As the bears continue to have a field day at the Nigerian Stock Exchange (NSE), calls on the Federal Government to intervene in the market have reechoed. CHRIS UGWU writes
While it is generally agreed that the Nigerian stock market, which is now 56 years in existence, has evolved to be one of the largest stock exchanges in Africa by capitalisation, some market watchers are also of the opinion that after a series of missteps from the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE), it is now becoming obvious that both regulatory authorities do not have a clue on how to tackle the bearish impasse in the market.
It would be recalled that during the boom period between 2007 and 2008, the market capitalisation of equities hit an alltime high of N13 trillion with 212 listed equities and the number of shares traded rose to about 18 billion. But after about nine years, precisely last weekend, the market capitalisation returned to all-time low of N9.560 trillion.
Unlike some of the markets in other climes, since the beginning of the economic meltdown in the mid 2008, the Nigerian market is yet to regain its confidence due to the loss suffered by investors and the inability of the market regulators to proffer a lasting solution to restore the market to its past glory as a centre for the nation’s capital formation.
The question on the lips of investors is how to turn around the market. Several players in the market are calling for a bail out just like in other global markets that had experienced similar market meltdown.
Call for special fund
Executive Vice Chairman, Alpha Africa Advisory Limited and the immediate past MD of Asset Management Corporation of Nigeria (AMCON), Mr. Mustapha Chike-Obi, recently advocated for the establishment of a special fund that would create liquidity and boost activities in the Nigerian capital market. Chike-Obi made this suggestion while speaking at the investiture of the 9th President of the Chartered Institute of Stockbrokers (CIS), Mr. Oluwaseyi Abe, in Lagos.
He said liquidity and foreign exchange risks are major problems in the market, noting that now that the foreign exchange was being addressed, creation of liquidity for the market must also be taken care of. He said: “It is either a liquidity problem or a valuation problem. I think it is a liquidity problem. We have no liquidity, the foreigners are pulling out and domestically we do not have the capacity now.
“Nobody is going to invest money when they cannot eat, when they cannot pay their children’s school fees. So, even if you think that particular shares are cheap and you cannot pay your children school fees, you will sell the shares and pay your children’s school fees.
So, we must create liquidity in some form or the other. And my suggestion remains that the government must create a fund that based on certain parameters, can invest in the stock market. So that when there is lack of liquidity, the government supplies the liquidity, when there is excess liquidity, the government takes it money out.
“I think that will help and create high volumes and I think that will make valuations more accurate because like I said, I know people who are selling their shares now to pay school fees. Even when they believe the shares are cheap.” He explained that the stock market traded about $10 million worth of securities daily but has the capacity to do more if the issue of liquidity is addressed.
He therefore called for the establishment of the special fund without further delay. Chike-Obi, who spoke on: “Growth, the only Nigeria’s Imperative,” canvassed for massive investment in infrastructure either through savings or borrowing at a very low rate. Corroborating Chike-Obi, Abe explained that the capital market would continue to be the main driver of the economy.
“The importance of the financial system cannot be overemphasised. It is the axle on which the wheel of the economy revolves. A robust financial system engenders a stable macroeconomy.
“The capital market is one of the most important drivers of economic growth and development. It is a major source of funding for infrastructure with strong socio-economic impact; and there is a correlation between a robust capital market and accelerated growth,” said Abe.
Some operators in the nation’s stock market while reacting to the recent suggestion for special fund to boost capital market liquidity, threw their weight behind the need for an interven tion fund from the government to help mop up the excess shares in circulation to facilitate market stability. They agreed that the market could only regain its past glory if the authorities provide a bailout fund to stabilise it, as it was done in the banking and textile industries.
They added that the fund would boost the market and help restore and sustain investors confidence, which had been eroded since the global financial meltdown set in. Chief Executive Officer, Managing Director, Highcap Securities Limited, Mr David Adonri, stressed the need to inject fresh fund into the market since all efforts put in place to strengthen the market has not yielded the desired fruit.
He noted that the function of the primary segment of the market is to provide long-term capital whether in form of equity or debt to finance acquisition of assets, adding that unless the market is revived, meeting such function might be a mirage. He said: “Government as a fiscal authority has a lot to do in respect of reviving the market.
The function of the stock market is to form capital for the economy. Stakeholders are worried because the duty of the primary market segment is to provide long-term capital and when reverse is the case, it means that the market has failed in its function to the economy.”
National Coordinator, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, noted that what was imperative in the stock market presently is to put strategies in place that would boost the confidence of local investors to stake more fund in the market. He added that this could only be achieved through injection of fresh capital into the market.
Okezie, who said that the market had recorded an unprecedented lull, attributed the downturn to inability of both the Exchange and its regulator to tackle the relevant issues affecting the market.
“Despite some improved corporate earnings, the market has not picked up because investors have lost confidence in the market and until something is done to restore this confidence, the market would remain unstable”, he said.
Managing Director, Crane Securities Limited, Mr. Mike Eze, who also noted that the liquidity squeeze had made it difficult for the market to thrive, said for the market to recover from losses incurred during the unprecedented lull, there was need for the government to inject more funds.
‘’We have tried everything within our powers and the market is stubbornly holding on. There is need for the government to come and bail out the market. They did same in the aviation and textile industries, Central Bank of Nigeria (CBN) did same with the banks, why can’t they bail out the market, which is the engine room of the economy. “They should provide the intervention fund to mop up the excess shares that are in circulation.
That is the only thing that can help this market to come up again. CBN intervened in the bank and cleaned up their balance sheet, took away the excess shares they bought through margin loans and gave them back the monetary equivalence. What about the stock market, can’t same be done in the stock market?”
Liquid equity markets make investment less risky and more attractive because they allow savers to acquire asset equity and to sell it quickly and cheaply if they need access to their savings or want to alter their portfolios.
At the same time, companies enjoy permanent access to capital raised through equity issues. By facilitating longer-term, more profitable investments, liquid markets improve the allocation of capital and enhance prospects for long-term economic growth