Post Views: 112 There is no doubt that the biggest challenge of the Nigerian stock market today is the obvious lack of liquidity. This was the summary...
There is no doubt that the biggest challenge of the Nigerian stock market today is the obvious lack of liquidity. This was the summary of a presentation by Idika Ekong, head of Research at the Chartered Institute of Stockbrokers (CIS), at the opening day of a two-day International Conference on the Capital Market, organized by the Securities & Exchange Commission (SEC), in collaboration with the Department of Finance, University of Lagos.
For Ekong, former chief executive of a stockbroking firm, who himself abandoned the trade for other endeavours, liquidity remains the biggest problem in the Nigerian capital market today, arising from poor confidence, because in his words, “most local investors are yet to overcome the trauma of the 2008 market crash.”
He assured that the regulatory environment is very strong today, just as there is great improvement in knowledge about the market.
However, he believes stakeholders in the market such as the SEC, as apex regulator, the Nigerian Stock Exchange, and the stockbrokers, among others need to impress upon such wary investors “that Nigerian capital market is a much more improved one today, and offers more varieties of investment choices.”
He listed such choices that never existed until a few years ago as FGN Savings Bond, which an investor can buy with as little as N10,000; the Sukuk, for ethical investors; and Exchange Traded Funds (ETFs), all of which ensures that investors are not locked in on equities alone.
In addition, Ekong continued, “in 2008, we had only the NSE, but today, we have the FMDQ OTC Exchange, Africa’s largest debt market… there is NASD for trading shares of companies not listed on the NSE.”
He recalled how some years ago, a client of his company, an old man, who was a shareholder of the West African Milk Company (WAMCO), needed to sell his shares, an endeavour that took over two years to complete. The situation, he continued, is easier today with the NASD.
The CIS chief also spoke of the Lagos Commodities Exchange for the sale of farm produce, among others.
Stakeholders, he said, should let Nigerian investors “know that by staying away from the Nigerian stock market, they lose out of the existing opportunities to make huge returns on investments.”
He expressed sadness that only the international investors, who today dominate the market, are making money, while Nigerians continue to ruminate over their decade-old loss due to the market crash.
To ensure the Nigerian capital market effectively plays its role in the economy, he believes there is the need for government give priority attention to infrastructure development, stressing that “the kind of money need for infrastructure can only come from both government (revenue generation) and the capital market (debt).
“It was the fixed income segment of the capital market that helped Nigerian out of the 2016 recession,” he reminded all.
The Central Bank of Nigeria (CBN) can also help restore the glory of the Nigerian capital market by encouraging banks to extend margin facilities to investors, which he recalled was one of the major sore thumbs in the 2008 crisis.
“The problem with margin facilities in the past was that of poor regulation. CBN can spike liquidity by encouraging banks to do margin lending.”
There is the need, he continued, to attract more big companies into the stock market, a task government can undertake by offering tax incentives and waivers to those who agree to become quoted on the bourse.
Also pertinent, he believes, is the need to revisit the restructuring of Nigeria’s entire financial system, as it is today skewed towards the banking system or money market, a situation he described as unhealthy.
Also commenting on the issue, Peter Ama, a former banker, now of the Department of Finance, Unilag, lamented that “the (Nigerian) economy is struggling today because the capital market is suffering. A yearning gap, he noted, exists today in the primary arm of the capital market, which the SEC needs to plug.
“SEC should develop capacity in product development and securities origination,” he stressed.