By UDEME EKWERE

Saturday, 22 Jan 2011                   

The storm may be over at the Nigerian Stock market as shares of major companies are beginning to rise again. UDEME EKWERE examines the trend.

 

Mrs. Christy Igoh is a Lagos-based accountant. She had planned to quit her job at the end of 2005 to start a private business. As part of the strategies to raise fund for the project, she decided to sell her second car. She wanted to keep the money in a fixed deposit account for a few months but a friend advised her to invest it in the stocks of an aviation-handling company.

In less than eight months, her N200,000 shares were worth over N600,000.

By August 2006 when she eventually sold the shares, she got N950,000 in return.

Two years later, the Nigerian Stock Market had become endangered area for investors. Many would swear never to have anything to do with it again.

This was due to the massive losses they incurred at the stock market from March 2008.

Analysts traced the huge decline in the stock business to the effects of the economic meltdown rocking major countries of the world at the time.

In Nigeria, some investors in the market lost as much as 70 per cent of the funds they had originally invested in the market.

Even when other economies began to recover from the free-fall of shares, the NSE continued on the downward trend with the market capitalisation of the listed equities, which stood at N12.395tn as at March 2008, suffering its highest fall in the 48-year history of the NSE, depreciating by over N5tn or 45 per cent to N6.8tn by the end of 2008.

The NSE’s All-Share Index also suffered a similar fate falling by 51 per cent from 63,016.60 in January 2008, to 31,450.78, in the period under review.

This was despite efforts by both the Federal Government and regulators in the Nigerian financial system to restore sanity and investors confidence.

Analysts at the time, however, were of the opinion that the worst hit in the market crises were the stockbrokers who had taken huge margin loans from banks to play in the market.

The market did not fare any better, despite the sanitation exercise introduced by the Central Bank of Nigeria for banks in August 2009, as investors were dumping their banking shares especially those affected by the CBN programme.

This led to a further decline in the market that year, with the market capitalisation closing at the year at N4.989tn and the NSE All-Share Index closing at 20,838.90.

The problem of insolvency of the NSE, which led to the removal of the Director-General, Prof. Ndi Okereke-Onyiuke, also contributed to the decline witnessed in the market in 2010, as investor confidence became eroded.

Activities dropped to a low level, before they began to pick up on the news of the purchase of toxic assets of banks by the Asset Management Corporation of Nigeria, under the leadership of Mr. Mustapha Chike-Obi.

Thus, by the end of 2010, the NSE’s All-Share Index rose by 18.5 per cent from 20,827.17 points at which it opened for the year to close at 27,770.52, while the market capitalisation of the 201 first tier equities increased to N7.91tn from the N4.99tn at which it opened for the year.

Market capitalisation was enhanced by the listing of the shares of Dangote Cement Plc, which enhanced the value of the stock quoted in the equities sector by over 20 per cent.

But the market regulators, NSE and Securities and Exchange Commission, have intervened introducing a number of measures to restore the investors confidence.

However, analysts in the market have said that the increase, which was witnessed in the last quarter of 2010, will continue into this year, with some predicting over 40 per cent rise in market indicators in 2011.

For instance, the Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane, said that the market would have a robust outlook this year, stressing that the exchange would grow by 40 per cent.

This, he noted, was as a result of the efforts carried out by both the CBN and the SEC with the NSE to sanitise the market

He said, this would encourage foreign investors, who had previously exited the market to come back to invest in the market, adding that the banks would play more actively in the retail end of the equities segment.

He said, “There will be a major shift from retail investors to institutional investors. The major problem has been that the institutional investors have not been active in the governance of the market. What we have seen are shareholders’ associations, who represent nobody and are causing nuisance to management. But going forward, the institutional investors will play a more active role and we will see more funds coming from them into the market.”

He also noted that the fixed income market would also be very active this year as more corporate bodies would raise bonds to repay their short-term facilities.

The Managing Director, Compass Securities and Investment Limited, Mr. Emeka Madubuike, in his own submission, noted that the commencement of activities by AMCON will go a long way to improve activities this year.

He said that investors’ apathy towards the capital market had reduced, while interest in activities was on the increase.

While commending the regulators for their efforts, the Chief Responsibility Officer of Value Investing Limited, Mr. Seye Adetunmbi, tasked regulators on the need to step up surveillance functionally and appraise the appropriateness of newly introduced rules and operational guidelines from time to time to ensure a healthy market.

He said, “There should be timely intervention on any irregularities in the market. It is also important that there must be zero tolerance for infractions with commensurate penalty for apprehended offenders which should be done with dispatch.

“Operators must be best practice-driven and face the realities of the market situation. They should also cooperate with listening regulatory bodies, SEC, NSE, in agreeing on the best model that would facilitate new breath to the market. Operators should look at larger pictures with long term benefits for the market.”

Market analysts have also added that Nigeria’s International $500m Eurobond sale will also spur activities while encouraging other African nations to also issue bonds.

They added that bond issuance would reassure other African governments of the strength of demand among global investors, convincing them to press ahead with similar but delayed plans.

The spokesman for the Finance Minister, Mr. Bayo Adeniji, had said that Nigeria was meeting with investors in the United States and London to build support for its first $500m international bond sale.

Source: Punch