her words: “We know that there is a second wave but we also know that there is a vaccine on its way to us and psychologically that will be an encouragement to investors. Furthermore, the implementation of the African Continental Free Trade Area Agreement (AfCFTA) across Africa will see opportunities for some of our larger companies to make a foray into the African markets.
“We know that there will still be renewed lockdowns in the UK and new strings are coming up but I think the worst is over and 2021 will not be anywhere near 2020. I say this because the economy has learnt how to deal with the virus and recognized that total shutdown of activities is not the best way to go, especially for developing economies like ours and so as long as the responses are pragmatic, the outlook for the capital market will more likely be favourable”.
For his part, Charles Fakrougha, a stockbroker, said that companies will remain resilient and there will be improvement in the performance of the Nigerian capital market.
He, however, noted that the government has to play its own role in creating an enabling environment to see the much-needed recovery in Q1 2021.
“We do not have to be too optimistic but optimistic with a focus as there would be challenges but I believe that we will see some form of improvement,” Fakrougha said.