By Chinwendu Obienyi and Chukwuma Umeorah

If there is any sector of the Nigerian economy that has witnessed remarkable impact since President Bola Tinubu assumed office on May 29, 2023, it is the capital market.

Despite the hiccups in the system created by a bunch of stringent policies like removal of fuel subsidies and exchange rate unification, the capital market has remained vibrant.

Soothing developments like data protection Act, electricity Act, introduction of fiscal incentives for non-associated gas, midstream and deep-water developments among others that introduced by President Tinubu’s government were wholesomely welcomed.

So, the nation’s domestic bourse at the start of the new administration experienced a boom. 

The capital market not only recorded unprecedented capital gains but broke records upon records.

Although challenges such as rising inflation, volatility in the FX market and high number of people in poverty still abound, the growth, potential and performance of the domestic bourse under Tinubu reflects underlying strengths and opportunities within certain segments of the economy.

Indeed, the prosperity promised by President Tinubu during the campaign became a reality for millions of Nigerian investors, among whom were the 6.6 million Nigerian shareholders of MTN, the biggest telco in the country.

For instance, market capitalisation of the Nigerian Exchange Limited (NGX) grew exponentially from N30.3 trillion recorded at the end of May 2023 to N51.7 trillion on January 19, 2024. This means investors gained more than N20 trillion in eight months under the present administration.

Stocks rally

Tinubu’s prosperity speech had a knock-on effect on activities of the stock market as record profit appreciation was announced by many Nigerian banks and some of the manufacturers, such as Dangote Cement, BUA Cement, BUA Foods, Lafarge Africa, formerly known as WAPCO.

The banks were the first to rally the market into a frenzy, beginning from their second quarter reports when they reported huge gains from their forex dealings. Zenith announced earnings per share in H1 2023 at N9.29 from N3.55 in the same period of 2022. UBA’s earnings per share stood at N10.95 in H1 2023 from N1.98 per share in the same period of 2022.

This threw the market into a frenzy as banks announced further increases in profits and as a result, investors lapped up the shares of the banks, sending the prices higher.

Records and more records

At the beginning of Tinubu’s administration, the All Share Index (ASI) of NGX -the metric for gauging performance of equities, stood at 52,822.93 points. However, it proceeded on a galloping race which took it to 102,401.88 basis points on January 26, 2024, thereby shattering previous records of growth. Following its overheating, the equities market is gradually experiencing correction as the index currently stands at 97,612.51 points.

FPIs return

Foreign portfolio investors (FPIs) had withdrawn a total of N1.87 trillion in four years under former President, Muhammadu Buhari. Furthermore, the value of FPIs for the months of January and February, 2023 stood at N44.52 billion, a far cry from the figure of N86.74 billion recorded in the corresponding period of 2022. However, the latest NGX FPI report has revealed that foreign investors gradually trickled in, recording inflows from N22.72 billion in June 2023 to N93.97 billion in the first quarter (Q1) of 2024. When compared to N18.12 billion recorded in Q1 2023, this represents a 237 per cent increase.

Soaring rights issues

Owing to the Central Bank of Nigeria (CBN)’s directive to banks to recapitalize in order to aid the country’s $1 trillion economy, there have been a rising number of rights issues as well as capital fund raising from firms, mostly especially banks listed on the trading floor of the NGX.

As at December 2023 when the idea of banks’ recapitalization was first mooted, the largest banks in the country had combined market capitalization amounting to N4.2 trillion. However, in just a month (January 2024), banks like Access Holdings, FBN Holdings, GTCO, UBA, Zenith Bank, reached the N1 trillion capitalization mark owing to investors’ appetite.

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Although there are a number of ratified capital raising from shareholders of some companies, it is estimated that right issues could hit billions of dollars, however, there are growing concerns that the economy might not soak the expected capital raising pressure.

Appointment of a new SEC board

In a bid to bring about a renewed focus on transparency, accountability and investors’ protection, Tinubu gave a nod to the appointment of Emomotimi Agama as the new Director-General of the Securities and Exchange Commission (SEC).

According to the Special Adviser to the President on Media and Publicity, Ajuri Ngelale, Tinubu also appointed Lairiga Katuka as SEC’s board chairman. The spokesperson also stated that Frana Chukwuogor was appointed as the Commission’s Executive Commissioner (legal and enforcement); Bola Ajomale, Executive Commissioner (operations); Samiya Usman, Executive Commissioner (corporate services).

Tinubu further approved the appointment of Lekan Belo and Kasimu Garba Kurfi as Non-Executive Commissioners. Ngelale added that the president anticipates the SEC board will bring to bear their wealth of experience and competence in advancing the commission’s core mandate.

No doubt, “Tinu-Bull” have characterized the performance of the nation’s bourse in at least nine months and there is no doubt that his first year in office has been marked by blend of achievements, however, challenges like listings, long term financing still remains, which may mean that the policy advisory team target of 25 per cent stock market contribution to the country gross domestic product (GDP) within 18 months might not yet be achieved.

Experts react

The Chief Executive Officer, Arthur Stevens Asset Management Limited, Olatunde Amolegbe, while commending the reforms by the administration, said they changed the narrative about Nigeria’s stock market.

Amolegbe said, “It was very clear that something needed to change and financial experts over the years had called for the removal of the subsidy. We were using our reserves to boost the exchange rate which was draining necessary resources. It was also clear that we needed to stop and remedy the situation. There have been pains but the stock market has been able to factor all that and performed admirably well in my own opinion.

He has a word for the President and what he needs to do to address bearish sentiments.

“Some things need to be fixed. We want President Tinubu to do more regarding the privatization of public enterprises. There are lots of public enterprises that would have been doing much better and serving the country much better if they were privatized.

We need to increase the pace of privatization so that these public companies can be more efficient, more profitable and help in distribution of wealth among Nigerians.

The more you privatize these companies, the better you are able to distribute wealth. This is because Nigerians would be able to participate in them and earn dividends in return. By now I would have expected the government to create a roadmap that would ensure that the DisCos, Generation companies, NNPC and the likes move towards privatization”.

He further called on the FG to prioritize raising long-term finance for infrastructure projects from the capital market rather than relying on borrowing for projects with lengthy gestation periods as this aligns with global best practices and can contribute to sustainable economic development.

According to him, Nigeria’s low market capitalization to GDP ratio indicates underutilisation of the capital market.

“Increasing this ratio to 70 per cent can significantly boost economic growth and infrastructure development. Developing the capital market is crucial for achieving the government’s target of a $1 trillion economy”, Amolegbe explained.

For his part, the Vice Chairman, Board of Directors, Highcap Securities, David Adonri, said that while investors have benefited from the bullish market conditions, corporate issuers have not fully capitalized on the favorable environment.

Adonri noted that this disjunction suggests a need for greater alignment between market performance and corporate activity.

His words, “The Nigerian Capital Market has been an extremely profitable, liquid and safe investment outlet in the past one year. However, it did not deliver to the expectation of corporate issuers. If fundamentals of the economy and the capital market becomes stronger, investors’ confidence will remain high. Resolution of the crisis around trapped investor’s funds is a vital ingredient to bringing back many disillusioned foreign investors to the market”.

He also stated, “The economy across board currently suffers from under capitalization. It is the duty of the Capital Market to mobilize the capital required to re-capitalize the entire economy. This is possible if investors’ confidence is high and macroeconomic policies are enabled.

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