The capital market seems to have transited from the apprehensive mood which prevailed among operators at the beginning of 2012, to consensus optimism of a better performance in 2013. This is reflected in the views of four major stakeholders who spoke to Financial Vanguard on the performance of the market in 2012 and expectations for the New Year, BABAJIDE KOMOLAFE  writes

In January 2012, operators were weighed down by the dismal performance of the stock market in 2011, with further decline of 17.7 per cent in market capitalisation and 16.77 per cent decline in the All Share Index. They were apprehensive about 2012, what manner of year was it going to be. The question on the mind of all operators was: Will the market recover in 2012?

The market however performed better and stronger than anybody in the market could have wished for. The market capitalisation rose by 37.4 per cent to N8.974 trillion while the All Share Index (ASI) also rose by 35.4 per cent to 28,079.

This was a big relief for market participants, and this is reflected in their summation for the year. “The Stock market stabilised in 2012 and has started to grow again”, said Victor Ogiemwonyin, Managing Director/Chief Executive, Partnership Investment Company.

For Bismarck Rewane, Managing Director/Chief Executive of Financial Derivatives Company, the stock market made “Astounding return in 2012.”

“Year 2012 was part of the journey to recovery”, said Emeka Madubike, President Association of Stockbroking and Issuing Houses (ASHON) of Nigeria.

Shareholders do not seem to be generous in their praise of the performance of the market in 2012. According to Sir Sunny Nwosu, National Coordinator, Independent Shareholders of Nigeria (ISAN) “The stock market is trying to find its footing after years of experiment”.

*Stock exchange floor

To him the impressive performance of the market in 2012 was forced. “It is a forced growth because the authorities have been a little bit jittery because they have been talking about developing the market and developing the market and nothing was moving.”

Operators in the market however insist that the growth was not forced. “Markets change daily as it reads the economic treads and what adjustments to make”, said Ogiemwonyin, adding that, “What we mean by growth is when the volumes and value traded are high. How do you induce growth? By putting money in the market and buying stocks?”

Madubike also pointed to the performance of the companies on the Exchange to dismiss the allegation that the performance of the market was induced. “ Most of the companies in the NSE 30 Index performed relatively well despite the pressures in the economy”, he said, adding that even companies that were having problems like the banks had gotten over the problems and they  now have better management and technical support. When these factors are considered, you can’t say that the performance of the market was induced.

No dominating Factor

Though there were several efforts and initiatives to prop up the market, it may be indeed difficult to affirm that the performance of the market was induced by these factors. Investigations show that the until the third quarter when companies started posting their half year results, which for most were positive, especially the banks, which accounted for about 31 per cent of the market capitalization, the performance of the stock market was neither here nor there.

For example between January and June, the ASI only grew by 869 points or 4.1 per cent. But between July 1stand December 31stthe Index rose by 6480 points or 30 percent. Similarly, the market capitalization between January and June rose by N362 billion or 5.5 per cent, but grew by n2 trillion or 23.1 per cent between July and December.

According to Rewane, it the impressive performance of the market in the second half of the year, was spurred by the influx of half year results posted by listed companies.

Yet, even if the market performance during the year was induced, it was difficult to attribute the performance to any of the policy measures introduced by the regulators. According to Madubike, there was no single factor that really influenced the market.

“There were lots of initiatives but not one of them could have turn around the market, as what was needed was a multi-pronged arrangement. The only thing was that there were lots of collaboration between regulators and operators, and this really helped the market, and enhanced the quality of policies introduced to move the market forward.

On his part Ogiemwonyin observed that the impact of the various reform measures introduced during in 2012 especially the N22.4 billion forbearance package for 84 stockbrokers, would most be reflected on future growth of the market. In other, words it still too early to assess their impact on the performance of the market.

No Market Making Magic

Some shareholders however believe that the performance of the market was induced by the introduction of Market Making and the activities of Ten Market Makers.  But both Nwosu and Rewane opined that the contribution of this phenomenon to the 35 per cent growth of the market was not significant.

“The introduction of market markers is yet to change anything”, Rewane said, adding that “without adequate liquidity injection, the market makers will make no difference.”

Nwosu also stated, “Well, the market makers actually influence the market in the sense that they were made to be mopping up stocks. That actually helped to reduce the glut in the market. But of course, it did not do the magic expected of the market because they too are going through a lot of stress now because by the time you mop up the market to sustain the price growth and nobody is buying the shares, then you will fall into a bigger trouble of managing debt and the volume of shares in your hands.

And this is manifested in the movement of the shares – today it moves 8 per cent and tomorrow it drops 9 per cent and so on. And before you know it, the prices of the stocks so influenced by the market makers would have gone back to what they were before. The fact again is that the market makers are accumulating a lot of financial stress.”

To make the Market Makers work, Rewane recommended the establishment of a special Fund, with government contributing 60 per cent and Market Makers contributing 40 per cent. Proceeds from the Fund, he said, should be used to continuously trade in the market and this will boost confidence and stabilize the market.

Shared Optimism

Despite the various views on the performance of the stock market in 2012, there is a consensus of optimism about the market in 2013. Most operators and shareholders believe that the impressive performance of the 2012 would be sustained this year.

“Outlook for 2013 is very positive by most analysts. I also concur to that; I think the momentum that ended 2012 will carry into the New Year. I expect the market to do better than average in the New Year, Ogiemwonyin said.

“We believe that 2013 is the beginning of recovery. The recovery will not be broad based; only companies with good fundamentals will gain from their recovery”, Rewane affirmed.

Nwosu was generous in outlook for the year. He said, “For me, the capital market is the best option of investment any day, any time because we are leaving leap year, and according to historians. They say the leap year is often a reap year. But we are entering into a normal circle year. And their prediction is that the year 2013 will be better than 2012. I also believe that as we move, we will continue to have a better economic environment. And if that happens, there will be more money for people to invest in the capital market,”

Madubike said that the stock market in 2013 should benefit significantly from the various on-going initiatives the federal government to transform the economy, especially the power sector reforms. He and Nwosu pointed out that the early passage of this year’s budget is a pointer to improved and economic activities during the year, which they believe will translate to increased activity on the Exchange and hence better performance.

Factors to watch

On major factors that will influence the market in 2013, Rewane listed nine factors namely: Corporate profits, Inflation, Exchange Rate, Economic activities as measured by the Gross Domestic Product (GDP), Stock Valuations, Mergers and Acquisition, Fiscal Policy, United

States Dollar and Global Economy.  Ogiemwonyin on his part said, “The factors that will influence things include the rising confidence and the liquidity that will follow, especially with the year starting with an approved budget. The gradual return of investors will see the market rise in the first quarter and slowly correct any spike that may be too far from the average.

The Global economy will have some impact. Whether going up or coming down. But we will experience a more stable growth in the banking sector that appears to be completely out of the woods. The Banking sector will likely lead the other consumer facing companies to stable growth in the New Year.

Cloud of Concern

Behind the optimism however is a cloud of concerns about developments that may impact the market negatively in 2013. Chief among this is the dominance of International investors, who now accounts for 70 per cent of activities in the stock market. This makes the market vulnerable to development in the global market, especially in the light of the Euro debt crisis and the Fiscal cliff in the United States.

But stock market operators hope that there would be increased participation by local investors in 2013, such that the impact of major pull-out of foreign investors would be minimal. According to Madubike, the regulators and operators are aware of this vulnerability and the idea is to focus on what can be controlled hence the efforts to boost increased participation of local investors.

He said this was the rationale for the investor education, and investor protection schemes being introduced, and also the moves to decentralize the complaint management system of the market. Expressing confidence in the effectiveness of these efforts, Ogiemwonyin affirmed, “I believe that even if there was a dip in the market as a result of foreign portfolio investors adjusting their holdings, there will be no panic exit and returning local investors will take up the slack. This is why I think that we will do better than average in the New Year.”

Nwosu however said the way regulators and operators treat local investors does not show that they recognise their importance to the growth of the market. He said “There is an adage which we will continue to respect. They say charity begins at home. If you respect a foreign investor at the detriment of your local investor, the day they (local investors) strike, the foreign investors will regret ever coming into this country. So, you need to give respect to your own retail investors. They are the people to protect your stock exchange. The foreign investors are here to make money and get away”.