Although the tapering of the US quantitative easing programme is beginning to ruffle frontier and emerging markets, the Nigerian Stock Exchange (NSE) is looking to build upon a strong 2013 and further expand its appeal, cashing in on greater levels of transparency and a solid performance of the domestic economy to boost foreign participation.
On the face of it, 2013 may be a hard act to follow, with the NSE All-Share Index rising 47% last year, thanks to higher corporate earnings from leading firms, stronger portfolio investments and an improved regulatory regime that contributed to higher levels of investor confidence. The exchange’s oil and gas index performed even better, climbing 122.26% in the 12 months ending December 31, while the NSE industrial index jumped 81.34%.
Having grown strongly in 2013 on the back of positive domestic results, the NSE is hoping to lift its profile further afield in 2014. According to its CEO, Oscar Onyema, one of the key objectives of the exchange this year is to raise the level of foreign participation.
“While the NSE’s focus from 2011 to 2013 has been on restructuring, improving technology, product development, and advocacy for changes to policy, in 2014, we will shift gear to drive innovations centered on increasing global visibility in the Nigerian capital market, developing a larger footprint on the continent, and ultimately, targeting emerging market status,” Onyeme said in a press conference in January. “We believe that these steps are critical to NSE becoming the foremost securities exchange on the continent.”
The NSE’s drive to lift its profile has the backing of at least one international investor. In an interview with the Bloomberg news agency in mid-January Mark Mobius, the chairman of Templeton Emerging Markets Group, tipped Nigeria’s stock market to be one of the stronger performers among its peers during 2014. With the economy set to expand by 6.7% or more this year, well above the World Bank forecast for developing markets, the NSE could benefit from a combination of ingredients driving growth, Mobius said.
“Nigeria is very, very important,” he said. “You’ve got a vibrant and growing middle class, a big consumer population, a young population that will be consuming more and more.”
Emerging markets such as Nigeria will outperform developed countries in 2014, Mobius said, especially as investors come to understand the potential of frontier markets. This is increasingly the case as large-scale operators in sectors such as retail, telecommunications and finance expand into Nigeria, he added.
Though analysts may be predicting a strong year for the NSE, there are some potential clouds on the exchange’s horizon. Foremost of these is the end of the US Federal Reserve quantitative easing programme, which is expected to see capital flow out of development markets back to the US. The planned tapering of the Fed’s bond buying activities has already begun to increase churn in the markets, exacerbated by monetary turbulence in some of the larger emerging economies including South Africa and Turkey.
The NSE’s Onyema has warned that the end of the US monetary stimulus will affect foreign portfolio investment and result in some weakening of the naira against the dollar, primarily in the second half of this year.
Another issue to be contended with includes changes to key positions in the financial sector, with a new governor of the Central Bank of Nigeria due to be appointed in June. The incoming reserve chief will take over from high-profile incumbent Lamido Sanusi, who has been credited with cleaning up the banking sector. Although it is unlikely there will be a dramatic change in policy, this could prompt investors to hold off from buying too heavily into the markets, adopting a wait and see approach until a clear regulatory and monetary approach becomes apparent.
While the US Fed’s tapering will undoubtedly have an impact on the NSE, the exchange should see another performance in the black this year. Though it may struggle to reach the heights recorded in 2013, all indicators are that it will end the year very much in positive territory.
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