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59 years after, stock market still bogged down by neglect, crisis of confidence, ill - Edoman - 10-05-2019
59 years after, stock market still bogged down by neglect, crisis of confidence, illiquidity
![[Image: Nigeria-Stock-Exchange.jpg]](https://guardian.ng/wp-content/uploads/2019/06/Nigeria-Stock-Exchange.jpg)
Nigeria Stock Exchange (NSE). Photo/rainbowfmPresently, increased volatility and illiquidity have continued to trigger persistent downturn in the Nigerian Stock Exchange (NSE), raising more questions regarding the timeframe for the end of the current weak performance.
Indeed, the persistent apathy and waning investor confidence that have bedeviled the nation’s stock market in the past few years continued to reflect on market indices and trigger persistent fall in share prices of listed firms as most bluechip stocks have fallen 10 year low.
According to the NSE, polls trading figures from market operators on their Domestic and Foreign Portfolio Investment (FPI) flows, domestic transactions in the nation’s bourse decreased by whooping 66.68 per cent from N3.556 trillion in 2007 to N1.185 trillion in 2018.
The country’s capital market has continued to trail behind that of peer countries. The flagship securities exchange, the NSE, is small compared to the major international exchanges, with a total market capitalisation of about N13 trillion, compared to the Johannesburg Stock Exchange (JSE) for example with equities capitalisation alone a little shy of $1 trillion representing over 280 per cent of South Africa’s GDP and over 380 listed companies not to mention the New York Stock Exchange (NYSE) whose market capitalisation is about $21 trillion with more than 2000 listed companies.
The current size of the capital market constrains its role in national economic development. Market liquidity as measured by trading volume and turnover is comparatively low.
The issuer base is not diversified. More specifically, industry composition in the stock market is concentrated in a few sectors namely Dangote cement, Nestle MTN Nigeria and Airtel Africa.
The major equity index (NSEASI) has significant weights in banking stocks, which are sensitive to business cycles. In contrast, agriculture and technology sectors critical for economic diversification take up a much smaller proportion.
Most of the systemically important corporations such as the International Oil are not listed on the stock market.
Foreign investors are significant players in the equities market often dictating the pace of market activity.
This leaves the market vulnerable to external shocks. Local institutional investors such as pension funds and mutual funds are less active in the equities market with asset allocation concentrated in government bonds and Treasury Bills generally considered safe and liquid.
How the nation’s stock market came into existence
The Nigerian stock market was established in September 15, 1960 with the establishment of Lagos Stock Exchange, which became operational in June 5, 1961.
In December 5, 1977, following the recommendation of the government financial system review committee of 1976, the Lagos Stock Exchange was renamed and reconstituted into the Nigerian Stock Exchange.
It is worthy of note that since 1977, there has been a decline in the share of government stock in the stock exchange.
The growth of government stock started decreasing while industrial equities and bonds as well as second tier securities market continued to increase yearly.
But the internationalisation of the market in 1995 accentuated the interest of the private sector investment in the stock market. Conspicuously, as government stock traded in millions during 1995 , industrial equities accelerated to billions .