Capital Market Nigeria

Many investors have sat and watched in bewilderment as the value of their stocks plummeted, a reason I have been asked over and over if the stock market will ever recover from the losses that have been accumulated over the past eight months. To be specific, investors have lost nothing less that three trillion naira in terms of paper losses alone. I said paper losses because the losses you see in your portfolio are not real until you give a sell order to your stock-broker, stocks are volatile assets whose value can change within a few trading days.

REASONS FOR THE PERSISITENT DECLINE

1.   LOW INVESTOR CONFIDENCE: The bearish market which started in March has eroded the confidence of many investors, especially, those who entered into the stock market within the past two years. The peculiar thing about these new investors is the fact that a lot of them see the stock market as quick money making venture, and as you know, some of them have never witnessed such a long bearish period as we have witnessed within the past few months. It is also noteworthy that several investors had just begun to recover from the losses they sustained from wonder banks like Nospetco, Sefteg, etc; in 2007. I remember that such investors were condemned for being too greedy by stock analysts and they were admonished to limit their investment to stock market alone. So, at the beginning of 2008, we experienced a massive exodus of investors from the wonder banks to the stock market, but alas, the stock market has been crashing which have made such investors to resign from the investment world. This is no good news for all stakeholders in the market because all over the world, the confidence that investors have in a market determines how successful that market is since they are the ones who move the imaginary hand of demand and supply at all times.

2.   POOR IMPLEMENTATION OF POLICIES: Our regulatory agencies should take one or two punches for the current situation of things because they have been slacked in their approach to recent developments in the market. A stakeholders meeting was finally called on the 26^th August to find solutions to the current situation after six months of a bearish market. Since then some of the policies that were identified have either not been implemented or simply relegated to the background. The most important of this is the creation of a stabilization fund to stem the bearish trend whenever necessary, I don’t know how you look at it, but from my point of view, I think this issue should have taken priority over other policies because without funds that are needed to buy stocks, the stock market can simply not move, it’s as simple as that.

Dear friends, gone are those days that fundamentals count and investors are motivated to buy shares because of good quarterly and audited results published by companies. Investors are not moved by results again and if you want to contradict this argument, check what has happened to the likes of Fidelity Bank, Oceanic Bank, etc; since they declared their fantastic results. The truth is, things are not normal and desperate situations require desperate actions. In addition to this, the authorities have not addressed the investing public since August 26. I have reasons to respect the American spirit better within these past few weeks that the Americans have been hit by an unprecedented financial crisis. Within two weeks, the president of the USA, the Senate president, speaker and federal reserve chairman have addressed the American public four good times trying all they can to update Americans on the situations of things and the way forward but it’s not like that here, investors are always left guessing.

Another controversial policy is the introduction of a minimum one per cent drop in prices while allowing stocks to gain a maximum five per cent in a day; this has caused what some investors call a slow motion in the stock market, a situation that has made the sale of stocks even more difficult than in the past, this was supposed to be a temporary measure but I think it’s here to stay. The list of the number of inefficiencies from our regulatory agencies cannot be exhausted in one piece of article, it is better left as it is.

3.   GLOBAL FINANCIAL CRISIS: the Nigerian crisis actually preceded the ongoing global financial crisis which started in the USA with the collapse of big banks like the Lehman Brothers, Merrill lynch and WAMU. Stock markets all over the world are currently taking the beating of their lives. As a matter of fact, the Russians had to shut down their stock exchange for two trading days in September in order to arrest excessive decline in stocks. Last Thursday afternoon, I saw some investors protesting in the legislative house in Hong Kong because of the losses they have made on their portfolio. Don’t mind the CIBN and CBN which recently came out to say that we are immune to the global financial crisis; the truth is that we are not immune and I will state my reasons.

First, recall that we had touted the entry of foreign institutional investors who were planning to come into the Nigerian market as one of the factors that will lead to a bullish market in 2008, but at present, the JP Morgan, Merryl Lynch, or Barclays of these world won’t come into the Nigerian market for now because they have serious problems to contend with back at home. In fact, Charles Soludo, Governor of Central Bank of Nigeria recently shifted the blame for the recent market drop to some of these foreign investors who have pulled their funds out of the Nigerian stock market.

Despite all these challenges, it is not all gloomy for the Nigerian Capital Market because there is always light at the end of the tunnel, this market will definitely recover soon and the road to recovery will form the central theme of my article in the next edition. Watch out for it.