By Gbenga Agbana

Thursday, 25 Nov 2010

The continued dominance of the bears in the equities sector of the Nigerian Stock Exchange, despite the commencement of the operations of the Asset Management Corporation of Nigeria, has been attributed to the “closing of books” by some institutional investors for the 2010 financial year.

According to market operators, institutional investors, especially banks, are currently selling off some shares to keep their assets in form of cash, so that when the external auditors come to check their books, they will not have any negative asset in their portfolios in terms of invaluable stocks.

They added that, some banks, other financial institutions and institutional investors might be selling off the shares of the banks rescued by the Central Bank of Nigeria last year, whose toxic assets are about to be taken over by AMCON, since the valuation of the assets are not yet clear.

In the last one week, the market capitalisation of the Nigerian Stock Exchange fell by N230bn or 2.9 per cent, from N8.4tn last Thursday, to N7.81tn on Wednesday, while the All-Share Index fell by 721.4 points or 2.9 per cent, from 25,184.13 points to 24,402.73.

The Managing Director, Rewards Investment and Services Limited, Mr. Henry Olayemi, attributed the trend to the fact that banks were currently closing their books, adding that some might be selling off the stocks of some of the rescued banks.

He said, ”The current trend may be linked to the fact that most banks are closing their books because their financial years end on December 31. The prices at which AMCON will take the toxic assets of banks may also not be suitable to some banks. So, they may be selling off some of the stocks of such banks.”

The Managing Director, Partnership Investments, Mr. Victor Ogiemwonyi, shares the views of Olayemi.

He said, ”The market has stabilised now. What is happening is the seasonal selling of shares by investors to meet some personal needs. When AMCON clears the toxic assets, the market will bounce back. Liquidity is being tightened now and financial institutions are closing their books.”

The Head, Research Group, Sterling Capital Markets Limited, Mr.Tayo Omidiji, also said, ”After the commencement of AMCON, people responded positively, but the year end of banks is coming. Banks and institutional investors are closing their books. Usually, financial institutions will like to hold cash now than to carry some assets in their books in terms of stocks, for fear of diminution in value.

“Interest rates are also attractive in the money market currently, which will naturally attract funds to the money market. The new monetary policy will enhance the interest rates of banks and more money will move to the money market.”

 

Source: Punch