Some measures have been taken to revamp the capital market, all to no avail. It remains bearish. Against the backdrop of last year’s losses, operators are suggesting a way out, Tonia Osundolire reports.
For sometime now, all has not been well with the capital market. It has been losses all way each year. With more than 16 per cent average loss last year, stakeholders are looking up to the 2012 business year with high hopes. So, what will help the market to rebound and soothe the pains of investors?
Regulator's perspective
Chief Executive of the Nigerian Stock Exchange (NSE) Mr Oscar Onyema, at his maiden briefing, said government’s policy would boost the growth of the market.
He said the deregulation of the downstream sub-sector, which is expected to transform the economy in terms of growth, will impact on the capital market, when the Petroleum Industrial Bill (PIB) is passed into law.
On
yema explained that although the crisis in the Euro zone will affect major economies around the globe, "it provides concern for us at the capital market. It will, however, provide growth opportunity for Africa and other emerging markets."
Brokers’ position
The Chief Executive Officer of Partnership Investment Company Limited and a council member of the NSE, Mr Victor Ogiemwonyi, said, basically, the most important thing now is for the Federal Government to maintain its debt profile because the more debts pile up, the more they crowd out the private sector which will, ultimately, affect the capital market.
However, he said just as people clamoured for the Assets Management Company of Nigeria (AMCON) which was used for the banks, the government should also use the first investment of the Sovereign Wealth Fund (SWF) to bail out the capital market.
He explained that by buying equities at current prices, investors will get value for their money for a long time. Besides, he said the government has all it takes to bail out the capital market.
"They have the long-term perspective that is required; they have the resources to do it. That will give pep and understanding if the Federal Government demonstrates such confidence in the market. That will be a way to revive the confidence of investors quickly", he said.
Also, Ogiemwonyi said another policy to be considered is privatisation of key industries of the government, such as Nigeria National Petroleum Corporation (NNPC) and various affiliates.
Besides considering government policies as a way for the market to return to profitability, Ogiemwonyi mentioned the National Association of Securities Dealers (NASD) as another alternative for the market to thrive.
OTC platform
Ogiemwonyi, who is also the chairman of the technical committee of NASD, said it was incorporated in 1998 specifically to offer an over the counter trading (OTC) platform for the securities dealers of Nigeria.
He said the NASD is meant to compliment the NSE, adding that most of the securities that will be listed there are those that are unlisted on the floor of the NSE. "They are either not listed on the NSE or in the process but yet to meet the NSE requirements".
Shedding more light on NASD, he said what the organisers are doing in effect is trying to make the market bigger by attracting more securities that are not listed. "It will also create a better business environment. We are getting more approvals because more entrepreneurs are starting businesses, but along the way they don't have the right capital to pursue. They have very good ideas, services, the market but no fund. We believe NASD will provide this kind of platform in addition to what the NSE is doing," he said.
Explaining the importance of the Exchange, he said there is no doubt that the banking and insurance consolidation would have been nowhere without the NSE, so NASD is another expansion of what the Exchange does.
As an OTC trading market, he said NASD tends to have features that make it a little more flexible. For instance, he said NASD would be a multi-product platform trading all securities from bonds to equities, to fixed income and money market instruments such as commercial papers. The idea, according to him, is that what the market does generally is to create transparency for people who want to invest to buy and sell.
He said the NASD is very difficult to manipulate because the decision to pay for it is very transparent. For instance, he said right now, there are many securities that are trading outside the market, that one cannot really determine their prices. Citing such companies that are doing very well in this category, he said WAMCO and MTN’s shares are trading in the off market and people buy at different prices because they have no way of knowing what the real price is.
But if they operate on a market platform where everybody bids and offers for it, he said what will be created is price discovery. "Price discovery usually brings about a better investors' confidence because they know that they can buy something that has a market for it and at a reasonable price that it is most likely to trade in the market," Ogiemwonyi said. He said the aim is make NASD well situated to add to the canvass of securities trading in Nigeria.
Because of the fact that the NSE is a first-tier market, there are some organisations that have been there for a long time. There are some rules that have been since its existence. However, he said that is not to say there are going to be rules that are substandard. What NASD will try to do is probably to see where there are bureaucratic processes that can be reduced. For instance, don't forget that every security before it becomes a security whether it is listed on the NSE or -the-Counter (OTC)has to be approved by SEC.
NASD will also be committed to some of the best practices that the NSE is practicing. It is just expanding the canvass, especially now that business is so low. It will encourage more people to come. "We are going to create investors who are coming into the market for the first time maybe because NASD instruments and processes are newer. It will give an opportunity for a wider range of products to be invested in," he said.
Besides, Ogiemwonyi noted the NSE has tried to re-strategise. He said in terms of rules and operation, the NSE is different from what it used to be.
Furthermore, there are also new products, which have been giving people enough variety. Recently, ETF was introduced even if it will take a long time for people to get used to. It is a virgin instrument that has gold behind it and some people will prefer it more than the equities that don't have a specific asset behind it.
However, he said the sanitation exercise at the Securities and Exchange Commission (SEC) has rid the industry of some of the bad elements and market has also done some cleansing. These developments he said, has made some stock brokering firms to go back to the drawing board to trim their cost. "We call it adjusting to market changes, this affects everywhere. Cost for entering and trading in the market is a lot cheaper today, whether it is SEC or NSE cost or commission, they are a lot cheaper than they were a few years ago. All these are attempts to revive the market," he said.
Consequently, he said the stock market is still the most viable investment outlet for anybody who has the money to invest for a long term. "We are going to see it revive over some time. However, the only threats are insecurity, unemployment, inflation and large uncontrolled government expenditure. All these portend bad signal for the market. There is also fear of uncertainty," he said.
Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Mr Emeka Madubike, advocated the deregulation of all sectors of the economy. He said if properly done, it would open up the space for private people to invest provided there is a level playing ground.
According to him, one of the things that will hold the market down anywhere in the world is inconsistent policies; policies that are not investor-friendly and those that are not transparently executed. With this kind of environment, he said local and foreign investors are not sure.
Besides, he mentioned insecurity, stressing that this would scare away investors.
"How do you look at the future? If I put my money down today, what happens tomorrow? But when you have a situation where you don't even understand what is going on, it looks like a group of violent people are more like an alternative government. They do whatever they want without anyone really taking charge. This is a problem," Madubike said.
Noting that every economy is driven by small-scale enterprises, he said the government has to ensure the environment is conducive for small-scale enterprises to flourish.
Commenting, CEO, Lambeth Trust & Investment Company Limited, Mr David Adonri, said NASD is an OTC platform for trading in short-term and long term securities.
According to him, huge opportunities abound for the platform to be successful considering the large number of public companies that do not have their securities trading formally. Because the Nigerian capital market is still at its infancy, further room exists for expansion of products and services across the length and breadth of the market," he said.
Adonri said the efficiency of the capital market can be enhanced if competition is introduced into all areas. This, he said, is the basis of recommendation by the Dennis Odife panel for existence of multiple stock exchanges and capital trade points in Nigeria.
He added that for the equities market to become attractive to investors, domestic macroeconomic policies have to be reviewed to drive down interest and inflation rates to single digit.
