Contrary to expectations, the recovery of the Nigerian capital market, following the federal government's intervention through the establishment of the 16-man Presidential Advisory Team, has proved to be temporary. Bright Nwogwugwu writes on the travails of the market and what experts say must be done to achieve sustainable growth.
The excitement generated by the sudden recovery of the Nigerian capital market in the wake of the federal Government's intervention, has turned out to be temporary, thus cutting short the joy of investors, who smiled to the bank penultimate week. Early last week, the bears staged a swift comeback, ensuring that market capitalisation of quoted companies dropped by N42 billion to close at N10.35 trillion on Monday, representing a loss of 0.40 per cent in contrast with the N10.39 recorded the previous weekend. The All-share index also shed 0.41 per cent to close at 49, 412.21 points down from 49, 615.55 as its opening index, with 58 equities recording losses against 17 gainers.
The FG's intervention through the establishment of the 16-man Presidential Advisory Team, had dramatically given the market a shot in the arm, with stock prices steadily gaining for six consecutive days, recovering close to N1 trillion in the course of the bullish run.
Capital market experts have expressed divergent opinions on why the good times did not last. Whereas some fault FG's rescue mission, claiming that it is a contravention of the forces guiding the Stock Exchange, others pick loopholes with investors' rush to make profit by disposing of their stocks in the light of slight price appreciation that followed government's intervention.
Mr. Chike Okorie, Chairman, Cadbury Audit Committee, believes that the market should have been allowed to recover by itself based on the forces that regulate it. “I do not believe in using force to regulate the market. Though it was going down, it should have been allowed to go down and at a point,with thiswould find its own level. By the time it would get to where it was supposed to rest, it will start rising again. This time, they are using executive fiat to regulate the force of demand and supply,” Okorie stated.
Mr. Ifeanyi Onyenma, Director, Research and Training, Financial Edge, however, disagreed. He lauded FG's intervention but insisted that it has to be complemented by confidence among the investing public before it can bear the desired fruits.
Hear him: “The skeptical stance of most investors does not yet signal any sustainable reprieve for the nation's capital market. If investors truly had confidence in government's intervention and the market, we wouldn't have been witnessing the exodus that is going on in the name of gain-taking, at this very embryonic stage of the market's recovery. What the market requires for sustained growth is unwavering confidence on the part of investors, the kind of confidence that encourages a long-term investment culture.”
On his part, Mr. David Nwagu, Managing Director of Financial Guide Extra Limited, in a telephone chat with M2, predicted that the capital market would follow an undulating curve until the recommendations made by the Presidential Advisory Team are fully implemented. “The rally you see in share prices is based on hype and that is why it cannot be sustained,” he said. “The market will continue to go up and down until the measures recommended by FG's 16-man team are executed to the letter. On the question of investors' confidence, I must say that no genuine progress can be recorded without it.”
Speaking further, Nwagu advised that in their subsequent meetings, the Presidential Advisory Team should review the daily upward movement of stocks from 5 to 10 per cent to expedite the recovery of those stocks that have good fundamentals. He also advised that make-shift avenues be created for people who have invested in private placements to sell their shares whenever they so desire.
Government's intervention had come as a relief to investors as stock value nosedived in defiance of all projections. Between March and the better part of August this year, the capital market had stood seemingly helpless before the harshest of crucibles, shedding an unprecedented N3.5 trillion in the process. It was squeeze time for investors and some of them were driven to untold extremities by the parlous state of the market.
Together with the loss of huge sums of money, some investors were said to have lost their psycho-cognitive balance, their health and their confidence in the market. Some even lost their lives. So bad was the situation that many first-timers at the market vowed never to look in that direction again.
As many investors made their exit from the market in fear, dumping their stocks at rock-bottom prices, market index dipped and dipped until it became an issue of national concern.
When the bears initially set in, a good number of stock analysts had argued that the market was merely correcting itself, as many listed equities were said to be over-valued. The market was seen as having embarked on an inexorable search for fair prices, which was not only considered normal but also seen to be in the best interest of investors.
The corrective process, analysts had claimed, was not going to exceed three months. But, against their prognosis, market conditions continued to worsen.
Along the line, some market watchers attributed the continuous fall of prices to a number of factors. One of these was the delayed passage of the 2008 budget, which purportedly heightened the liquidity problem in the market. The directive of the Central Bank of Nigeria (CBN) that banks should have a uniform accounting year-end by December 2008 was also implicated by some analysts, after the banks were said to have massively withdrawn margin facilities granted investors to trade with in the market, all in a bid to maintain a clean bill of health.
The directive by the Securities and Exchange Commission (SEC) that stock broking firms must meet a minimum capital requirement of N1 billion by December 2008 was said to have also contributed to the lull in the market as these firms moved to mop up funds from the capital market in order to shore up their capital base. Equally blamed by some was the action by the management of the Nigerian Stock Exchange (NSE), which announced the increase the volume of trade from 15,000 to 100,000 units before share price could appreciate.
Under pressure to stem the tide of falling stock prices, regulators started to rescind some of their policies in a bid to arrest the declining fortunes of the market and allay the fear of investors. SEC, for example, suspended the recapitalisation exercise of stock broking firms, while CBN called off plans for the uniform year-end for banks, encouraging them to grant margin facilities to willing investors so as to boost liquidity in the market.
But rather than recovering, the market descended further into the doldrums, prompting some analysts to look for scapegoats in investors, claiming that the short term mentality of many investors and their panic-driven decision to sell even blue chip stocks for paltry sums contributed a great deal towards undermining the stock value and frustrating well-intended policies of the regulatory authorities.
The government had to intervene when it could no longer afford to watch from the sidelines, setting up a 16-man Presidential Advisory Team to rescue the market from total ruin.
Moving swiftly into action, the team decided to reduce to 1 per cent (down from the previous 5 per cent), the maximum daily downward price movement of stocks, while retaining 5 per cent limit on daily upward movement. It also agreed that the Companies and Allied Matters Act (CAMA) 1990 would be adjusted to allow quoted companies buy back a minimum of 20 per cent of their shares.
Other measures introduced by the panel include reduction in fees charged by all capital market operators, setting up of capital market stabilisation fund, and strict enforcement of NSE's listing requirement with zero tolerance on infractions. As part of the measures, banks were to restructure their portfolio of facilities to assist the operations of licensed stock brokers, institutional and individual investors on longer repayment terms.
The measures immediately worked wonders on the market, but with the good times failing to last, analysts now say the turnaround was cosmetic. In the circumstances, analysts say it has become imperative for all stakeholders to contribute their respective quotas towards re-positioning the market which used to be regarded as one of the most promising in the continent.
