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Stock Market Recovery a Gradual Process - Ashon Boss

July 6, 2014

Emeka Madubuike is the President of the Association of Stockbroking Houses of Nigeria (ASHON), an umbrella body for stockbrokers operating in the Nigerian stock market. In this interview with, Business Edito, ANDY NSSIEN, Madubuike, who is also the Managing Director/CEO of Compass Investment Limited, spoke on a number of issues, including the fact that the stock market would bounce back even beyond the pre-crisis era. Excepts

With the stock market index crossing the 40,000 points benchmark, would you say the market has recovered in earnest?

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.

It was expected that by now since the market attained the 40,000 index benchmark earlier in the year, it would have risen to the pre-crises era of the 2007...

(Cuts in) 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. So, anybody that expects that the situation would be that kind of jump, the expectation is not realistic.

Do you think that even in the long run, we will get there? 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. There is 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.

The new capital base for market operators has been a subject of controversy, what is the latest on the issue? We are still engaging with the Securities and Exchange Commission(SEC) and I can't give you the exact position right now.

What do you think government can do now to aid full recovery of the market?

As I said, as soon as the reforms start picking up. All what government is doing is looking at the things it needs to do and all of them are coming by way of policies and reforms. And of course, the Central Bank governor is key to a lot of these issues. For, the new governor of the Central Bank, his focus is right. It is geared towards job creation and is talking about reducing interest rates which is good for the economy. The productivity would come up and other things will follow.

Also, in line with its avowed intention to get more companies operating in the country to list on the stock exchange, the Securities and Exchange Commission (SEC) has approved the revised listing rules which seek to grant certain waivers for oil and gas firms, Small and Medium Scale Enterprises, SMEs, and other multinational companies proposed by the Nigerian Stock Exchange (NSE). The two key provisions of the new rules are as follows: companies in the extractive industry i.e. mining, oil and gas companies are exempt from the requirement that to qualify for listing on the Mainboard, a company must be in operation for at least three years; companies with market capitalisation in excess of N500 billion have been excluded from meeting the requirements for public float which stipulates that members of the public shall hold a minimum of 20 per cent of each class of the equity securities of the company

I think these are the areas that government can come in to ensure that things are done properly. I keep saying that the market is a subset of the entire economy and so it must be moving in line with the entire economy.

Can we talk a little bit about the latest on dematerialization of share certificates in the market?

We are just coming from the CMC (Capital Market Committee) meeting and that was discussed extensively. There is a time frame of six months. The Committee that is now handling it has given itself a time frame of six months to ensure that we have full dematerialization. We are hoping that at the end of this year, there would be something very significant happening along that line. What it means is that the new committee has taken over all the work we did in the previous committee and what they are supposed to do now is like more of implementation.

How does the zero budget approved for SEC by the legislators affect implementation of some of these policies in the market?

I think that question should be directed to SEC as they would be in a better position to give appropriate answer because I don't work in SEC.

Are you saying that it does not affect some policy measures that needed to be executed by the Commission in the market?

Ok, I think the SEC is working fine. But all what we are saying is that SEC, being a government institution needs to be funded by government, because we think that will help the market in general. So, what so ever issues are there with the National Assembly need to be resolved and quickly too so that the Commission would operate optimally.

You appear to be shying away from the fact that it does affect implementation of SEC programmes in the capital market...

(Cuts in) I won't know. That's why I told you, I don't have the details as I don't know what programmes they have and I don't know which one they have stopped. As far as we know, SEC is functioning. But we believe that in general terms that SEC should be properly funded so that they would operate in line to meet the objectives for which they were set up.

Can we also talk briefly about demutualization?.

Again, that is on going. The stock exchange and all the stakeholders including the stockbrokers through the Council of The Nigerian Stock Exchange, are working towards demutualisation. The time frame, I can't tell you because I don't know. But it is a work in progress.

In your opinion, what are the major benefits of rebasing Nigeria's economy?

It is like we have, more accurately measured the economy. That's what the rebasing is saying. All the sectors that were never included in the statistics are now captured. We now have a fairly good idea of what the components of the economy are and what contributes what. In terms of the capital market, the rebasing shows that there is still a lot of work to be done. The percentage of market capitalisation to the GDP is still very low compared to other markets we are trying to emulate. What it means is that we have a lot of more work to do. Some sectors that were not included in the statistics before needs to be targeted. If they are making substantial contribution to the economy, then those are the sectors we need to bring into the capital market

Who is going to give this realisation a push? It is going to be a market wide initiative. You know, a lot of literacy (programmes) needs to be carried out. You know, as we speak, there is a ten-year master plan for capital market literacy. There is a committee working on that. What we are trying to do essentially is that there should be a lot more education, not just at individual or at government level, people will need to understand that if your capital market is not working, the economy is not likely to work.

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Source: AllAfrica

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