Digitization is impacting Nigerian retail investment market
Investment education is key to harnessing the power of the Nigerian retail market, which is backed by the huge population of over 180 million people, and attractive demography
In this interview, Sulaiman Adedokun, Deputy Group Managing Director, Meristem Securities Limited, speaks on the Nigerian retail investment market and the role of technology in driving it. He spoke with Jide Akintunde, Managing Editor, Financial Nigeria Magazine, and , in the series on Finance and Technology, sponsored by Simplex Business Solutions Limited.
Jide Akintunde (JA): Developments in the political space have tended to overshadow the performance of the capital market in Q1 2017. What is your view of the year-to-date situation of the Nigerian capital market?
Sulaiman Adedokun (SA): The Nigerian equities market has lost 5.06%, year to date (Friday, March 24, 2017), relative to a loss of 10.14% in Q1 2016. The foreign exchange issues were more severe in the first quarter of 2016 than 2017, and thus the relatively better performance of the equities market can be linked to the recent improvement in the FX market. These gains in the FX market have partly offset the negative investor sentiment from poor corporate earnings. Overall, macroeconomic and industry factors have largely had strong bearing on the equities market.
The recent political developments have impacted the capital market also, to the extent of their implications on macroeconomic fundamentals. Negative sentiments surround the non-passage of the budget at March ending. But on the positive note, the launch of the Economic Recovery and Growth Plan (ERGP) and issuance of the $1 billion Eurobond have been assuring on the fiscal side.
JA: On March 13th, the Federal Government National Savings Bonds was launched as a retail investment scheme. The FGNSB may be oversubscribed, but if the subscription was driven by corporate investors and high networth individuals, then a key promise of the bonds would have been unfulfilled. But then, is there adequate level of ICT infrastructure to drive the Nigerian retail investment market?
SA: We do not expect high net-worth individuals (HNIs) and institutional investors to consider the savings bond attractive, given the 2-year tenor and 13.01% interest rate. With higher investment capital, HNIs and institutional investors are able to access other investment instruments with shorter tenors and higher returns. Retail investors on the other hand would find the bond attractive, given the interest rate offered by banks which is about 3-5% per annum.
JA: We see that digitization has made the Contributory Pension Scheme quite
transparent, and this has helped in growing the pension assets. How can we leapfrog retail investments with ICT?
SA: The impact of digitization is already being felt in the retail segment of the Nigerian financial market. Relative to past trends, many more people are able to access real-time prices of stocks and shares, trade instruments listed on the floor of the Nigerian Stock Exchange from the comfort of their homes, and also monitor their investments online. The effect of these developments include improved price discovery and market transparency, and reduced information asymmetry.
There is, however, ample room for more innovative retail products and services. There is need for increased financial inclusion, especially for the growing population of mobile phone users, who have never participated in capital market activities. Also, a number of retail investors are not investment savvy, hence ICT should be deployed to aid effective dissemination of “easy to use” financial tools and education materials.
JA: When Ms. Arunma Oteh was Director General, the Securities and Exchange Commission was pushing the agenda for investment education in the country as a strategy for growing the retail market. I am not sure how actively this agenda is still being pursued. What would be the dividend of such programme of investment education in Nigeria?
SA: The plethora of retail products in the capital market attests to the fact that the agenda is still being pursued. In addition, the Chartered Institute of Stockbrokers (CIS), has held several of such programmes across the country. Investment education is key to harnessing the power of the Nigerian retail market, which is backed by the huge population of over 180 million people, and attractive demography.
JA: How active is Meristem's retail investment strategy, and what is the role of technology in implementing the strategy?
SA: Meristem's retail strategy is hinged largely on technology and innovation. We strive to understand our clients' evolving needs and then deploy innovative products to meet and surpass those needs.
We provide the investing public with user-friendly trading platforms that are easy to understand and use. We also equip our clients with up-to-date market information, thus aiding their quest to grow wealth. Meritrade, Diaspora Trust and MeriFX are a few of the major innovative products out of Meristem in recent times. Before the end of 2017, we will raise the bar further with the launch of another pacesetting retail product, aimed at simplifying access to financial services.
JA: It is projected that Nigeria will return to positive economic growth rate in 2017, after the recession of last year. Looking ahead to the remaining three quarters of the year, what is your outlook for the Nigerian capital market in 2017?
SA: In the fixed income space, the yield environment is still attractive especially in the secondary market. We expect a yield curve correction sometimes in the third quarter when we anticipate that the Monetary Policy Committee of the Central Bank of Nigeria will review the MPR downwards.
The equities market is still in a lull and there is limit to the power of retail investors to drive the market due to the pressure on disposable income in light of the inflationary pressures. Notwithstanding, as companies get back on profitability track, we should see some decent level of participation. But the sustainable resurgence will, to a large extent, depend on institutional and foreign investors.