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Capital Market: Investors’ fortunes soar by 50% in 2020

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Rising from the lull in trading activities recorded in the equity sector of the Nigerian Stock Exchange (NSE) in 2019, the performance index soared by 50.03 per cent in 2020, making Nigerian stock the best performing globally.

From a negative return of 14.60 per cent in 2019, the All-Share Index (ASI) which stood at 26,842.07 basis points at the beginning of the year closed at 40,270.76 points as of December 31, 2020, representing 50.03 per cent growth.

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Similarly, market capitalisation increased by N8, 098 trillion to N21, 056 trillion from N12.958 trillion at which it opened trading for the year.

Operators at the weekend linked the unprecedented rebound to the policy directives, which caused fixed income yields to decline precipitously, thereby offering some respite to the domestic bourse.

They urged the government to intensify its intervention efforts by extending a bailout to other critical sectors to mitigate the effects of the coronavirus pandemic and sustain market rebound.

According to them, the rollout of more intervention measures will quicken economic recovery as shown by the recent marginal improvement in macroeconomic indices.

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Performance indices improved reasonably in 2020 due to the combination of expansionary monetary and fiscal policy which helped mitigate the initial shock of the pandemic at the first quarter of the year.

For instance, NSE Industrial Goods index led with 72.88 per cent gain. NSE Premium index followed with a gain of 60.41 per cent, while NSE Insurance index rose by 48.04 per cent.

NSE Lotus II, NSE 30, NSE Pension and NSE Banking indices closed the year in positive territory with a gain of 46.14 per cent, 33.15 per cent, 30.82 per cent and 10.76 per cent, respectively.

On the other hand, NSE Oil and Gas in the period under review declined by 14.01 per cent while NSE Consumer Goods shed 2.81 per cent.

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A look at market performance across sectors showed that while NSE consumer goods and NSE oil/gas declined by 3.29 per cent and 13.84 per cent in 2020, industrial goods and insurance posted 90.81 per cent and 50.61 per cent rate of returns in the previous year. NSE banking also recorded 10.14 per cent increase during the period under review.

According to operators, the fall in oil prices triggered multiple devaluations for the economy, in addition to the devastating effect of the COVID- 19 crisis within the period.

They noted fundamentals were not strong enough to drive a natural correction in the equity market, stating that the two contending issues negatively affected the stock market, causing investors wealth to decline by 20 per cent in the first quarter

But the deliberate actions by the fiscal and monetary authorities to drive interest rates down significantly, in addition to various intervention programmes, were the primary triggers of the gains.

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The real rate of return on investment in the money and bond market had turned negative. The money market rate was ticking down below five per cent while inflation was up to 13 per cent during the third quarter.

Investors increased appetite for an adjusted rate that will compensate for inflation triggered an influx into the stock market.

Since hitting an eight-year low in April, the market unexpectedly rebounded strongly during the third quarter, increasing by 44.55 per cent, as of December 24.

Local investors who had over N5 trillion in OMO maturities to invest were left with no choice but to put their funds in the equity market.

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Domestic investors had brought in N159.81 billion into the equities market as of September 2020, compared to N94.03 billion over the whole of 2019.

Data from the NSE showed that inflows from foreign investors were negative in the whole of 2020 save for May when trapped investors reinvested dividends.

Overall, foreign investor net outflows totalled N159.62 billion year-to-date (YTD), a record high, with participation compared to domestic investors falling to a record low.

Reacting to the development, Chief Research Officer of Investdata Consulting, Ambrose Omodion said continued government’s intervention programmes would further enhance stock market growth as companies in critical sectors will grow with support policies.

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He described the 2021 economic outlook as both positive and dicey, considering the second wave of COVID-19 despite the ongoing discovery of more vaccines and their distribution.

“Government should make policies that will encourage more listings and reduce the cost of transactions. This will help to attract more investors, deepen the stock market and enable it to play a role in driving economic development by providing a platform for long borrowing.

“Regulators should protect investors and collaborate with research companies to provide proper investment and financial education that would attract more participants and enable the market to create a job for the youths,” he said.

The Vice-Chairman of Highcap Securities, David Adonri, said the hope was high at the beginning that there would be a recovery in global and domestic economies but contrary to the expectations, a still raging devastating pandemic arose, messing up all forecasts.

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“Nigeria descended into stagflation as a result of COVID-19 socio-economic disruptions. The situation was worsened by pervasive insecurity in northern Nigeria and wrong economic policies like border closure.

“The systemic risk the capital market faced due to the economic crisis initially propelled the debt market as envisaged. However, when CBN embarked on interest rate reduction coming with bond redemption, the excessive liquidity generated in the economy changed market dynamics in favour of the equity market.

“The Federal Government has also reduced its issuance of domestic debt in favour of external borrowing. While the economy is in deep crisis, the equities market that ought to mirror it has moved in the opposite direction due to a delicate monetary policy push.

“Now that FGN has reduced its crowding out effect, it is envisaged that corporate borrowers will become more active. With the economy going through stagflation, it is not likely that companies will summon enough courage to approach the primary market.

“However, if the demand for stocks in the secondary market continues with undiminished intensity, it can serve as an impetus for the revival of the primary market.

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