After a decade-long boom in the Nigerian Capital Market, All Share Index (ASI) of The Nigerian Stock Exchange, now NGX, reached its highest point of 66,371.20 on 3rd March 2008. Since beginning of year 2023 when ASI started at 51,251.06, the Equities Market has been advancing and gathering more momentum after removal of fuel subsidy and unification of exchange rates.

The ASI is now within a touching distance from the psychological level of 66,000. It narrowly missed this point on 25th July 2023 when ASI closed at 65,988.81 after appreciating by 1.1% on that day. 

A Stock Market index measures the performance of a Capital Market. It enables an investor to compare current stock price level with past prices to calculate market performance. The All Share Index (ASI) of NGX was formulated in January 1984. It is a chain linked value weighted index obtained by dividing the market capitalization of all listed equities on a particular day with the market capitalization of all listed equities from base year and multiplying by 100. It was 100 on January 3, 1984, the day it commenced. 

During the last boom, ASI moved gradually in 7 years from 5,266.43 in January 2000 to 36,784.51 in January 2007 before bursting into a gallop that took it in a year above 66,000 in March 2008. Several developmental reforms and initiatives both within the Capital Market and from public policies underpinned that unprecedented growth. The principal developments in the Capital Market that propelled it’s rapid growth started with its internationalization on 2nd June 1987 when The Nigerian Stock Exchange hooked up with the Reuters Electronic Contributor System. That helped in projecting the market to the global investing public.

Further to the deregulation of the Nigerian Capital Market on 27th January 1993 and to effectively internationalize it, on 15th January 1995, the Federal Government repealed the Exchange Control Act of 1962 and the Nigerian Enterprises Promotion Decree of 1989. They were replaced by the Nigerian Investment Promotion Commission Decree No. 16 and the Foreign Exchange (Monitoring & Miscellaneous Provision) Decree No. 17 of 21st July 1995. Perhaps the most monumental event that shaped that golden era of The Nigerian Stock Exchange was the launching of its subsidiary, the Central Securities Clearing System (CSCS) in April 1997. On 14th April 1997, CSCS commenced operations, providing electronic – based automated clearing, settlement, delivery and custodian services.

That revolutionary change in settlement and delivery to Transaction plus 3 Days (T+3) from between 3 and 12 months prior to automation, paved the way for the explosion of transactions in subsequent years. 

The final earth shaking event that occurred in the Capital Market just before commencement of the new millennium was the transition from manual Call-Over trading system to the Automated Trading System (ATS) on 27th April 1999. Through the tight coupling of the ATS and CSCS, The Nigerian Stock Exchange was able to achieve a world class seamless settlement cycle of T+3. 

From the solid foundation laid by those past events, coupled with the positive impact of change in the political landscape in 1999, year 2000 became the watershed from where The Nigerian Stock Exchange began its meteoric rise. In the last boom, growth of the Stock Market was propelled from the primary market where new issues soared from year 2000. Amidst jubilation, ASI crossed 10,000 for the first time in 2001 closing that year at 11,104.50 and market capitalization of N662.60 billion.

Following the reforms carried out between 2003 and 2008 in the Nigerian banking sector, the Capital Market deepened, with public awareness and involvement increased significantly. That policy later misfired, swelling bank’s vaults with excess cash which became idle because of low absorptive capacity of the real economy. A corrupted form of Margin Facility became the outlet through which several banks engaged their idle capital. When the attendant credit boom was added to the avalanche of Foreign Portfolio Investment that poured in, the Nigerian Stock Market went haywire between 2007 and 2008, spiralling out of control.

The events that fueled the meteoric rise and near crash of the Nigerian Stock Market together with the remedial measures are well documented for investors to learn from. 

After the decelerating ASI and Market Capitalization bottomed out at 19,000 and N4.5 trillion respectively in March 2009, a long journey to pre meltdown level began which in 14 years is at a touching distance of 66,000. Unlike the pre global meltdown boom which arose from a decade-long steady growth that became disorderly at its twilight, current boom has been largely frenetic. This boom is not deep rooted as it is not propelled from the primary market by new issues.

Between 2016 and 2020, two Stagflation assaulted the economy. Paradoxically, while all macroeconomic indicators in Nigeria deteriorated in the past eight years, the Stock Market defied economic fundamentals, growing by about 62% with ASI reaching 51,251.06 at end of December 2022. It was like the 7th wonder of the world when Nigerian equities appreciated by 50.03% in 2020 despite near collapse of the global and domestic economies due to COVID-19 lockdown. ASI was 52,822.93 at beginning of June 2023. Between then and 25th July 2023, equities surged by about 25%. The main driver of the surge was investor’s sentiment predicted on future expectations from the new economic policy direction. 

When skeptics look back at the calamity investors suffered in equities the last time ASI crossed 66,000, they prefer to toe the path of caution now, to avoid a repeat of history. Contrary to this skepticism, bullish investors argue that today’s Capital Market is completely different from the pre meltdown one in form and shape. It has transited from a mono product market to that with multiple products offering. The Capital Market is also deeper with the public quotation of corporate giants like Dangote Cement, BUACEM, MTNN, AirtelAfrica and others.

More market platforms across equities, debt, derivatives and commodities are all actively in operation thus increasing investment outlets in the Capital Market. The vastly improved regulatory framework, market processes, world class technology and new financial market infrastructures, make today’s market to be more orderly, resilient and less prone to bubble. Additionally, unlike before, the market has more patient capital now due to greater involvement of domestic institutional investors rather than the volatile capital or hot money brought in by Foreign Portfolio Investors.

Optimists also see strength in the market from the perspective of corporate fundamentals which remain strong despite macroeconomic frailties and assault from misfired public policies. However, consciously or unconsciously, the market itself seems hesitant to crossing that psychological point of 66,000 as it beats a retreat each time it gets close. Monetary Authority may also be sensing some overheating in equities hence, the continuation of contractionary monetary policy to reduce financial sector liquidity.