Tell Magazine

A gradual rise in the prices of shares and key indicators in the Nigerian stock market raises investors’ hope of a rebound

When Oscar Onyema, chief executive officer, Nigerian Stock Exchange, NSE, assured investors that the capital market would soon witness a growth at the presentation of an overview of the market last January, critics saw his projection as a tall dream. Not minding their scepticism, he explained that the fundamentals of the market were still strong enough to change the tide. Five months after, his projections seem to be coming through as major market indicators like the capitalisation and all-share index, ASI, are beginning to show signs of recovery. Trading activities are responding positively. The indicators have increased by 16 per cent in the first five months of the year. While the market capitalisation increased from N6.1 trillion in January to N7.15 trillion by the middle of May, the ASI, which measures the aggregate movement of share prices, increased from 20,730.63 points to 22,422.43 points during the period.

With this development, many operators in the capital market now tend to believe that the market is insulated from the verbal attacks that are going on at the public hearing of the House of Representatives on the near crash of the capital market. Some believe that the NSE is being driven by liquidity and investors’ confidence. Atiku Kafaru, managing director, Camry Securities, noted that investors are now more enlightened than they were during the boom period of 2008 when the market was at its peak. Rather than a slide, Kafaru says the indicators will rise further by the end of the year.

Kafaru’s projection may not be unconnected with reforms initiated by the management of the stock exchange. Last February, the NSE embarked on a move Onyema termed “a step towards stemming the constant slide of the major market indicators.” This initiative, anchored on the establishment of an Investors’ Clinic, a medium the exchange uses in addressing problems and challenges facing investors. This innovation has made investors like Taiwo Aina, a distiller based in Lagos, to reconsider investing in the market. He said that the clinic boosted his financial literacy level. “Through the clinic, I realised that it is profitable to buy shares when the prices are low and sell when they appreciate in the long term,” he explained. He also confirmed that the forum pursues a strong and prudent plan to enlighten different categories of investors, attend to their complaints and needs.

Other factors that are said to be responsible for the trend include the ability of the NSE to ensure that all operators in the market comply with the minimum operational standard and automation of financial reporting process. Shehu Mikail, national president, Constant Shareholders Association of Nigeria, explains that such measures were taken in order to curb infractions to the barest minimum. Such measures, he said, renew investors’ confidence in both the market and the management of the exchange. He is optimistic that the indicators will rise further if the measures are sustained.

It is also believed that the desire to build a world-class market with adequate product offering has re-energised the market. For instance, the listing of Exchange Traded Fund, ETF, a form of investment instrument that provides numerous possibilities worth N988 million on the exchange, has contributed immensely to the recovery of the market. The ETF gives investors the opportunity to spread investments, thereby lowering the risk of price crash by investing in a basket of stocks or commodities. According to operators, the new code of corporate governance for quoted companies introduced recently also fosters healthy competition among business institutions and economic development generally.

Mikail applauded the good corporate governance goals of the Securities and Exchange Commission, SEC, describing as a welcome development the suspension of 61 stockbroking firms from trading for their inability to raise their capital base to the regulatory requirement of N70 million. For him, the sanction placed on about 106 other market operators for various market infractions in 2011 is also an indication that the market is becoming more transparent. The operators were involved in different infractions. While 28 of them were suspended for violating various SEC rules, 78 were penalised for non-compliance with market requirements and another 42 for non-compliance with Anti-Money Laundering and Counter-Terrorism Financing law.

Assuring investors of greener pastures in 2012 and beyond, Onyema had expressed optimism that the federal government would ensure sustainability of its policies which will in turn attract both local and international investors, and bring in the much sought-after foreign direct investment, FDI, in the current fiscal year. Furthermore, NSE is pushing for foreign companies wishing to enter the Nigerian economy to be mandated to list on the exchange so as to allow Nigerians participate in the investments. “The objectives of growing the capital market and the domestic economy would remain a mirage without investors’ participation in the market,” Onyema reasoned.

The NSE boss added that his administration would develop the bond market and make other structural changes with a view to enhancing liquidity and deepening the market base. This will be in form of engaging in value-added service programmes, which would possibly impact positively on the market growth. The NSE is also aiming at optimising resources and making sure that all expenses embarked upon are beneficial to the exchange by way of looking at the intrinsic and extrinsic cost and value chain to benchmark the exchange’s sales against other exchanges around the globe.

To develop the market further, Onyema urged the federal government to hasten its steps towards introducing the Sovereign Wealth Fund, SWF. He explained that the exchange recognises the benefits of a SWF to the nation’s economy. To him, a major institutional investor like the SWF can help create stability in the markets, as foreign portfolio investors currently control about 80 per cent of market activities. “The SWF can help allay the fears of sceptics who argue that the market may not be able to absorb equity listings by major corporations, and it would play a major role in promoting greater investor confidence,” he disclosed.

Usually SWFs take long term where considerable investments in equities and fixed income securities are used to achieve long-term strategic financial goals. A majority of SWF practising nations structure their holdings to include large investments in the capital markets.  For instance, Onyema disclosed that the Government of Singapore Investment Corporation, GSIC, considered a ‘model’ fund and invests approximately 50 per cent of its holdings in equities, 30 per cent in bonds and 20 per cent in other types of investments, including real estate and commodities. “SWFs tend to purchase stock in listed companies that have performed poorly during the year preceding the investment, but stocks of companies receiving SWF investments increase by almost 1 per cent on the announcement of these investments,” he noted.

All things being equal, the exchange is optimistic that the capital market will enjoy a considerable level of growth by the end of the year. The management has assured that it would do everything possible to ensure that the market does not end the year on a downward trend. Laudable and ambitious as these projections are, various other factors related to the economy will determine how far the NSE can go in realising its target.

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Movements of Major Market Indicators from January 2012 to May 15, 2012

Movement in Price of Some Shares from January – May 15, 2012