By Udeme Ekwere

The losses being recorded in the Nigerian capital market have reached a new height as the market capitalisation of the listed equities plunged by a staggering N1.39tn in the last three months.

Specifically, between June 1, 2011 and last Monday, which was the last trading day in August, the market capitalisation of the 194 First-Tier securities recorded a loss of N1.39tn from N8.273tn to N6.877tn, representing a 16.9 per cent decline.

Similarly, the Nigerian Stock Exchange All-Share Index, which opened in June at 25,875.31 basis points, recorded a decline of 4,337.70 basis points or 16.9 per cent to close at 21,497.61 points.

The market capitalisation is the total number of shares in the market multiplied by the price of each share, while the index is used to compare the increase or decrease in the size of the market as a whole and the value of the equities’ market, compared to other segments of the economy.

In the same period, the NSE-30 Index fell from 1,156.54 basis points to 955.39 basis points, representing a decline of 17.4 per cent or 201.15 basis points.

The persistent decline has been traced by analysts to a number of factors, including the crises in North-Africa and the Middle East, insecurity in the polity following the April general elections, and the news of the acquisition of three banks by the Asset Management Corporation of Nigeria.

Also, global investors had been worried that the United States and the world economy might be headed for another recession, a situation that analysts said affected the Nigerian equities market, which had been recording a measure of instability as a result of activities in the global market.

Analysts at Meristem Nigeria Limited, had in their report last month, noted that the news on the nationalisation of Afribank Plc, Spring Bank Plc and Bank PHB Plc, perhaps had the most significant effect on the market in recent times.

According to them, this was evident with the market indices, especially the banking index, losing heavily following the nationalisation and inflicting a heavy blow on the market.

Some stockbrokers, who spoke to our correspondent on Wednesday, noted that the huge loss was detrimental to the market and advised the government to put in place measures to stem the tide.

The Managing Director, Ideal Securities Limited, Mr. George Okafor, said it was important for the government to step in to change the direction of the market.

He said, “It is unimaginable and threatening to the real essence of the capital market as the platform for medium and long-term capital formation for investment and capital development.

“It is, therefore, necessary for government to show interest and concern about the worrisome negative trend by way of good and consistent business friendly policies that may rekindle the already battered confidence.”

He added that stockbroking firms needed financial support to reactivate the once vibrant market, which was also affected by the margin facility era that swept away their capital.

A stockbroker, who preferred anonymity because of the sensitive nature of the subject, said, “There are a lot of reasons why the market has been shedding heavily in the last few weeks. But lately, we have discovered that one or two stockbroking firms, which mainly handle foreign clients, have been selling heavily due to the uncertainties in the polity arising from security concerns.”

He said investors were worried about the safety of their investments in the face of all the security challenges in the country.

The Managing Director, Afrinvest West Africa, Mr. Ike Chioke, had recently said that one of the reasons why the equities market was bleeding profusely was because of the monetary directions of the government.

This, according to him, has served to redirect investors from the equities market into the fixed income markets, which seem more secure to them compared to the risks involved in equities investing.

He said, “Activities in the market seem to be affected more by the macroeconomic policies of the Federal Government, which is an unsustainable recurrent expenditure pattern, combined with the Central Bank of Nigeria’s monetary policy direction that is driving investors out of the equity markets into defensive fixed income positions like the bond and money markets.”

Source: Punch