The year 2020, no doubt, will remain peculiar in the annals of the Nigerian capital market, and indeed all sectors of the economy, both locally and globally.
The novel coronavirus disease (COVID-19) bore its fangs across the world in 2020, so much that the World Health Organisation declared it a pandemic in March.
It forced lockdowns across the globe, with the attendant effect on lives and livelihoods; leaving economies of nations shrinking and contending with falling oil prices, among others.
Across the world, government-ordered the closure of companies and offices, caused postponement of the Annual General Meetings (AGMs) of publicly quoted companies and job loss, among others, with Nigeria not left out after recording the index case in February.
This shattered the dreams, projections and expectations of many businesses, corporates, local and foreign investors.
The pandemic, with its huge negative impact on economies, led to emergency lifestyle adjustments, with countries thinking outside the box as they grappled with partial or total lockdown.
This led to the adaptation to the ‘New Normal’ with many countries updating their regulations through the aid of technology, to ensure business continuity at the peak of the COVID-19 pandemic.
Consequently, adoption of virtual Annual General Meetings (AGMs) in response to the stay-at-home orders and ban of gatherings, became the order of the day, allowing quoted companies greater freedom to hold their AGMs.
Some of the countries that updated their regulations to allow quoted companies to hold virtual AGMs or AGMs by proxy are Nigeria, Spain, Switzerland, Austria, and the United Kingdom.
In spite of these challenges, the Nigerian capital market, contrary to performed beyond expectation to record the best performance in six years, and wiping off the negative performances achieved in 2019.
According to analysts, the market was positively impacted by policies introduced by the Central Bank of Nigeria (CBN), which favoured the stock market.
Records of trading on the NSE as of Dec. 29, 2020 showed that the equity market rose by 45.70 per cent year-to-date when compared with a loss of 14.60 per cent achieved in 2019.
At the close of transactions on Dec. 29, the All-Share Index of the Exchange during the review under period rose by 45.70 per cent year-to-date to close at 39,110.17 against the opening year index of 26,842.07.
Also, the market capitalisation which opened for the year at N12.958 trillion inched higher by N7.49 trillion to close trading on Dec. 29 at N20.446 trillion.
Commenting on the market performance in the period under review, Uche Uwaleke, a financial economist and Professor of Capital Market at Nasarawa State University, Keffi, said the capital market fared better in 2020 compared to 2019.
Uwaleke observed that the primary market segment of the bond market was actively enabled by the Federal Government bonds which were oversubscribed in most instances, an indication of strong investors’ appetite.
“Regarding the equities market, although the primary segment was relatively inactive, the secondary market segment proved to be quite bullish, especially in the last quarter of 2020 to the extent that the year to date return rose in excess of 40 per cent, way higher than the 2019 performance.
“The major challenge the capital market witnessed this year was the COVID-19 pandemic and the fall in crude oil price which negatively affected stock returns especially in the first and second quarters of 2020.
“Little wonder, the worst performing month of the year was in March when the NSE All- Share Index lost over 18 per cent.
“Also, the severe contraction in real GDP in the second quarter, coupled with rising inflation and foreign exchange pressure, was a drag on primary issues in the stock market.
“For me, the biggest factor that pushed up the stock market in 2020 has been the CBN policies which fostered a low interest rate environment making investments in the fixed income market less attractive.
“Not surprising, investors have shown preference for stocks where average returns have been above inflation rate,” Uwaleke said.
According to him, other factors that impacted positively on the market were; some positive global and local reports of the gradual recovery of crude oil prices, the COVID-19 vaccine discovery and the early presentation of the 2021 appropriation bill by the National Assembly.
Uwaleke said that the COVID-19 stimulus packages from the government and the CBN, the containment of the first wave of the pandemic and early lifting of restrictions and lockdowns contributed to the stock market growth.
“Another notable favourable factor was the measures put in place by the regulators namely the Securities and Exchange Commission and the NSE in response to the pandemic which ensured business continuity,” he said.
Speaking further on the capital market outlook for 2021, Uwaleke predicted that positive sentiments would likely prevail on the average on account of the early passage of the 2021 appropriation bill, sustained low interest rate environment and increase in credit to the real sector enabled by the CBN policies.
On the external front, he said that the recovery in crude oil prices, the Brexit deal between the UK and European Union and the roll-out of COVID-19 vaccine would be positive for the stock market in particular.
“The 2021 budget has huge fiscal deficit of over N5 trillion to be financed largely via domestic borrowing.
“This means the primary segment of the bonds market promises to be active in 2021.
“Similarly, compared to 2020, the primary segment of the equities market will be relatively active from companies in the financial sector in particular seeking funds to meet recapitalisation requirements.
“The major risk to this outlook will be the intensity and spread of the second wave of the pandemic, the impact on crude oil prices and how early, following Joe Biden’s presidency, that the US Federal Reserve begins interest rates normalisation.
“Insecurity poses a key downside risk on the domestic front.
“All these will dictate the level of foreign investors’ participation in our markets and by extension capital flows,” Uwaleke stressed.
To Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., the nation’s stock market recorded the best performance in six years to surpass 2017 return of 42.30 per cent.
Omordion attributed the development to positive sentiment and high liquidity in the system that supported the market, in spite of the weak economic fundamentals as a result of the coronavirus outbreak that affected global and domestic economy.
He said that the equity market recorded strong recovery after touching an 11-year low due to panic selling on the news of coronavirus which entered the country on Feb. 27.
“The market rebounded in April 2020 on oil prices recovery in the international market, impressive corporate actions, positive sentiment, high liquidity due to the CBN monetary policy that crashed rates to provide private sector cheaper funds to drive economic recovery and growth, undervalued state of the market.
“The challenges for the market in 2020 were many but some turned to be a plus for the market in the interim but serious threat to the economy.
“The rising inflation and policy inconsistency or somersaults such as hike in electricity tariff and pump price of petroleum that further drove headline inflation rate throughout the year under review,” Omordion said.
He noted that in spite of the disconnect in the economy, government and the apex bank had continued to intensify their intervention efforts by extending bailouts to other critical sectors to mitigate the effects of the coronavirus pandemic.
“This is expected to quicken economic recovery as shown by the recent marginal improvement in macroeconomic indices, which supported the stock market as companies in critical sectors rebounded with better performance and stronger numbers.
“The 2021 outlook is mixed in the sense that it looks positive and dicey at the same time, considering the second wave of COVID-19, in spite of the ongoing discovery of more vaccines.
“Government should make policies to encourage more listing to deepen the market in order to play its role of driving the economic development by providing platform for long-term borrowing.
“Regulators should protect investors and collaborate with research companies to provide proper investment and financial education to attract more participants to the market.
“Government should reduce the cost of trading or transaction cost to encourage and attract investors and as well ensure enhanced security of lives and property,” Omordion added.
