The year 2020 will undoubtedly remain peculiar in the annals of the Nigerian capital market and indeed in all sectors of the economy, both locally and globally.
The new coronavirus disease (COVID-19) carried its fangs around the world in 2020, so much so that the World Health Organization declared it a pandemic in March.
It forced closures around the world, with the consequent effect on lives and livelihoods; causing the economies of nations to contract and face falling oil prices, among others.
Across the world, government-ordered company and office closures led to postponement of Annual General Meetings (AGM) of publicly traded companies and job losses, among others, and Nigeria was not left out after registering the index case in February.
This shattered the dreams, projections and expectations of many companies, corporations, 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 full lockdown.
This led to adaptation to the ‘New Normal’ with many countries updating their regulations with the help of technology, to ensure business continuity at the peak of the COVID-19 pandemic.
Consequently, the adoption of virtual Annual General Meetings (AGM) in response to stay-at-home orders and the ban on meetings became the order of the day, allowing listed companies greater freedom to hold their AGMs. .
Some of the countries that updated their regulations to allow listed companies to hold virtual AGMs or AGM by proxy are Nigeria, Spain, Switzerland, Austria, and the United Kingdom.
Despite these challenges, the Nigerian capital market, while performing beyond expectations, posted the best performance in six years, erasing the negative returns achieved in 2019.
According to analysts, the market was positively affected by the policies introduced by the Central Bank of Nigeria (CBN), which favored the stock market.
Trading records on the NSE as of December 29, 2020 showed that the stock market increased 45.70 percent year-to-date compared to a loss of 14.60 percent achieved in 2019.
At the close of trading on December 29, the Stock Exchange’s stock index during the review period rose 45.70 percent year-to-date to close at 39,110.17 versus the opening year index of 26,842. , 07.
In addition, the market capitalization that opened for the year at N12.958 trillion rose little by little by N7.49 trillion to close operations on December 29 at N20.446 trillion.
Commenting on the market performance in the period under review, Uche Uwaleke, a financial economist and professor of Capital Markets at Nasarawa State University, Keffi, said that the capital market fared better in 2020 compared to 2019.
Uwaleke noted that the primary market segment of the bond market was actively enabled by Federal Government bonds that were overwritten in most cases, an indication of strong investor appetite.
“Regarding the equity market, although the primary segment was relatively inactive, the secondary market segment proved to be quite optimistic, especially in the last quarter of 2020 as the annual return to date increased by more than 40% , much more than the performance of 2019.
“The biggest challenge faced by the capital market this year was the COVID-19 pandemic and the fall in the price of crude oil that negatively affected equity returns, especially in the first and second quarters of 2020.
“It’s no wonder the worst performing month of the year was March, when the NSE All-Share Index lost more than 18%.
“In addition, the severe contraction of real GDP in the second quarter, together with the increase in inflation and exchange rate pressure, was a drag on primary issues in the stock market.
“For me, the biggest factor driving the stock market up in 2020 has been the CBN policies that fostered a low interest rate environment that made investing in the bond market less attractive.
“It is not surprising that investors have shown a preference for stocks where average returns have been above the rate of inflation,” Uwaleke said.
According to him, other factors that had a positive impact on the market were; some positive global and local reports on the gradual recovery in oil prices, the discovery of the COVID-19 vaccine and the early presentation of the 2021 appropriation bill by the National Assembly.
Uwaleke said the government and CBN’s COVID-19 stimulus packages, containment of the first wave of the pandemic, and the early lifting of restrictions and closures contributed to the growth of the stock market.
“Another notable favorable factor was the measures implemented by regulators, namely the Securities and Exchange Commission and the NSE in response to the pandemic, which ensured business continuity,” he said.
Speaking more about the capital market outlook for 2021, Uwaleke predicted that positive sentiments would likely prevail on average due to the early passage of the 2021 appropriations bill, the sustained environment of low interest rates, and the rise in credit at the real sector enabled. per CBN policies.
On the external front, he said the recovery in crude oil prices, the Brexit deal between the UK and the European Union, and the rollout of the COVID-19 vaccine would be positive for the stock market in particular.
“The 2021 budget has a huge fiscal deficit of more than 5 trillion naira that will be financed largely through internal loans.
“This means that the main segment of the bond market promises to be active in 2021.
“Similarly, compared to 2020, the main segment of the equity market will be relatively active by companies in the financial sector, in particular, seeking funds to meet recapitalization requirements.
“The greatest risk to this prospect will be the intensity and spread of the second wave of the pandemic, the impact on oil prices and how soon, after the presidency of Joe Biden, that the United States Federal Reserve begins to normalize interest rates.
“Insecurity poses a key negative risk on the domestic front.
“All of this will determine the level of participation of foreign investors in our markets and, by extension, capital flows,” Uwaleke emphasized.
For Ambrose Omordion, chief operating officer of InvestData Ltd., the nation’s equity market posted the best performance in six years to beat the 2017 performance of 42.30 percent.
Omordion attributed the development to positive sentiment and high liquidity in the system supporting the market, despite weak economic fundamentals as a result of the coronavirus outbreak that affected the global and national economy.
He said the stock market posted a strong recovery after hitting an 11-year low due to panic selling on news of the coronavirus that entered the country on February 27.
“The market recovered in April 2020 with the recovery of oil prices in the international market, impressive corporate actions, positive sentiment, high liquidity due to the monetary policy of the CBN that collapsed the rates to provide cheaper funds from the private sector to drive economic recovery and growth, state of the market.
“The challenges for the market in 2020 were many, but some became an advantage for the market in the meantime, but a serious threat to the economy.
“Rising inflation and policy inconsistency or somersaults, such as an increase in the electricity tariff and the pumping price of oil, further boosted the headline inflation rate throughout the year under review.” Omordion said.
He noted that despite the disconnect in the economy, the government and the main bank had continued to intensify their intervention efforts by extending the bailouts to other critical sectors to mitigate the effects of the coronavirus pandemic.
“This is expected to accelerate the economic recovery, as shown by the recent marginal improvement in macroeconomic indices, which supported the stock market as companies in critical sectors recovered with better performance and stronger numbers.
“The outlook for 2021 is mixed in that it looks positive and risky at the same time, considering the second wave of COVID-19, despite the continued discovery of more vaccines.
“The government must formulate policies to encourage higher prices to deepen the market in order to play its role in driving economic development by providing a platform for long-term loans.
“Regulators must protect investors and collaborate with research companies to provide adequate investment and financial education to attract more market participants.
“The government must reduce the cost of negotiation or the cost of transaction to encourage and attract investors and also ensure greater security of lives and property,” added Omordion.