News Column

Stock Market Staging a Come Back

July 30, 2014

Andy Nssien

Shareholders in Transnational Corporation of Nigeria Plc (Transcorp) are striking it rich, carting home returns as much as 1076 percent. This is because, the share price of the company, the first multinational to be listed on The Nigerian Stock Exchange has shot up from the low of 51k per share to 600k per share, according to the Chief Executive Officer of the Company, Obinna Ufudo who urged investors to take advantage of the rare opportunity to increase their fortunes.

But Transcorp is not the only quoted company which has staged a come back following the stock market collapse of the 2007 which jolted many an investor, plunging their confidence to the lowest ebb.

The bright prospects of the stock market find expression in the upshot of major stock market benchmarks which have been heading northwards.

Last week, The Nigerian Stock Exchange All-Share Index which measures the average price movement of equities listed on the Exchange closed at 42,285.82 points even though it depreciated by 0.57 per cent ;when compared with the previous day's statistics. Week-on-week, the index has depreciated by 1.41 per cent, while Year-to-Date it has appreciated by 2.31 per cent. Albeit, the market capitalization also depreciated by 0.57 per cent, it closed at N13.96 trillion at the end of business on Friday.

This is a far cry when compared with the All-Share Index which plummeted from an all time high of 66,000 points to about 22,000 points in January 2009, while the market capitalization nosedive from an all time high of N13.5 trillion to less than N4.6 trillion during the same period.

However, the road to recovery was strewn with thorns which exposed the market to contend with taking the rough with the smooth.

In January 2012, many equities markets in the world witnessed strong rallies in the teeth of unpredictable economic outlook of the euro-zone.

African markets were not left out as South Africa (FTSE/JSE Africa), returned 6.7%; Egypt, (Hermes),23.1%; and our neighbor, Ghana, 1.3% ; while Nigeria barely grew by 0.7% in the first month of the year .

This was an incontrovertible evidence and a clear testimony to the fact that investor confidence and apathy in the Nigerian equities market were yet to receive the necessary impetus and verve that would translate into growth, in spite of the efforts being made in the past two years to turnaround the market.

The despondent situation of the Nigerian capital market prompted the government, its agencies and other stakeholders to swing into action, finding ways on how to halt the drift of the market.

The public hearing on the near collapse of the Nigerian capital market called by House of Representatives Committee on capital market which was expected to receive inputs from the various stakeholders and chart a new course of action aimed at avoiding re-occurrence of the market crash, threw up more problems as the Committee was chewing more than it could shallow.

Allegations of bribery and corruption leveled against members of the Committee by the Director-General of the Securities and Exchange Commission, Arunma Oteh and counter accusations bordering on her qualification and competence made by the lawmakers took the shine off the forum which was expected to provide a lasting solution to the challenges in the capital market.

However, this did not prevent the market from staging a come back. Some policy measures adopted by the government and its agency ensured that this was so. One of such laudable initiatives was the granting of forbearance to stockbrokers who burnt their fingers during the period of the market slow down.

The Federal Government, acceding to the yearnings of market operators, announced a forbearance package of about N22.6 billion on the margin loans of 84 stock brokers.

In addition, the Federal Government also announced the elimination of stamp duties and VAT on stock market transaction fees.

Consequently, the Government waived the 0.075 percent stamp duties payable on stock exchange transaction fees; and exempted from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services.

Even so, the stockbrokers who initially applauded the news of forbearance later became apprehensive because according to them, apart from the fact that the amount was grossly inadequate, they were worried that the package could turn out to be a Greek gift.

They were also worried that the recipients of the package could suffer similar fate as witnessed in the banking industry whereby the Federal Government, after bailing out the banks, tied them to its apron strings.

Also, SEC approved the appointment of ten (10) stock broking firms as Designated Market Makers (DMM) on the basis of a submission by the NSE. The DMMs were selected from a list of twenty (20) applicants who all went through a rigorous selection process. The requirements included meeting a minimum net capital requirement of N570 million, a consistent history of compliance with market rules and regulations as well as strong operational capabilities (including technology and processes).

The appointment of the DMMs signaled another concrete move towards restoring vibrancy and recovery in the equities market by the regulators of the Nigerian capital markets as the Market Makers will ensure a better regime of price discovery through their activities.

The market makers are required to quote a buy and a sell price for each of the securities in which they make market. They are also obligated to buy and sell any particular financial asset at their displayed bid/offer rates. This is going to add to the liquidity and depth of the NSE as the DMMs take a short and long position on the securities concerned.

According to the Commission, the selection of market makers is a significant step forward because the DMMs would improve the transparency and efficiency of the equities-market as they quote prices for stocks that are truly reflective of market fundamentals.

The capital market did not wait too long before responding to the dose of rescue measures. Early last year, it was reported that the Nigerian capital market with a return of over 30 per cent in 2012 had launched itself to the top five highest performing market group in the world.

It shared this enviable recognition along with Pakistan, Turkey, Egypt and Venezuela which the CNN Money report tagged: "World's 5 hottest stock markets for 2012".

According to the report, the Nigerian capital market got its most recent lift after Standard and Poor's and Moody's lifted Nigeria's credit rating, bringing it in line with Fitch's to three notches below investment grade, citing improved financial stability and the country's commitment to reforming the banking and electricity sectors.

"In fact, Nigeria's banks have been among the best performers on the country's stock exchange. First Bank of Nigeria is up a whopping 70%, while Zenith Bank and Guaranty Trust Bank have both gained about 40% this year", the report said.

Nigeria also, was starting to attract more attention from foreign investors, which analysts expect will only grow with the country's entry into Barclays' and JPMorgan's benchmark emerging markets bond indices.

At the home front, many analysts, financial experts and other stakeholders have expressed their sentiments on the recovery of the market.

Mr. Ariyo Olushekun, immediate past President of the Chartered Institute of Stockborkers (CIS) and the CEO of Capital Assets Ltd, told Daily Independent:

"Yes, in my considered opinion , the market has recovered. The real test happened recently and the market passed that test. The market started rebounding from September last year and gained over 34 per cent. Early this year, the market rose to 40,000 points in the Nigerian Stock Exchange (NSE) All-Share Index".

He continued: " From that point, we witnessed profit taking, and the market went down to 36,000 points of the All Share Index. From there, it started rebounding and now it is above 40,000 points. For me, that is a show of the strength and resilience by the market. What it means is that, the market went up, some people tried to take profit, but there were other investors who came and were able to absorb the resultant supply that came. That is a critical thing for the market".

According to Olushekun, this development showed that the market has recovered and stabilized even if it might not have gotten to the height of about 66,000 points witnessed before.

"Also, we have witnessed increased participation of local investors. That is very critical to me. We now have 50/50 per cent participation of local/ foreign investors in the market which is good.

"I have always maintained that the sustenance of the market strength lies in local investment and we are very happy to notice that that is happening now", he added.

His counterpart in the Association of Stock broking Houses of Nigeria (ASHON), Mr. Emeka Madubuike had this to say:

"I think what I can say is that the market is recovering, but like any other regular market, it fluctuates, there are up and down swings. For instance, in the first quarter of this year, the market was down but by a very small margin. But since the second quarter started, we are beginning to see an upward movement".

" In general terms, we say the market is recovering. Of course, if you look at the indices, the statistics, compared to this time last year, there has been an improvement, so the market is recovering", he said.

On the impression that the recovery could have been faster by now, he said: "I think it can't happen overnight. That expectation would be too much. Anybody that has that kind of expectation would be carrying it a little too far. That is why I said the market is improving and that improvement is a gradual thing."

" Another thing is that this improvement does not come on its own, you need to look at what is happening in the economy generally. If there are businesses that are listed in the market which are doing well and their returns are good, of course it would affect the market. As some of the initiatives that have been introduced into the market begin to pick up, the effect would also be seen", he added.

According to him, anybody who expects that the situation would be that kind of jump, the expectation is not realistic.

Asked if the market could bounce back to the pre-crisis era, he further said: "Certainly, why not? If the market got there before, why wouldn't it get there again? I think it would even surpass it. But the truth of the matter is that in our market, we are not prophets. We believe that if things go the way they are, a lot of reforms and policies of government (targeted on the market) has not hit the ground.

"One of the reforms of government which I think if it hits the ground and begins to take effect that will affect the real sector drastically is the power reform. If we can get our power situation right, it can have a lot of effects. Again, of course the political effect is there. If we get the 2015 election right, it would also boost the economy".

Madubuike added that there was also the issue of security challenges. "If we are really on top of it, not just on top by word of mouth, then it will also affect the economy. So, the market is not on its own, it is a subset of the entire economy. If the economy is doing well, of course the market will also do well".

However, President of the Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie's opinion differs from the above sentiments.

Hear him: "If you are asking if the stock market has recovered, to me, NO. Capital NO. The market has not recovered. We are in the verge of recovery from the global meltdown. So, we are not yet right there. But we believe that if things are done in the right way, we shall come out of it. It is a global thing and we are gradually recovering, but not yet fully recovered".

According to him, the problem is that people have no confidence in the market. " What we are seeing today is as a result foreign portfolio investors who have taken the advantage which they could not get in their own country. They come in here with their brief case, see the opportunity and they seize it, taking advantage of their liquidity. Some people misconstrue this to think the market has recovered".

Okezie continued: " So, when they get to a point, they off load their shares and the market crashes again. Internally, we don't have the liquidity to match forces with them and invest, but they have the resources.

"Remember too, that we were also affected by the reforms in the banking industry. Rather than for this to solve the problem, it escalated the problem. That has jeopardized people's hope of coming back to the market. This is because what they invested, the government either by hook or crook has taken them over from the people. So, most people don't have the courage again to invest in the market. The ones they invested, they burnt their fingers.

"The ones they could have salvaged and waited for years for the company to come back to live have been forcefully taken from them in the name of nationalization. Once beaten twice shy".

He complained that those investors who bought million Naira worth of shares at the stock exchange were not given ample opportunity to recapitalize their banks which were quoted at the stock exchange. He said due process was not followed in what the Central Bank of Nigeria did, adding that what was done was more damaging in the name of reform in the financial system.

"If a bank was adjudged insolvent, there should be ample opportunity and time frame for its owners to plan for recapitalization.. But what was done in that circumstance? Were they given opportunity to recapitalize? Did they look for investors or bailout? These are options that could have been given to the owners of these banks, but they were not given such opportunities".

He went on: "Rather, government forcefully took over the banks , a situation that is unheard any where in the world. Even in America it cannot happen. No where in a civilized world can this kind of thing happen. It can only happen in this part of the world where due processes are not followed".

Okezie pointed out that these were some of the issues that affect the market as they continue to erode the confidence of the people to invest.

" If the government can do the needful and revisit that policy and reverse such decision, the market will bounce back", he added.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters