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One of the five best performing stock exchanges globally, the Nigerian Stock Exchange, is bleeding. It’s measure of corporate gains, All-Shares Index and value of listed securities, market capitalization fell by 6.38 per cent in one week to close at 36,818.29 and N13.336 trillion respectively on Friday, June 1st., 2018.
Medical experts are not required to detect the financial hemorrhage that The Exchange has been plunged for two consecutive weeks. Innocent shareholders watch the volatility helplessly as their investment is plundered by the prolonged bear market. The Nigerian Stock Exchange’s Chief Executive Officer, Mr Oscar Onyema sweats under his corporate jackets while our resilient stockbroking firms lose jumbo commissions daily from fat cat clients.
The Chartered Institute of Stockbrokers (CIS), an umbrella body that certifies stockbrokers and Association of Stockbroking Houses of Nigeria (ASHON) are under pressure to calm nervous domestic investors that bear trading provides an opportunity for investors to beef up portfolio as market fundamentals on The Exchange remain strong. The market has not fully commenced trading in derivatives. This would have provided hedging opportunities for the shareholders. After all, an investor cannot lose simultaneously in both the spot and derivative market. They would have been enjoying zero-sum game by now. We should commend the CIS for making training in Managing Equity Derivatives compulsory for all stockbrokers as part of the Institute’s compulsory continuous professional development programme. There shall be opportunities to implement the training in Nigeria one day.
The Exchange has recorded trajectory of superior performance by global standard after the market meltdown of 2008. The battle for investor confidence is no longer a major issue as aggressive foreign portfolio investors have since discovered huge opportunities for superior Return On Investment (ROI) in the acclaimed frontier market. They know that investment is a game of trade off between risk and return. The Exchange is a leading market by any parameter. The market is respected in the World Federation of Exchanges (WFE) and African Stock Exchanges Association (ASEA), where Onyema is the current President.
Shall we tell President Mohammad Buhari that the fingered enemy of The Exchange is the government of Nigeria through its political and economic activities that unleash anguish on many investments? Every stock market mirrors and responds to the happenings in its political, economic and social space. Any market that operates at variance is voodoo. Newspapers headlines is daily replete with news on sucide bombings and kidnapping by Boko Haram, callous killings by Fulani herdsmen, emerging political assassination, high tension armed robbery, uncertainty of the government’s fiscal and monetary policies that have polarized our economic experts into two camps on the hazards of continuous retention of the nominal anchor, the Monetary Policy Rate (MPR) at 14 percent by the Central Bank of Nigeria (CBN) and perceived fear of economic and political crisis as we gradually approach 2019 general election. These are called systematic or market risks. They are external and beyond the control of The Exchange.
As uncertainty of policies thickens, captains of our manufacturing firms are losing weight as they continue to contend with forex challenges despite all the publicity about the special window created for them. Some analysts have sworn that the current monetary policy is pro-foreign portfolio investors and anti-domestic ones. Foreign portfolio investors are more active on our bourse than their domestic counterparts. By the analysis of The Exchange, “ Foreign Investors outperformed domestic investors by 15.48% in April 2018. Total domestic transactions reduced by 36.05% from N140.27 billion in March to N89.70 billion in April 2018. Foreign transactions also reduced by 7.32% from N132.21 billion to N122.53 billion within the same period”.
Foreign investors deploy mutual funds as investment vehicle. Mutual funds are baskets of investments that enable an investor to use the same amount of money to own shares and fixed income securities in many companies. It is managed by professional fund managers. Most mutual funds seek capital gains as investment philosophy. Some invest over 80 percent of their net assets on equity securities market in the emerging markets like Nigeria. They frequently take positions on large and medium-capitalized firms. They dive into volatile markets without qualms. This investment model is credited with transparency through regulation, diversification and economies of scale in terms of bulk purchase. But mutual fund’s challenges range from cash drag as they must keep huge amount for unforeseen redemption, huge tax, high maintenance costs and relative illiquidity compared with stocks on redemption procedures.
There are fillers that the current share dumping by foreign investors is oiled by some mutual funds that are paying returns of five percent and above in the United States and Europe. Nobody can rule out fear of impending general election as well. Unfortunately, herd instinct usually propel many domestic investors to take queue by selling off whenever the foreign investors blow wistle.Foreign investors are adept at risk analysis. Some of them are ahead of our risk managers in Nigeria. They accord importance to country risk before they invest trillions of hard currencies. The naked truth is that uncertainty characterised our operating environment in Nigeria. Why should MTN give priority to Ghana Stock Exchange for its Initial Public Offering (IPO) ? There is just no solid explanation other than MTN’s perceived unfriendly operating environment in Nigeria. By market capitalization, The Nigerian Stock Exchange can acquire Ghana Stock Exchange theoretically as Ghana is about one-third of Nigeria’s Stock market.
Apart from insecurity issues and management of interest rate, the apex regulator of the capital market, the Securities and Exchange Commission (SEC) which represents the government on the market is unstable. The senior prefect of the capital market has been operating without a board for a long time and nobody seems to care. In six months, three staff of the Commission occupied the hot seat of Director General, two in acting capacities. Mallam Mounir Gwarzo who took over from Ms Arumah Otteh was suspended by the Finance Minister, Mrs Kemi Adeosun for breaching Public Service Rules. He was replaced in acting capacity with the SEC’s head of External Relations, Dr Abdul Zubair whose appointment was dramatically short lived . Zubair surrendered the baton to Ms Mary Uduk, one of the longest serving staff of the Commission, expectedly in acting capacity. Adeosun also appointment in acting capacity, Reginald Karawusa as Executive Commissioner, Legal and Enforcement, Isiyaku Tilde, Executive Commissioner, Operations and Henry Rolland Adekunle, Executive Commissioner, Corporate Services. The immutable law of acting capacity by Nigerian convention is to operate under extreme caution because the status is still uncertain until confirmation by the powers that be. Foreign investors understand the roles of SEC in the market development and the implications of an organization without a board in the context of corporate governance. Capital market thrives on trust and confidence of investors! Government is not a priority one man show. Adeosun should pull trigger to ensure that in the interest of re-branding our economy, SEC should now have a board while it’s top management staff should operate in confirmed capacity.
This is a trying period for the federal government, hence, capital market operators should be fully involved in all economic policies to avert the perennial gap between economic policies and market development. It is not out of place if the CBN can organize a strong forum where key operators in the capital market can rob minds on how monetary and fiscal policies impact stock market activities. Capital market regulators and operators can also set up a strong advocacy group for meeting with the apex bank. There is an urgent need for the government to practically convince the entire world that Nigeria is safe for investment. One can sympathize with the CBN’s Governor, Godwin Emefiele. He is passionate about managing forex issues. But the consumate banker ought to have realized by now that solution to our interest rate controversy is not one-size-fits-all. He needs more options. Globally, Central Banks are under pressure. Models are failing.
The Nigerian Stock Exchange, the country’s economic barometer remains a solid investment platform. The current bear run would be taken over by bull very soon since nothing is intrinsically wrong with the quoted companies as their shares are generally undervalued. But the market is a victim of uncertainty in the polity. The National Assembly should accord priority to all capital market issues. Demutualization Bill is long overdue. Stockbrokers are gentlemen of the city worldwide but our economic and political challenges in Nigeria are pauperizing the vibrant profession. Our lawmakers and ministers should not wait until Stockbrokers in trading jackets storm the Chambers in Abuja to demand why the financial markets should not be treated with levity. However, risk is that they might be mistaken for the staff of Ibrahim Magu, the Acting Chairman of Economic and Financial Crimes Commision (EFFC).
Sola Oni
Oni, Communications Consultant and Chartered Stockbroker is the CEO, Sofunix Investment and Communications. He sent the piece via onisola2000@yahoo.com
