- Outlook for 2022 being a pre-election year
The Nigerian equity market since the crash of 2008 has evolved with a lot of transformation that has benefited investors tremendously. Though a lot of people were skeptical of coming back to the market back due to the shock of 2008 global crash. However, market has moved on since then with reforms from regulators and market operators.
Reviewing the emergence of the market since 2008, the CEO, Advisory of Cedrus Group Africa, Busola Ogbonna stated thus:
“The Nigerian capital market since the crash of 2008 has not fared badly, although we could still do more.
Shortly before the crash in 2008, there was more domestic participation in the market. Domestic to foreign participation was about 65/35 percent. Retail investors were playing in the market. There was a lot of confidence in the market.
After the crash, most of the retail investors lost confidence in the market and exited the market. It took a lot of effort for them to build that confidence back. The domestic/foreign investor that was at the range of about 65/35 percent actually came lower. We now have more foreign investors participating in the market than domestic investors. So the domestic/foreign participation of 65/35 percent gradually declined to as low as 40/60 percent. That is 40% for domestic participation against 60% for foreign investors’ participation.
There was erosion of confidence in the Nigerian equity market. Investors were sceptical about the market. They lost a lot of money. They were pained. They were hurt. A lot of them exited the market. It took a lot of counselling, education, encouraging them to come back to the market. Gradually, we have seen more of retail investors now participating in the market.
There have been a lot of noteworthy activities in the market since the crash of 2008. For example, the launch of Direct Market Access, that is the Online Trading. What it means that investors can trade on their own from the comfort of their homes, using online trading portals. A lot of Stockbroking firms now have DMA (Direct Market Access) which gives their clients opportunity to trade online. This initiatives have gone a long way to encourage retail investors’ participation. So you don’t really need to call your broker to give him mandate to buy or sell. Once you have your log in details, you can easily trade in the market.
Even though the market has actually not fared badly, it could still do more. Investor’s performance in the market can be improved. Retail investors should be encouraged continuously to participate in the market.
There should be what we call retail investors’ road show to sensitize investors to participate in the market. Stockbroking firms and Regulators including Nigerian Exchange Group (NGX), Securities and Exchange Commission (SEC) should keep educating investors to encourage more participation in the market.
Investors’ participation in the market can be encouraged by giving them some form of incentives. Like the recently concluded public offer by MTN. To encourage retail participation, MTN gave incentive of 1 for 20 unit shares. This actually made some of the retail investors to be excited. Such incentive has a long way to go in exciting and encouraging investors towards market participation. We want to see more of such public offers in the market like that of the just concluded MTN public offer whereby incentives are given to investors who will want to purchase such shares.
Another thing is to work on our FX policy in Nigeria. That will encourage more of foreign investors’ participation.
The launch of the Derivatives Market will also go a long way for us to improve market. The Derivatives Market is long overdue. When the market crashed in 2008, many investors were helpless, the market was coming down and there was no way they could hedge their exposure in the equity market. Some never came back because there wasn’t any vehicle/window to manage their risks in the market. But with the launch of the Derivatives Market, we hope that many investors will be encouraged to come back to play within the equity space. The Derivatives market will serve as a very useful tool to manage the risk for a particular investor who has invested in the equity market.
The equity market in 2021 grew by 6.07% year on year with the All Share Index closing at 42,716.44 points. The growth in 2021 is lower compared to the year 2020 being a covid year. One of the major activities that actually slowed down market performance in 2021 was our Foreign Exchange policy. Lack of foreign exchange. Foreign investors who were ready to come into the market or those who participated in the market; when they sold out, there wasn’t FX available to repatriate their funds back to their country. So the FX crisis impacted negatively on the equity market particularly for foreign investors who have actually participated within the market, and would need Foreign Exchange to repatriate their funds. I believe that if the FX policy is being looked into and there is availability of foreign exchange for most of the foreign investors, this will encourage participation in the market in 2022.
Outlook for the market in 2022
“The equity market in 2021 grew by 6.07% year on year with the All Share Index closing at 42,716.44 points. The growth in 2021 is lower compared to the year 2020 being a covid year. One of the major activities that actually slowed down market performance in 2021 was our Foreign Exchange policy. Lack of foreign exchange. Foreign investors who were ready to come into the market or those who participated in the market; when they sold out, there wasn’t FX available to repatriate their funds back to their country. So the FX crisis impacted negatively on the equity market particularly for foreign investors who have actually participated within the market, and would need Foreign Exchange to repatriate their funds. I believe that if the FX policy is being looked into and there is availability of foreign exchange for most of the foreign investors, this will encourage participation in the market in 2022”.
“Year 2022 is a pre-election year. What that means is that the Nigerian equity market will be affected by political uncertainties. The uncertainties within the political space will actually impact the market. Although, we expect a bit of market activities in Q1 bolstered by Full Year 2021 results. We expect that Q2 to Q4, the impact of political uncertainties in the economy will begin to trickle into the market. So we expect activities to slow down towards the end of the year. Investors will want to slow down on equities due to political uncertainties and there will be flight of safety to the Fixed Income space. With that investors will be able to preserve their capital. We expect activities to wind down gradually by the end of Q2 to Q4. However, there will still be cheery picking. That is there will still be specific stocks that investors will play with and still enjoy a bit of capital appreciation. Generally for pre-election year, due to the political uncertainties, investors will want to sell down their exposures in the equity market and move to the fixed income market”.
Candid advice for investors:
“We expect the full year result to start coming in soon till the end of March 2022. I expect investors to take advantage of Companies that have actually been delivering good results and paying good dividends in the past couple of years. Investors can leverage on that by taking position against when the results will be released. For quoted companies who are good dividend payers, investors can start taking positon in such stocks to enjoy a bit of capital appreciation. Thereafter, I expect investors to trade cautiously due to the political uncertainty that will impact the market generally”.