By Chinenye Anuforo and Chinwendu Obienyi
The Nigerian economy entered 2016 on a gloomy tone following shocks in global oil demand which eventually led to a free fall in commodity’s price before hitting the capital market.
Consequently, market capitalisation of listed equities which opened the year with N9.85 trillion on January 1, 2016, plummeted by N761 billion on December 21, 2016 (the time of filling in this report) to close at N9.08 trillion representing a decrease of 7.72 per cent.
In the same vein, the All-Share Index dropped by 2,224.14 points from 28,642.25 basis points it opened the year’s business to 26,418.11 basis points it closed trading on December, 21, 2016.
Market observers, argued that the market suffered losses since the beginning of the year principally because the economy was going through severe difficulties. “We have seen an economy that has gone into recession, we saw a contraction of about 0.36 per cent in the first quarter of the year, 2.06 per cent second quarter of the year and 2.44 per cent in the third quarter of the year and as you also know the capital market mirrors the larger economy, so if the economy is contracting, it will be an abnormality for the capital market to be gaining. So what we are seeing is a reflection of the larger economy.”
Within the context of the current economic recession, the fixed income and equities segments of the capital market witnessed dips in activity and the deceleration in the growth of the Nigerian economy which commenced in the third quarter of 2015, intensified in the first quarter of 2016.
Consequently both foreign and local investors remained on the sidelines due to upset in the financial market arising from oil price, instability in forex and poor half year 2016 financial results. Financial analysts believe some of these factors sent shock waves to both local and foreign investors and created an unfriendly and hostile investment climate during the course of 2016.
Chairman, Partnership Investment Plc, Mr. Victor Ogiemwonyi, explained that the downward swing in the capital market was due to the market’s long term liquidity resulting to non-attraction of investors who don’t see growth soon.
“Those who have traditionally provided liquidity have gone away one by one and the banks that provided margin loans and now foreign portfolio investors who want quick profits have also now left for good,” he said.
Added to this is the fact that that the market has shown a red flag, signaling that many listed companies do not have the earnings capacity to pay dividend in 2017, judging from their third quarter earnings report. This will, no doubt further depress the market and reduce returns on investment.
SEC efforts
As a result of the present state of the market, the Securities and Exchange Commission (SEC) introduced some reforms in the market. They included the Capital Market Master plan, the National Investor Protection Fund and the Direct Market Access, among others.
SEC also implemented the electronic dividend payment, de-materialisation of share certificates and direct settlement payment, all geared at boosting investor confidence in the market.
SEC also recently stressed that the dominance of the market by foreign investors was one of the reasons why the market is not as deep as it ought to be.
SEC DG, Mounir Gwarzo said: “Our intention is to ensure that we raise the level of participation of retail investors in the market, that is the only way we can maintain the strength of the market”
Market dominance by foreign investors is one of the reasons why our market is the way it is”, he explained.
Gwarzo further said that SEC recognised the need to upscale the participation of the retail investors in the market and was committed to addressing these concerns by embarking on various initiatives like recapitalisation, e-dividend registration which has yielded positive responses so far, direct cash settlement as a direct benefit to investors from the e-dividend which has yielded over N29.2 billion unclaimed dividend paid out.
For his part, Mr. Oscar Onyema, NSE Chief Executive Officer, urged investors to toe the option of maintaining diversified portfolio across different asset classes to mitigate investment risks.
He said that the market would, in the short-term, experience huge volatility, but that should not distract investors from investing because of some listed companies with well regulated market structure. “It is important to note that we are not the only exchange affected by these global developments of all the 24 exchanges in Africa, 20 are experiencing a downturn.
“Opportunities still exist for investors in stocks, in spite of the current downturn in the capital market,” Onyema said.
Market outlook for 2017
Market stakeholders expect that the last quarter of the year portends new developments and growth in terms of positive market performance and reactions. One of the key activities expected to guide the market outlook for the last quarter of 2016 and beyond for the Nigerian capital market is the ease of doing business council inaugurated by President Muhammadu Buhari as the Vice President, Professor Osinbajo stressed: “The whole idea is to look at the infrastructure, look at all of the different areas where we can encourage and have enabling business environment, so we are looking at a whole lot of economic policy and legislation that can encourage business”.
Another activity is the Direct cash settlement and Dematerialisation exercise initiated by SEC. At the last Capital Market Committee meeting, Gwarzo, noted that the two exercises were yet to hit 100 per cent, noting that the direct cash settlement would be mandatory, promising that before the end of the first quarter of 2017, the direct cash exercise would be implemented.
“We have not fixed a date because there are few teething issues we need to sort out and what we have done is to expand the committee on the e-dividend and to also include the direct cash settlement, we have given them the idea on how to look at the modalities and get back to us and I promise that before the end of the first quarter, direct cash settlement will also be mandatory, everybody will have to key in”.
“For dematerilisation we have done extremely well because as at today we have achieved almost 97 per cent in terms of compliance with less than 3 per cent of shares in Nigeria have not been dematerialised. Our target is to achieve 100 per cent for whatever we do here in SEC is 100 per cent and by the next CMC I promise that we are going to report that we have reached 100 per cent,” he noted.
Following these revelations, local and foreign investors who have been maintaining a tepid attitude towards the capital market are expected to make a come-back, the mild recovery of the market is expected to begin soon depending on the economic blueprint by the government, a relative stability in the macro-economy, improved security, stable consumer prices and exchange rate
The current state of the market however creates opportunities for savvy investors who can explore the benefits of the low prices of strong and fundamental stocks with good historical performance and dividend payment.
Experts dialogue at UBN’s ‘Engage’ series
Union Bank’s innovative leadership and networking series, ‘Engage’ held its 3rd edition in Lagos, with young entrepreneurs and professionals in attendance and shared innovative ideas and foresight to thrive better in a bearish economy.
An initiative of Union Bank, ‘Engage’, which has held in Abuja and Port Harcourt, is a networking event for professionals and entrepreneurs to connect and share innovative ideas and foresight on how to thrive better.
Themed ‘Navigating and Succeeding in Tough Times’, the series takes into consideration the current tough economic transition in Nigeria, and how it puts pressure on businesses, especially those owned by young entrepreneurs and even in business where these professionals work.
Speaking about the innovation behind the Engage Series, Head of Communications and Media, Omotola Oyebanjo said,
“This initiative is about creating a support base for young professionals and business leaders who find themselves regularly dealing with real time changes and the challenges these bring to corporate organisations and businesses.
“Union Bank is an establishment with a strong, 100-year heritage currently undergoing an impressive transformation. We therefore understand the need to keep evolving, learning and growing to stay relevant. Our goal is to pass on that knowledge and strength of purpose and our directors are especially happy to be part of this knowledge transfer.”
“We created ‘Engage’, a platform that allows young professionals and business leaders network, engage, identify and recommend real-time solutions to challenges faced by corporate organisations, businesses and even professionals in their chosen careers.”
Some entrepreneurs and professionals present at the event were: Head, Elite & Royalty Banking, Union Bank, Dayo Odulate; Head, Communication and Media, Union Bank, Omotola Oyebanjo; Group Head, Commercial Banking, Union Bank, Gloria Omereonye; Founder, LEAP Africa, Ndidi Nwuneli; Country Director, Alstrom Group, Tola Sapara; CEO, SurkReo Communications, Daniel Emeka; CEO, Cregital, Evans Akanno; Co-Founder, Pledge51, Zubair Abubakar; Founder, MyLekkiAttitude, Adewale Adetona; Founder, Mamalette, Anike Lawal; among others.
The Engage Series and the launch of three (3) state-of-the-art branches in Lagos are part of the engagement activities accompanying Union Bank’s transformation across the country.
Diamond Bank promotes 850 employees
Diamond Bank has announced the promotion of over 850 employees. According to a statement issued by the bank, “These members of staff will be part of the talent pipeline in the coming years as they have distinguished themselves at the junior levels and therefore need to be encouraged and developed to take up critical positions in the future.”
“Diamond Bank is one of Nigeria’s fastest growing retail bank, leveraging innovation and technology to enhance customer experiences and drive financial inclusion in what it terms Beyond Banking.
Since incorporation in December 1990, Diamond Bank has challenged the market environment by introducing new products, innovative technology and setting new benchmarks through international standards. employees of its workforce who have distinguished themselves in performance and in living the core values of the bank.
“Today, Diamond Bank is best placed to respond to changing lifestyles and is leading the digital transformation in response to these societal shifts. Diamond Mobile app, for example, is Africa’s leading banking app and the first with the touch ID feature,” it added.