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2022: How capital market will sustain positive momentum

Operators in the Nigerian Exchange Limited (NGX) have expressed optimism that capital market activities will maintain positive momentum in the first half of 2022.  Against…

Operators in the Nigerian Exchange Limited (NGX) have expressed optimism that capital market activities will maintain positive momentum in the first half of 2022.

 Against the backdrop of marginal economic recovery in 2021, Nigeria’s stock market recorded a slowdown in growth, but the performance indices remained in positive territories.

Though the sustained positive trajectory in the market was slower compared to that of 2020, but it surpassed the growth recorded so far in the nation’s economy by 2.04 percentage points.

Specifically, NGX’s All Share Index (ASI) which represents major performance benchmark rose by 6.07 per cent to close the year at 42,716.44 points from 40, 270.72 points at the close of trading in 2020, thus surpassing the nation’s Gross Domestic Product (GDP) by 2.04 percentage points.

Meanwhile, another major performance indicator, NGX market capitalisation, which shows value of the investments on the stock market, gained over N1.24trn Year-to-Date (YtD) to close the year 2021 at N22.3trn from N21.1trn at the close of trading in the year 2020.

Reacting to market expectations in 2022, Mr Olatunde Amolegbe, President, Chartered Institute of Stockbrokers (CIS), said the positive movement would be maintained in the first half of 2022 on the back of some factors.

Amolegbe listed the factors as good corporate performance in the first quarter, implementation of parts of the Petroleum Industry Act (PIA), expected to further raise government revenue.

He said the market would likely respond positively to the implementation of some part of the PIA.

According to him, the intense focus on infrastructure development is expected to spur both governmental and corporate capital raising, which will lead to increased market activity.

He said: “These will be hinged on stable macroeconomic policy, increased security and stable polity.

“Two years of positive returns go to show that the market is reflecting its function as the barometer for the economy. 

“The IMF had predicted positive GDP growth for the country for 2021, and the market had reflected this by closing at six per cent for the year. We also expect positive movement for the first half of 2022 on the back of a few factors.”

Also speaking, Mr Eguarekhide Longe, the Chief Operating Officer, NASD, said Capital Market Operators (CMOs) in 2022 needed to look less to the government as the beacon of economic progress.

Mr Longe said CMOs should be more creative in order to provide real solutions that would compel economic growth.

He further said, “2022 requires clear thinking champions dedicated to evolving and unlocking value from the ordinary day-to-day needs that continue to fester in our environment.

“It is in observing the individual personal struggles and crafting solutions to these that deep value-creating opportunities will be born in our capital market.”

Longe wondered why a company like Innoson Vehicle Manufacturers (IVM) was not being courted by CMOs to be listed on the market.

He noted that the key driver of the capital market in 2021, as would be expected, remained the macro-economic environment as dictated primarily by monetary policy.

“Fiscal policy options were largely constrained by the restrictive monetary policy and exchange rate environments.

“Thus, with yields in the fixed income market commencing a steep upward trend from the end of February 2021, the gains in the equities markets paled and began to become eroded, as investors switched to the preferred stability of guaranteed income returns.

“The long-awaited demutualisation of the Nigerian Stock Exchange was also a key driver of activities in the capital market. 

“The debt capital market continues to be the segment of the capital market that is nearly most connected to the dynamics of the Nigerian economy.  A good number of capital issues from green bond instruments to Sukuk offerings were successfully raised and issued via the FMDQ platform.

“There is an urgent need to entwine the capital market through all its segments; debt, equity, primary and secondary, into greater relevance to the Nigerian economy,” he said.

According to him, there are two challenges that need to be addressed in the Nigerian capital market; creating relevant content and identifying and building a database of investors to give effect to the content thus created.

“It did not take investors much convincing to buy into the MTNN offer for sale floated in November/December 2021.  MTNN is a story that the average Nigerian can relate to.  It touches the heart of retail Nigeria.

“Where are the agriculture propositions that can be floated on our capital markets that can effectively solve the scarcity of maize and soya beans which make the cost of poultry continue to escalate?

“Where are the financial advisers on our market who are asking the questions why can’t workers live in lower-cost housing in Ibadan and commute efficiently daily, to work in Lagos and return to Ibadan upon closing for the day.  

“The government has established the asset; it should be the job of the private sector to optimally utilise it,” he added.

Looking forward in 2022, analysts at Cordros capital said, “Given our expectation of yield elevation in the Fixed Income (FI) market and a heated political climate that characterizes a pre-election year, we expect risk-off sentiment for equities. That being said, we see corporate actions supporting market performance in H1’22, although buying activities may be constrained by expectations regarding monetary policy direction and developments in the political landscape.

Consequently, we expect a disconnect between improvement in company fundamentals and valuation multiples.”

Commenting, FSDH Research analysts say in their macroeconomic review and outlook for Nigeria: “The equity market in 2021 rode on the appreciation of the Oil & Gas Index on the back of the sustained increase in oil prices. The short-term outlook for the global oil market is challenged with the spread of the COVID-19 Omicron variant. This is expected to negatively impact the performance of the Oil & Gas segment of the NGX.  

“At the firm level, many large-cap companies listed on the exchange are reporting record performance in their 2021-9M reports, which will spill into their full-year performance and eventual dividend payment. Hence, it will drive positive sentiment towards the equity market in 2022.”

As a positive for the first quarter 2022, BUA Foods last Wednesday joined the league of listed companies on the Nigerian Exchange Ltd (NGX) with the listing of 18 billion ordinary shares at N40 per share.

The company is listed by introduction under the Consumer Goods sector of the NGX.

Accordingly, the listing of BUA Foods’ shares added N720 billion to the market capitalisation of the NGX, further boosting liquidity in the Nigerian capital market and providing opportunities for wealth creation.

It is expected that this listing would also increase the visibility of the food manufacturing, processing, and distribution company, BUA Foods, to investors on the African continent and across the globe.

Commenting on the listing, Abdul Samad Rabiu, Chairman of BUA Group said: “I am delighted that yet another member of BUA Group has been listed on the NGX.

“This shows our commitment to national economic growth and support for the food security drive of the nation in alignment with global sustainability goals.”

Also speaking, Mr Ayodele Abioye, the acting Managing Director, BUA Foods, said: “The listing today marks a new beginning for a company playing a critical role in the FMCG industry, one that’s highly committed to nourishing lives with all our product offerings.

“The listing resonates with our commitment to sustainable growth as we nourish and enrich the lives of consumers by delivering high-quality products at competitive prices.

“This listing creates an avenue for everyone to be a part of the success story of BUA Foods and benefit from the growth opportunities ahead.”

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