Nigeria's stock market, world's worst in 1st Qtr — Report
Written by Omoh Gabriel
Thursday, 02 April 2009


LAGOS — THE Nigerian Stock market has been described as the worst performing stock market in the world in the first quarter of 2009 by Bloomberg, a New York, US-based financial information network.
In a report posted on its website yesterday, it said “Nigeria’s stock market, Africa’s best performer during the past decade, posted the biggest declines worldwide in the first quarter as bad loans to speculators pushed bank valuations to an all-time low.”

But stock brokers and investment experts said the Nigerian market, if viewed by an outsider from the point of price movement only may be tempted to reach the same conclusion as Bloomberg.

According to Mr. Peter Amah, General Manager DEAP Capital, an investment company, it is true the Nigeria capital market has witnessed huge decline in price movement.

“From March 2008 to March 2009, the prices of shares in the market on the average may have lost about 75 per cent of their value while between January 2009 and March, the prices have declined by about 37 per cent.

“In this regard,” he said, “the report may be correct. But price movement is only one of the many parameters of evaluating a market,” he said.

According to him, when you see the activities going on in the market in terms of the volume of shares traded the market is very vibrant and performing its function as a stock market. He said that what many analysts fail to look at in their reporting of the Nigeria market is the performance of the listed companies at the exchange. He said that the companies are still declaring dividends which show that they are strong on ground.

Using the example of Skye Bank, he said the company has just released its dividend payout which is about 50 kobo per share. Matched with its current share price of about N4, the dividend is about 20 per cent return on investment.

He argued that if the bank sustains the present level of performance, any investor buying the share now will reap about 20 per cent next year. He further argued that in most developed and emerging economies, the highest return an investor will get is about 5 per cent. In this respect he said the Nigeria capital market can not be the worst performing in the world.

Another broker with First Securities Limited, reacting to the Bloomberg analysis told Vanguard that the market has stabilised and will now be moving upward, despite government’s refusal to aid the market. He said in the developed and emerging markets, many governments have risen to the occasion of bailing out their capital markets.

If other markets are performing better than that in Nigeria, it is because of the intervention of governments in those regions to bolster investors’ confidence in the market. He said that confidence is returning to the Nigerian market going by the increased activities in the market on daily basis.

Bloomberg in its report on the Nigeria capital market said “The Nigerian Stock Exchange All Share Index fell 37 percent this year, the steepest quarterly decline in more than a decade and the worst of 89 benchmark indexes tracked by Bloomberg. Stocks in Africa’s largest oil-producing nation reached a five- year low last week, even as a rebound in crude spurred gains in commodity-exporting countries from Russia and Norway to Brazil.

“Investors have been fleeing ‘the good, the bad and the ugly’ of the financial industry since Nigerian regulators allowed banks to delay booking losses on so-called margin loans backed by shares, emerging-markets brokerage Renaissance Capital says. The lack of disclosure left investors unable to identify potential losses.

The All Share Index may fall another 9 percent, according to Moscow-based Renaissance and London-based Exotix Holding Ltd.

“Without meaningful disclosure investors will be hesitant to come back, especially in the financials,” said Christopher Hartland-Peel, an equity analyst at Exotix. “No one can really tell how the companies are faring”.
According to the report “Lenders (banks) may be holding as much as $10 billion of toxic assets, equal to about half of their capital, according to Eurasia Group, the New York-based research firm that publishes the Global Political Risk Index with Citigroup Inc. Banks have provided at least 1 trillion naira, $6.8 billion, of margin loans to allow investors to buy shares, Bank of America Corp. said in a report last week”.

1.5% slow growth for economy

The report further said “Growth of Nigeria’s economy may slow to 1.5 per cent this year because of lower revenue from oil, which accounts for 20 per cent of gross domestic product, according to Standard & Poor’s.

The naira weakened 20 per cent against the dollar since Nov. 26, when the Central Bank of Nigeria began limiting the supply of foreign exchange to banks to protect foreign reserves. Renaissance and Exotix expect the All Share Index to drop to 18,000 from yesterday’s closing level of 19,851.89.

“The market has a daily turnover of between $10 million and $20 million and a total capitalisation of $30.1 billion, according to Renaissance and UBA Capital, the brokerage unit of Lagos-based United Bank for Africa Plc. That compares with an average turnover of $30.2 billion a day this year on the New York Stock Exchange and a U.S. market capitalisation of $9.26 trillion, Bloomberg data show.

“Lenders (banks) make up about two-thirds of the Nigerian stock market, the largest proportion among the 50 equity indexes worldwide that are grouped in industries by Bloomberg and MSCI Inc. Banks accounted for four of the five worst performers this year among the 20 biggest Nigerian stocks by market value.

“UBA Capital says the retreat in stocks creates buying opportunities, including Nigerian Breweries Plc, the nation’s biggest beer maker by volume, and Lafarge WAPCO Plc, a unit of the world’s largest cement company. Nigerian Breweries lost 9 per cent this year after falling 16 per cent in 2008. Lafarge dropped 42 per cent after a 68 per cent slide last year."



http://www.vanguardngr.com/content/view/32627/42/