The monetary policy committee (MPC) today cautioned that the Nigerian capital market remains structurally vulnerable to external shock. This is coming against the background of the conviction that recent growth experienced in the market is driven by foreign investors.
The committee which reviewed developments in the market in 2012, at its first meeting this year observed that there has been a rally in the market during the period with equities prices moving upward. According to figures released by the committee, the Nigerian Stock Exchange (NSE) AII-Share Index (ASI) increased by 35.45 per cent from 20,730.63 to 28,078.80 between December 30, 2011 and December 31, 2012. The Market Capitalization (MC) also grew by 37,38 per cent from N6.53 trillion to N8.97 trillion during the same period.
The committee noted that the positive performance of the ASI and MC was due to the sustained increase in the demand for blue-chip stocks particularly in the banking and consumer goods sector. It also stated that the growth followed improvements in the earnings of the equities as well as growth in investor-confidence.
The committee further noted that, “the significant factor responsible for the recovery was strong portfolio flows”. It therefore cautioned that, “The capital market remains structurally vulnerable to external shocks until its funding basis is changed”.
By implication, the committee is warning that unless some drastic actions are taken to balance the market structure such that local investors drive its growth, a report of the bubble that led to the collapse of the market in 2007/8 when foreign took away their funds due to crisis in their home country is imminent.
Meanwhile the Exchange appears not to be unaware of this fact as it recently published a data on its website indicating flow of investments from the external and internal sources between 2007 and 2012. The figure showed that Foreign Portfolio Index ( FPI ) flow, which stood at 15 per cent in 2007 consistently increased over the years to stand at 67 per cent in 2011. However, between January and August 2012, it was observed that domestic investors have increased their share in the market from 33.2 per cent in 2011 to 37.3 per cent in 2012.