By  Nkiruka Nnorom

Despite challenges of consistent decline in international price of crude oil, fear surrounding the upcoming 2015 general elections and security challenges, the Nigerian Stock Exchange, NSE, has witnessed some improvement over time, says a report by BGL Plc.

File photo: The floor of Stock exchange

According to the report termed “Nigerian Economic Review and Outlook for 2015”, the investment banking group said that large scale and innovative reforms of the market since the tenure of the current administrators of the NSE led by Mr. Oscar Onyema have supported improved market activities.

“Some of the reforms include the introduction of market makers, expansion of trading hours, new and modern trading platform (X-Gen), improved corporate reporting, market data availability among others”, BGL Research and Intelligence observed.

“Significant surge in foreign inflows into the market in the 2012/2013 period reaching US15 billion in 2013 from US$3.69 billion in 2011, were justified on the back of the improved market transparency and governance. The market therefore recovered in nominal term to pre-crisis level by the end of 2013. At 41.97 percent return in 2013, the market outperformed peers in emerging market and many developed markets,” the report added.

It however stated that the effects of US quantitative easing, QE, tapering and flight to safety capital reversal on the back of the outlook for 2015 elections are a low point for the market YTD in 2014, adding that 75 percent Cash Reserve Ratio, CRR, on public sector deposit, PSD, added to the pressure.

Emerging markets downturn rattling the market, driven by sharp commodities price decline- oil price.

“Across comparable markets and selected advanced markets, the NSE remained the laggard in performance, due to strong flight to safety capital reversal on the back of oil price decline, FX threat and the outlook for 2015 elections.

Tighter monetary policy environment and weaker currency outlook portend further depression for the market. Weaker banks’ earning outlook for 2014 is a low point

“Wehowever expect the market to at least recover ground lost this year in 2015 based on strong risk adjusted valuation of Nigerian equities on current price depression.”

Going further, the report stated that Nigeria’s equities market may be significantly under-priced based on some fundamentals. “PE ratios of most sectors on the Nigerian stock exchange are lower than that of its peers. The banking sector, agriculture and oil and gas are very attractive. FMCG which were hitherto overvalued have experienced significant price correction and the sector currently offers value for investments.

“Beneath the impressive valuations of the Nigerian equities market is the expanding middle income group attracting improved financial performance of firms in the FMCG and retail space. New frontiers of opportunities are also unfolding in power privatisation and likely reforms of the oil and gas sector.”