Operators bemoan 18 per cent stock market cap-to-GDP 64 years after

. Blame policy inconsistencies, economic instability, poor regulation, others
. SA, Morrocco, Mauritius rank higher with 320.6%, 92.9%, 42.8%

Operators have bemoaned less than 18 per cent of Nigerian stock market capitalisation to the country’s Gross Domestic Product (GDP) in the past 64 years of its existence, urging the government to create more market-friendly policies and list the Nigerian National Petroleum Company Limited (NNPCL) on the exchange to attract more issuers to the market.

With a current market capitalisation of N56 trillion as of Friday, October 4, 2024 and capitalisation (cap)-to-GDP of 17.6 per cent as of 2023, lower than 30 per cent achieved in 2007 before the global recession, the operators believe that the market is grossly undervalued when compared to peers in other emerging market which is an indication of an under-performing market and a reflection of the nation’s poor economic performance.

Recall that the Lagos Stock Exchange, now the Nigerian Exchange (NGX) was established by an Act of Parliament in 1960. NGX has 249 securities listed on the Exchange (151 equities, 63 bonds, 12 ETFs, 2 derivatives and 21 Funds). Also, two other Exchanges, FMDQ and NASD have emerged as platforms for trading in fixed-income securities and Over-the-counter equities respectively.

The operators, who spoke in separate interviews with The Guardian, stated that if market-friendly policies are formulated to create a low inflation and interest rate environment, a long-term capital formation that stimulates economic activities will push Nigeria’s stock market capitalization-to-GDP to nearly 80 per cent.

According to them, these factors would help spur activities in the stock market, revive the primary market segment for new issues, boost its contribution to economic growth and raise the nation’s market capitalisation at par with peers in the global market.

The operators pointed out that while the stock market has served as a liquid investment outlet over the years, with the primary market segment facilitating capital raising for manufacturing companies and banks, the issuer’s confidence has not been restored to the pre-meltdown level since after the 2008 global recession.

They wondered why the Federal Government has failed to list the NNPC and other government-owned corporations on the exchange, insisting that Nigeria’s market cap-to-GDP, noting that listing of government corporations has continued to raise the market cap to GDP of other African exchanges.

Indeed, a look at the market cap-to-GDP of other economies showed that Nigeria ranked behind many emerging economies in terms of performance. For instance, South Africa has a stock market cap of $1.36 trillion, making it one of the top 20 performers in the world. This represented 320.6 per cent of the country’s GDP as of 2022.

For Malaysia, its market capitalisation-to-GDP is put at $362.96 billion, representing 92.9 per cent as of 2023. Morocco’s exchange cap-to-GDP stood at 42.8 per cent as of 2023 while Malawi is 40 per cent as of 2023.

Mauritius, Switzerland, India and Indonesia’s stock market cap-to-GDP stood at 39 per cent, 187.2 per cent,123.3 per cent and 55.8 per cent respectively as of 2023.

Nigeria’s market cap-to-GDP reached an all-time high of 29.7 per cent in December 2007, a year before the global recession and has continued to lag among peers in the global market since after the recession, even while other economies have wriggled out of the 2008 recession.

Vice President of Highcap Securities, David Adonri, said sustained economic growth based on self-reliance can take the contribution of the stock market to GDP to over 80 per cent as a developing economy rather than its current shameful contribution of less than 15 per cent.

He noted that inflation and monetary policies formulated to manage inflation have always affected the trade-off between equities and debt in the capital market.

“Since the devastating global economic crisis in 2008, Nigeria has suffered two other major economic crises (Stagflation) in 2016 and 2020. The incidents of a bust of the economy are a painful reality that the stock market must continuously grapple with.”

He added that a non-inflationary growth of the economy that massively raises per capita income which was only $93 in 1960, reached its highest level of $3,201 in 2014 and continuously declined to $2,163 in 2022, can provide enough disposable income to domestic investors with which to invest more in the stock market.

An Investment Banker & Stockbroker, Tajudeen Olayinka, said Nigeria’s market cap-to-GDP has always been a case of undervaluation, given the large number of businesses in different sectors of the economy that continue to make a significant impact on the economy.

According to him, this is because only a few companies deem it necessary to be listed on the securities exchange in Nigeria, contrary to what is obtainable in other economies.

He pointed out that Nigerian companies are not making adequate use of opportunities in the capital market to support a drive for economic growth.

Olayinka noted that although the figure had risen from 14 per cent in 2022 to 17.8% in 2023, he argued that Nigeria’s market capitalisation-to-GDP ratio is very low by any standard.

He stressed the need for the government to improve market regulations and provide compelling incentives to make more companies go public and get listed on the securities exchange in Nigeria.

According to him, unless more companies are listed or encouraged to get listed on securities exchanges in Nigeria, the Nigerian economy cannot derive significant benefits from what the capital market can offer to drive growth in a developing economy like Nigeria.

Member of Exceptional Shareholders Association of Nigeria, Olugbosun Ariyo, said the nation’s economy has been characterised by numerous phases of economic instability, policy inconsistencies, and a challenging regulatory environment which have led to the delisting of many companies across various sectors on NGX.

According to him, the lack of confidence due to corporate governance issues, unresolved unclaimed dividends, and fluctuating foreign exchange policies are major constraints to capital market growth.

He added that Nigerian investors have had to grapple with high inflation, currency devaluation, and regulatory uncertainty that erode investment returns.