Why Investors Shun Equities Mkt




As investors confidence in the stock market continue to wane, Eromosele Abiodun, writes that investors are shying away from the market because of lack of understanding than fear to take a risk. The report is based on a document released by Association of Investment Companies (AIC), an organisation with 325 members and a total asset of £95 billion (N2.3 trillion)


Following the recent bear run in the Nigerian stock market, investor’s confidence has declined to a level where people now misunderstand fear of the risk involved in playing in the market with weak understanding of the equities market. 


Analysts however, believe that investors’ confidence in no small measure dictates the extent to which any stock market can go.  They are also of the opinion that while we eagerly await investors’ return to the market, regulators must make efforts to educate investors so as to allow the stock market to return to where it used to be. 


AIC’s Report

A recent research by the Association of Investment Companies (AIC) revealed that potential investors are more deterred from stock market investment because of lack of understanding, than fear of the risks involved. 


The research also showed that investors are shying away not because of recent global stock market turbulence and credit crunch in emerging markets. It revealed that affordability and lack of financial expertise is still biggest issue for those not investing or willing to return to investing in equities.The AIC research said: “Men are more likely to consider investing in the stock market than women.“ 


The AIC surveyed 2,110 adults around the world in June 2008 and 2,230 others again in December 2009, and found only a three per cent increase in non-investors avoiding the stock market because it was too risky (15 per cent in December compared to 12 per cent in June).The survey showed that affordability was unsurprisingly still the most common reason cited for not having any stock market exposure (i.e.47 per cent of respondents).  


“However, a lack of knowledge about stock market investment was another frequently mentioned drawback, much more so than the prospect of being exposed to the stock market’s ups and downs.“Some 32 per cent of potential investors say they don’t understand enough about the stock market to feel confident enough to invest, whilst nearly a quarter (24 per cent) are put off stock market investment as they simply don’t know how to go about it. 


“In fact, over half (55 per cent) of respondents do not have any stock market exposure at all and many adults consider property to be a safer prospect.  Research carried out this month showed that just under half (48 per cent) of respondents thought bricks and mortar was the best place for long-term growth.“Over a fifth (22 per cent) thought cash was king by preferring building societies and bank accounts as a home for their cash and only a tenth (11 per cent) of respondents considered the stock market to be the best place for long-term growth. A small minority, 1 per cent (mostly in Nigeria), said the best place for their cash was under their mattress,” AIC said.


The report noted: “Interestingly, women are more cautious than men when it comes to stock market exposure. Of those who hadn’t invested in the stock market and were currently considering it, considerably more men (42 per cent) were keen than women (27 per cent).  Surprisingly, only six per cent of women surveyed in December thought that the stock market was the best place for their cash for long-term growth, compared to 16 per cent of men,” the research revealed. 


Need for Investors’ Education

The AIC findings showed that just over a third (38 per cent) of respondents surveyed in June had no idea what the minimum lump sum for stock market investing was, and a similar number (36 per cent) were unaware of the minimum regular savings contribution.


“A quarter (25 per cent) of those polled – thought the minimum lump sum amount is over N250,000 (£1000), way above the N62,500 (£250) that most investment company savings schemes require as a minimum lump sum. “Whilst over half (52 per cent) of potential investors were put off from investing as they thought they couldn’t afford to.Interestingly, when they were presented with the idea that they could invest through the stock market in a pooled investment fund from £30 a month (or a N62,500 lump sum) over a third (35 per cent) of respondents said they would be more likely to invest,” AIC said.


Director General of the  Association, Daniel Godfrey,  was quoted as saying: ‘‘It’s interesting that a lack of knowledge scores so much higher than risk aversion as a reason for not investing in the stock market, suggesting it’s a lack of financial understanding, not apathy, that keeps many potential investors sitting on their hands.‘‘These results show the important role that good quality independent financial advice can play, alongside the long-term benefits of financial education, where real progress is now being made.  There is also a good deal of information out there for would be investors prepared to do their own homework.


Cautious investors could consider regular saving, so that more shares are brought when prices are low and less when prices are high. This helps to smooth the highs and lows of stock market investment and takes away some of the worry of timing the market. From as little as £30 a month or a £250 (N62,500) lump sum, investment companies give investors access to a pooled fund with a professionally managed portfolio,” he said.


Godfrey added: ‘‘For potential investors looking for information on how to get started and details of investment company saving schemes, the AIC’s will provide useful research tool. It has sections on preparing to invest containing a glossary of terms and information on how to get financial advice. The website also has free downloadable fact sheets, which investors can use to learn more about the features of investment companies and their uses.’’ 


Shareholders’ Perspective

National Coordinator on Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, advised prospective investors to have proper knowledge of the stock market before venturing into it. He said: “I can tell you that members of ISAN are fully aware of the dynamics of the stock market. We organise seminar to further educate our members on how to play in the market. You are aware that recently we put together a national workshop on share buyback. The minister of finance and director general of the Securities and Exchange Commission (SEC) attended.


“Recently, when they call market operators and regulators for a meeting with the then vice president of Nigeria, Dr. Goodluck Jonathan, our submission on share buyback was adopted as one of the actions to stop declining share prices. So we are very prepared at ISAN.”Speaking on panic sale and fear by investors to return to the stock market, he said that ISAN members would rather buy at this time than sell. “If you have been attending Annual General Meetings (AGM) in recent times, you will understand me better. I always tell shareholders who are long term players like us not to panic because we not only get our return through capital appreciation but through bonus and dividend and they understood my point,”


National President of Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, believes market regulators should do more investor education to help re-orientate investors.“Everybody is crying about the stock market, most of them do not really understand market situations. But for some of us who have been in the market, it is time for us to buy those stocks we want in our portfolio that we do not have. This is why I say it everyday that we will never support share buy back,” he stressed.


Okezie said: “If share prices are falling naturally they are crying. What happens when you buy back their shares in a manner they do not understand? You see, this market is not like what you have abroad. They are very knowledgeable about the workings of the stock market over there. But here, when did we start? As a matter of fact, it is the banking consolidation that brought many people to the market. So investors’ education is very important because a lot of them are misinformed.” 


He said that the Nigerian capital market is not ripe enough for issues such as interventions, share buy back as a means of driving investors’ confidence.“That is why the market is not responding to these measures. In the Nigerian system a lot of things are still being manipulated, we are not ripe for share buy back and all this things they are talking about. For example if a company is buying back its shares, where are they going to get the money from?


“They can do it without recourse to shareholders because they are buying back, they will not tell you from which money, either from the shareholders fund or capital reserve. We do not understand these issues here,” he said.Okezie added that one of the issues all relevant institutions in capital market must address is the need to come up with revised, effective and enforceable corporate governance policies for all companies operating in Nigeria. 


This, he stressed, will assure both local and foreign investors that the business environment in the country is safe and transparent.“It will also prevent imminent financial crisis as experienced in Asia and Greece sometime ago.  The issue cannot and must not be unduly delayed because of the dangers and catastrophes it will have on our financial market. “With so many local and foreign investors continuing to participate in the Nigerian capital market and committing more of their hard-earned money in our care, they are depending on regulators everyday to make sure that their investments remain safe, sound and accessible.  SEC should raise its heads high and accept the challenge of moving the capital market forward to ensure that our country is one of the economic powers by 2020, “Okezie said.


The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry, the oldest form of collective investment.Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies.   The AIC members believe that the industry is best served if it is united and speaks with one voice.It’s mission statement is to help members add value for shareholders over the longer term.  The AIC has 325 members and the industry has total assets of approximately £95 billion (N2.3 trillion). 






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