NSE’s Bold Step in the Right Direction

LAGOS – Eromosele Abiodun writes that the bid by the Nigerian Stock Exchange (NSE) to move from frontier market to emerging market status is a bold step that will determine the future of the capital market

During a news briefing on the 2013 market recap and outlook for 2014 in Lagos recently, the Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, announced that the Exchange will in the course of the year pursue key initiatives aimed at propelling the NSE into the emerging markets.

He said he expect Nigeria to be a key beneficiary of the MSCI 2013 annual market classification review, which will see Qatar and UAE’s (together accounting for 30 per cent) transition from the MSCI Frontier Markets Index to the MSCI Emerging Markets Index.

“Cautiously, we will watch for the effects as Nigeria’s weight in the MSCI Frontier Markets Index shifts from the current 13.8 per cent to 19.7 per cent, making it the second largest market in the index, ”he said.

In growing the capital market in preparation for achieving emerging market status, Onyema said the NSE would in 2014 facilitate access to and participation in the market, increase its footprint on the continent, and deploy a risk framework to safe-guard the market value.

Specifically, he said the NSE plans to increase the number of new listings across five asset classes, operate a fair and orderly market, based on just and equitable principles, and diversify income streams, among other things.

Achieving that, according to him, will involve introducing new products such as a premium board, adoption of Generation ‘Y’ trading tools, and introducing a world-class surveillance programme, among others.

The NSE also plans to champion the development of enabling laws and policies to drive capital market development in 2014.

NSE Indices Formulation
The effort to make NSE a global market actually started a long time ago when the first market index in Nigeria was formulated 24 years after the founding of the NSE. Called the NSE All-Share Index or ASI, it was formulated in January 1984 with a base value of 100. Only ordinary shares are included in the computation of the index.

The index is value-relative and is computed daily. Over thirty years after the introduction of the ASI, the Exchange introduced the NSE-30 Index, which is a sample-based capitalisation-weighted index plus four sectoral indices to complement existing indices. These are NSE-Food/Beverages Index, (Later renamed NSE–Consumer Goods Index) NSE Banking Index, NSE Insurance Index and NSE Oil/Gas Index.

Recently, the NSE introduced the NSE Industrial Index as part of key initiatives to drive market optimisation. The Industrial Goods sector, which has about 100 prospects in pipeline that may possibly list on the bourse, consists of four sub-sectors with 27 companies listed in the sector, which contributes to 28 per cent of total market capitalisation.

The sector has not been able to contribute its quota effectively to the Nation’s GDP due to some key issues affecting the sector e.g. poor infrastructures, influx of sub-standard and proliferations of smuggled goods, unfavourable import tariffs along with inconsistent government policies. According to the key players in the sector, all these have hindered the desired growth in the industrial sector.

A New Level
To further enhance the NSE’s chance and drive the market towards achieving its $1 trillion capitalisation plan, the NSE last year introduced a new NSE Industrial Index made of 10 companies selected from a total of 27 companies listed in the sector.

The selection was based on market capitalisation, liquidity, full year returns of 40.36 per cent in 2012 and year-to-date (YTD) returns of 41.18 per cent when it was launched 2013.

The foundation member of the index are Ashaka Cement Plc, Nigerian Bag Manufacturing Company Plc, Dangote Cement Plc, Lafarge Cement WAPCO Nigeria Plc, CAP Plc, Cement Company of Northern Nigeria Plc, Berger Paints Plc, Cutix Plc, DN Meyer Plc and Portland Paints & Products Nigeria Plc.

Experts had told THISDAY at the introduction of the NSE Industrial Index that it was timely because the existing market indicator, the NSE-30, is more or less a price-weighted average, which gives higher-priced stocks more influence over the average than their lower-priced counterparts, but takes no account of the relative industry size or market capitalisation of the components.

Effort Already yielding Results
The introduction of the NSE Industrial Index also compliments the NSE’s listing drive. Over 100 industrial goods firms were said the be making plans to List on NSE following the introduction.

Onyema had while speaking at a sectoral dinner for industrial goods in Lagos recently revealed that the number of companies listed in the industrial goods sector of the NSE is set to rise as over 100 companies were eyeing listing on the exchange.

There are 27 companies that are currently listed in the industrial goods sector covering building materials, electronic and electrical products, packaging/containers, tools and machinery. The sector contributes 28 per cent to the total market capitalisation of the exchange.

The NSE executive officer, had told THISDAY at the dinner that the situation would improve soon because the Exchange was putting policies in place that will turn the sector around.

According to him, the exchange has made deliberate efforts to encourage new listings. He noted that those efforts are beginning to yield the desired results. Those efforts, he explained, were in the areas of business development, strong regulatory environment and technology.

“We have introduced value adding services, reviewed our listing requirements. The exchange has also introduced x-compliance report for companies and dealing members among other initiatives. All these are attracting attention of companies that have shown willingness to list on the exchange,” he said.

As part of efforts to make the industrial goods sector of the exchange more attractive for investors thereby encourage more listings, the NSE last week introduced the NSE Industrial Index.

The index, which comprises the most capitalised and liquid companies in the industrial sector, is designed to provide an investible benchmark to capture the performance of the industrial sector.

Onyema had explained that 10 out of the 27 companies listed in the industrial goods sector of the NSE were selected for the index based on their market capitalisation and liquidity.

He disclosed that any investor who had invested in industrial goods sector would have recorded a return of 40.4 per cent in 2012, noting that year-to-date, the sector has fetched a return of about 41 per cent.

Apart from the introduction of the index, the NSE will also re-launch its Alternative Securities Market (ASeM) in order to improve the performance of existing firms and encourage the listing of new ones.

Alternative Securities Market
As part of its expansion effort, the NSE had in June last year launched the Alternative Securities Market (ASeM), a market for emerging companies with high potential for growth in Nigeria.

The ASeM, is a specialised board on the Nigerian bourse where small to medium companies can access the capital market under less stringent rules and requirements to raise long term, low cost capital.

Onyema had told THISDAY at the launch that the NSE is a staunch believer in the critical role of emerging enterprises in a developing economy and as such we have taken the bold move of providing a platform for sustainable growth and development of these companies.”

The ASeM board, he said, will allow issuers, especially indigenous companies the opportunity to inject relatively low cost and long term capital into their businesses through flexible rules that recognize their growth potential rather than the size of operation.

Shedding light on the possibility of most of the companies expected on the ASeM board being without any professional guidance and therefore being unable to meet the post listing requirements of the Exchange, GM Listings Sales and Retention, of the NSE, Mrs. Taba Peterside, said: “Designated Advisers (DA) will be required for all companies listed on the ASeM Board of The Exchange to ensure compliance with all the requirements and obligations of the Alternative Securities Market.

The DAs, she added, will provide professional resources to qualifying companies for guidance and advice on securities-related matters.

Information gathered from within the Exchange revealed that the NSE has already completed the selection process for the DAs and is soon to name the successful applicants ahead of the official launch of the ASeM Board slated for later this month.


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