The activities on the Nigerian Stock Exchange (NSE) in the last quarter were on bearish trend. In this piece, KAYODE OGUNWALE looks at performance of the stocks during the third quarter.

WHILE the shake-up in global markets has left few countries unscathed, the emerging markets asset class has been well positioned to weather the global economic crisis. Sound macro fundamentals and stimulus measures helped emerging market countries address the global financial crisis.
But the story is not the same in the Nigerian capital market which shows major decline in third quarter of 2010. With comparable emerging market economies showing just a 6 per cent gain, Nigeria’s stock market has lost more than 8.5 per cent during the third quarter of the year 2010.
The stock market sustained the declining trend attributed largely to investor pessimism, decline in corporate performance and the increased returns on money market investments.

Market Turnover
The All-share Index (ASI) dropped to its 8 month low. The market recorded a turnover of 4.84 billion shares valued at N47.25 billion in 117,366 deals during September in contrast to a total of 5.3 billion shares valued at N46.91 billion exchanged during August in 142,594 deals. Consequently, while the value of trades rose by 0.7 per cent when compared with August, trading volume and the number of trades (deals) dropped by 8.1 per cent and 17.7 per cent, respectively. In August, trading volume and value had declined by 31.1 per cent and 20.2 per cent, when compared with July while the number of trades increased by 6.2 per cent. Aggregate stock market turnover between January and September 2010 were 72.6 billion shares valued at N589.93 billion exchanged in 1,568,631 deals. In the comparable period during 2009, the market recorded turnover of 75.3 billion shares valued at N508.7 billion in 1,370,384 deals. In the third quarter of the year, spanning July to September, the stock market recorded transaction volume of 17.74 billion valued at N153 billion in 394,180 deals. This was a decline if compared with the second quarter when the market recorded transaction volume of 27.95 billion valued at N245.2 billion in 559,532 deals.
During the third quarter, the banking sub-sector was the most active (measured by turnover volume) with traded volume of 9.8 billion shares valued at N78.1 billion exchanged in 210,134 deals. The Insurance sub-sector was second with traded volume of 2.2 billion shares valued at N2.23 billion exchanged in 16,521 deals while the conglomerates sub-sector was third with transaction volume of 984.33 million valued at N9.11 billion traded in 14,953 deals. Food/beverage and tobacco sub-sector was fourth with transaction volume of 663 million shares valued at N17.35 billion traded in 38,767 deals and the mortgage companies sub-sector was fifth with transaction volume of 442.44 million shares valued at N277.2 million traded in 2,692 deals. Between January and September, the banking sub-sector was the most active sub-sector status with traded volume of 36.9 billion shares valued at N330.84 billion exchanged in 663,191 deals. The Insurance sub-sector was second with traded volume of 12.13 billion shares valued at N13.22 billion exchanged in 88,616 deals while the food/beverage and tobacco sub-sector was third with transaction volume of 3 billion valued at N60.5 billion traded in 137,922 deals. Information communication and technology sub-sector was fourth with transaction volume of 2.4 billion shares valued at N4.7 billion traded in 12,097 deals and the mortgage companies sub-sector was fifth with transaction volume of 2.45 billion shares valued at N1.5 billion traded in 11,590 deals.

Market Capitalization
The market value of the 264 listed securities closed at N7.83 trillion, down by 2.2 per cent from N8.00 trillion in August. market capitalisation had dropped by 4.42 per cent in August. As in July, the decline in market capitalisation in September can be attributed to the decline in the prices of most equities. Seven sub-sectors recorded increased market capitalisation of between 0.01 per cent and 9.76 per cent while twenty-four sub-sectors suffered reduction in market capitalisation of between 0.11 per cent and 26 per cent. Four sub-sectors did not record any change in market capitalisation.
However, in the preceding month, five sub-sectors recorded increased market capitalisation of between 1.83 per cent and 12.02 per cent while twenty-seven sub-sectors suffered reduction in market capitalisation of between 1.34 per cent and 20.6 per cent. Three sub-sectors did not record any change in market capitalisation. The stock market recorded a 9-month growth rate of 14.13 per cent and 11.6 per cent in equity market capitalisation and aggregate market capitalisation, respectively.

Still Room for Growth
Over the past 10 years, the emerging market asset class has been more dynamic and faster growing than the developed world. Looking ahead, we believe there are certainly more growth prospects for investors who are prepared to accept the risks and invest for the long term.
Maintaining growth and stability is certainly a top priority for emerging market countries.
Compared with when emerging markets portfolios first appeared some 20 years ago, the asset class is also better regulated and offers more transparency due to improvements in the legal and financial systems. Many economies such as China, Russia, and Brazil have also built up their foreign exchange reserves, which allow them to withstand market turbulence from developed economies.
Emerging markets are focusing on more companies in the financial sector.
Financial institutions in emerging markets have been a good source for growth because they were not as impacted as those in developed markets and did not have exposure to toxic assets such as sub-prime mortgages.
 
Stakeholders Opinion
Many believed that the last quarter of the year will be better than third quarter with on going reform on margin loan.
The stock market is information driven and every promoter of financial instruments has an obligation to ensure effective dissemination of information for enhanced investment decision.
A stockbroker who pleaded anonymity said that since Assets Management Corporation of Nigeria (AMCON) is a corporation that will provide succor and relief to banks it will definitely make positive impact on the market.
He stressed that, Nigeria’s banking sector accounts for nearly two-thirds of the stock market, so analysts are watching closely as Abuja moves toward recapitalising rescued banks. Banking sector reforms is include limiting capital market lending to a proportion of the bank’s balance sheet and prohibiting banks from using depositors’ funds for proprietary trading or venture capital investments.
 He says the key to keeping Nigeria’s stock market rally going is keeping these reforms on track.
“Whatever happens in the banking sector will really drive the rest of the market. So, I think in reality, it is really what happens to the banking reforms. Can the rescued banks be recapitalised? Can they get back on the path of growth?” he queried.