Investors in shares listed on the Nigerian Stock Exchange (NSE) in the last decade have had a rough ride. The NSE All Share Index (ASI) as at end of June 2011 was 24,980 and it closed at 37,907 on 30 June 2021, an increase of only 52% in ten years. In contrast, the S & P 500 Index, an Index of the largest 500 publicly listed companies in the United States, increased by 221% during the same period. Clearly, an increase of only 52% in ten years in a frontier market like Nigeria, that ought to have higher returns, is unacceptable.
The weak performance is even more glaring when the value of the Naira is taken into account. According to data from Central Bank of Nigeria, official exchange rate end of June 2011 was N155 to $1, while it is currently N410 to $1, a depreciation of 165%. And then there is inflation which has averaged approximately 12% annually in the last decade. Thus, investors have lost money if returns are adjusted for inflation or converted to dollars.
Over a long period, the stock market reflects the trajectory of the economy. It is no secret that the Nigerian economy has been struggling in the last six years, with real GDP growth averaging less than 1% per year. Therefore, the weak performance of the NSE is not entirely surprising.
I have been investing on the NSE since 1996. The crash in 2008 to 2009 did not scare me away. However, I have had to reconsider my faith in the market in the last two years. The weak performance is so obvious that I can no longer pretend that firms listed on the NSE present good value for long term investors compared to say, for example, firms listed on the NYSE and NASDAQ.
A decade ago, the weak performance of the NSE will not have mattered to the fortunes of the NSE as it does today. This was because the risk of capital flight from Nigeria to other countries was low compared to now. Innovation by Nigerian financial technology firms now enable ordinary folks to easily invest in foreign stocks on NYSE, NASDAQ and others. This development does not augur well for the NSE. As not only have foreign investors reduced their interest in Nigerian listed firms on account of the weakening Naira, Nigerians are also, in large numbers, now investing in US stocks. The only way the NSE can become more vibrant is if economic growth accelerates. Alas, there is no sign of that happening anytime soon. In the meantime, Nigerians will continue to move their funds out of the country in search of better returns.