Do­mes­tic in­vestors at risk

Business a.m. - - FRONT PAGE - Nse An­thony-Uko and Ades­ola Afo­labi

ABOUT 2.5 MIL­LION do­mes­tic in­vestors in the Nige­rian cap­i­tal mar­ket risk los­ing a whopping N60 bil­lion of their in­vest­ments if they fail to dig­i­tize and em­brace the on­go­ing de­ma­te­ri­al­iza­tion of se­cu­ri­ties in the mar­ket, ac­cord­ing to lat­est data from the Se­cu­rity and Ex­change Com­mis­sion (SEC)

ABOUT 2.5 MIL­LION do­mes­tic in­vestors in the Nige­rian cap­i­tal mar­ket risk los­ing a whopping N60 bil­lion of their in­vest­ments if they fail to dig­i­tize and em­brace the on­go­ing de­ma­te­ri­al­iza­tion of se­cu­ri­ties in the mar­ket, ac­cord­ing to lat­est data from the Se­cu­rity and Ex­change Com­mis­sion (SEC)

This is just as Henry Row­land, the act­ing ex­ec­u­tive com­mis­sioner, cor­po­rate ser­vice at SEC high­lighted the im­por­tance of tech­nol­ogy in mar­kets at the SEC jour­nal­ist Academy held last week­end in Uyo. He specif­i­cally used the de­ma­te­ri­al­iza­tion of the Nige­rian cap­i­tal mar­ket as a case study.

“Tech­nol­ogy is driving the next phase of global eco­nomic growth, and with Nige­ria be­ing within the global economy, the Nige­rian cap­i­tal mar­ket can­not be in­su­lated from that,” he stressed, adding that cre­at­ing a glob­ally sus­tain­able and com­pet­i­tive fi­nan­cial mar­ket in Nige­ria will re­quire a level of hand hold­ing of all stake­hold­ers in­volved.

The Nige­rian cap­i­tal mar­ket has a large per­cent­age of do­mes­tic in­vestors who had long in­vested in the mar­ket in their youth and have since be­come aged, height­en­ing the pos­si­bil­ity of a chal­lenge to mi­grate to a dig­i­tized mar­ket, which is the des­ti­na­tion the globe is headed.

Dig­i­ti­za­tion in­volves trust­ing ma­chines and com­puter to han­dle busi­ness for­merly done by hand. To dig­i­tize some­thing is to con­vert it from an ana­log into a dig­i­tal for­mat. An ex­am­ple would be scan­ning a pho­to­graph and hav­ing a dig­i­tal copy that can be pro­cessed on a com­puter.

Row­land in­deed re­it­er­ated how dig­i­ti­za­tion has be­come fun­da­men­tal to the success and per­for­mance of busi­nesses across the world, adding that an eval­u­a­tion of to­day’s global trends clearly re­veals that tech­nol­ogy (oth­er­wise de­scribed as digi­ti­sa­tion) has been chang­ing the world around in a rapid pace.

Peo­ple used to pay a pre­mium for in­for­ma­tion and con­tent but to­day, com­pa­nies such as Google, Twitter, Facebook and What­sApp have elim­i­nated this as they can now check his­tor­i­cal data to iden­tify pat­terns or sig­nals and price cor­re­la­tion, with­out stress.

In­vestors are now ex­e­cut­ing trades on real-time ba­sis and on mul­ti­ple stocks by the use of data an­a­lyt­ics with digi­ti­sa­tion tools, em­pha­sis on data col­lec­tion, val­i­da­tion, stor­age, anal­y­sis, avail­abil­ity and pro­tec­tion (i.e. se­cu­rity and re­cov­ery) have thus be­come fun­da­men­tal to the func­tions and per­for­mance of es­tab­lish­ments & busi­nesses, Row­land ex­plained.

Ac­cord­ing to him, at­tract­ing a wider range of new in­vestors and re-con­sol­i­dat­ing the con­fi­dence of erst­while in­vestors ne­ces­si­tated the SEC’s im­ple­men­ta­tion of a 10-year cap­i­tal mar­ket master plan.

The plan with 101 ini­tia­tives, also aims to di­ver­sify the in­stru­ments be­ing traded on the ex­change to more digi­tised and so­phis­ti­cated prod­ucts from a preva­lent mono prod­uct mar­ket, in op­er­a­tion to­day.

The Nige­rian Stock Ex­change cur­rently has about 286 listed Se­cu­ri­ties which com­prises 169 eq­ui­ties, 108 bonds and 9 ex­change traded funds.

Abreak­down of the con­tri­bu­tion of the eq­ui­ties mar­ket cap­i­tal­iza­tion in re­la­tion to the en­tire Nige­rian economy in terms of GDP shows a lim­i­ta­tion of the size, depth and so­phis­ti­ca­tion of the cap­i­tal mar­ket.

Afo­labi Olowokeere the di­vi­sional head of re­search SEC noted that Nige­ria’s eq­ui­ties mar­ket cap­i­tal­iza­tion of about N11 tril­lion as at Novem­ber 30, 2018 rep­re­sents 8.5 per­cent of the coun­try’s 2017 gross do­mes­tic prod­uct of N135 tril­lion.

This is in sharp con­trast with other ma­jor ex­changes across the world such as South Africa where the eq­ui­ties mar­ket cap­i­tal­iza­tion rep­re­sents 350 per­cent of the coun­try’s GDP.

In USA the eq­ui­ties mar­ket cap­i­tal­iza­tion is 165 per­cent of GDP, 145 per­cent of Malaysia’s eq­ui­ties mar­ket cap­i­tal­iza­tion is rep­re­sented in its GDP and with world av­er­age stand­ing at 112 per­cent, Olowokeere af­firmed that de­vel­op­ment of more prod­ucts to at­tract do­mes­tic re­tail in­vestors’ par­tic­i­pa­tion will drive a bet­ter com­pet­i­tive and deeper mar­ket.

To achieve a more sus­tain­able and glob­ally com­pet­i­tive mar­ket, Olowokeere also as­serted that the mar­ket must be more re­flec­tive of the com­po­si­tion of the economy.

The Nige­rian economy has the fi­nan­cial in­sti­tu­tions sec­tor con­tribut­ing about 5 per­cent to the GDP, but at the cap­i­tal mar­ket th­ese in­sti­tu­tions ac­count for over 60 per­cent of com­pa­nies listed on the eq­ui­ties mar­ket.

The agri­cul­tural sec­tor which com­prises a larger per­cent­age of the coun­try’s economy are how­ever found to be less rep­re­sented at the cap­i­tal mar­ket.

With this dy­nam­ics it may be dif­fi­cult to posit the per­for­mance of the economy through the ac­tiv­i­ties of the cap­i­tal mar­ket, be­cause listed com­pa­nies are not re­flec­tive of the economy ex­plained Olowokeere.

He also stated that com­pa­nies in agriculture sec­tor, oil and gas, en­ter­tain­ment and telecom­mu­ni­ca­tion which com­prises a larger per­cent­age of the economy’s pro­duc­tive ac­tiv­i­ties be en­cour­aged to come on board the cap­i­tal mar­ket.

Ini­tia­tives, prod­ucts and se­cu­ri­ties that can fur­ther drive par­tic­i­pa­tion of do­mes­tic re­tail in­vestors, and keep for­eign in­vestors en­gaged all year round be­ing rolled out by the SEC in­clude the Di­rect Cash Set­tle­ment, the Ediv­i­dend, de­riv­a­tive trad­ing, crowd­fund­ing, and elec­tronic IPO said Has­san Suleiman, head strat­egy divi­sion of the SEC.

The ini­tia­tives and prod­ucts he said, will fa­cil­i­tate greater com­pet­i­tive­ness and deepen liq­uid­ity. They are how­ever lagely based on digi­ti­sa­tion re­it­er­at­ing an ur­gent need for its ac­cep­tance and util­i­sa­tion.

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