Of Local Investors and the Nigerian Bourse
Eromosele Abiodun writes that local investors should take the advice by stakeholders in the capital market and enjoy the wealth being created by listed companies
Also, Nigerian companies are now listing on global stock exchanges creating more opportunities for foreign investors to invest in Nigerian companies
Since the 2008-2009 global financial crisis that led to stock market crash around the world, investors have been seeking alternative destinations for their investments. However, recovery from the crisis has been recorded and according to the International Monetary Fund (IMF), net portfolio inflows to sub-Saharan Africa have been on the rise since the last four year with Africa dubbed as a ‘frontier market’
Also, Nigerian companies are now listing on global stock exchanges creating more opportunities for foreign investors to invest in Nigerian companies
A recent IMF Report records that Nigeria’s sub-national bonds market has grown rapidly, becoming the largest in Africa with $2.8 billion in outstanding domestic debt at end-2012 compared with $1.6 billion in South Africa.
Several companies have listed on the exchange raising the market capitalisation of the Nigerian Stock Exchange (NSE) to over N13 trillion. This is a remarkable success when compared with the N6 trillion it fell to during the crisis.
Notwithstanding, many local investors have refused to come back to the capital market, leaving the market for foreign investors to enjoy the wealth being created by Nigerian companies.
Data obtained from the Nigerian Stock Exchange showed that 10 stock-broking firms accounted for N1.791 trillion worth of equities traded on the Nigerian stock market in 2014.
The trading statistics by stock-broking houses between January 2 and December 31, 2014 showed that 10 stockbroking firms accounted for 120.366 billion shares worth N1.791 billion. In terms of value, the stockbroking firms accounted for 66.5 per cent and 55.48 per cent in volume terms.
A breakdown of the performance in value terms shows that Stanbic IBTC Stockbroking Limited led with N472.415 billion or 17.5 per cent. CSL Stockbrokers Limited followed with transactions worth N262.988 billion or 9.7 per cent, while Rencap Securities Limited, traded equities worth N246.98 billion or 9.2 per cent.
Chapel Hill Denham Management Limited accounted for N223.849 billion or 8.3 per cent, while Meristem Securities Limited traded shares valued N156.210 billion or 5.8 per cent. FBN Capital Limited recorded N123.160 billion or 4.5 per cent.
Cordros Capital Limited accounted for N109.101 billion or 4.1 per cent, just Cardinal Stone Securities Limited recorded N73.754 billion or 2.7 per cent. The other two firms among the top 10 included BGL Securities Limited, N65.791 billion or 2.4 per cent and Africa Alliance Stockbrokers Limited, N56.516 billion or 2.1 per cent.
In volume terms, Stanbic IBTC Stockbrokers maintained the lead, recording 24.781 billion shares which represented 11.42 per cent. FBN Capital traded 17.786 billion shares or 8.2 per cent, while CSL Stockbrokers traded 15.339 billion shares or 7.1 per cent.
Chapel Hill Denham Management accounted for 14.849 billion shares or 6.8 per cent just as Rencap Securities Limited traded 12.252 billion shares or 5.5 per cent. BGL Securities Limited and Cardinal Stone Securities Limited recorded 12.075 billion shares or 5.5 per cent and 8.465 billion shares or 3.9 per cent respectively.
Cordros Capital, which occupied the seventh position in terms of value, was placed eight in volume terms. The firm accounted for 6.539 billion shares 3.01 per cent of the equities traded.
Readings Investment traded 4.493 billion shares or 2.1 per cent, while Meristem Securities Limited accounted for 3.783 billion shares or 1.7 per cent.
Reversing the trend
While the efforts of the above named stockbroking firms is laudable, it is important to state that over 70 per cent of their trades are for foreign investors. To reverse this trend, stakeholders in the capital market have devised several methods to get local investors back to the capital market.
Last week in Lagos, one of the stakeholders in the capital market, Capital Bancorp Plc, put together its maiden investor forum themed, “Wealth Enhancement through Investible Opportunities in the Nigerian Capital Market.”
The forum objectives were; to encourage active participation of domestic, high net worth individuals and institutional investors in the Nigerian capital market; to bolster the confidence of current and potential investors in the market; and to show, with empirical evidence, that domestic investors who stayed in the Nigerian Stock Market post 2009 and invested wisely have indeed enhanced their wealth.
In his remarks, Managing Director, Capital Bancorp Plc, Mr. Aigboje Higo, informed participants that the forum is part of the company’s initiatives towards creating awareness among domestic investors of existing investment opportunities in the Nigerian Capital Market.
The Chief Risk Officer of the NSE, Mr. Tunji Kazeem (representing the Chief Executive Officer of the exchange,, Mr. Oscar Onyema) delivered the keynote address, while Managing Director/CEO, Mr. Opeyemi Agbaje, RTC Advisory Services Limited set the tone for the panel discussions with a data-based review of the Nigerian economy and policy from 1999 to date.
Thrust of the discussions
After deliberations, stakeholders agreed that the Nigerian economy has, over the years, been plagued by high cost of governance, depletion of reserves, high inflation rates, mismanagement of social sector, etc.
Stakeholders agreed that policy successes recorded in Nigeria from 1999 - 2015 include: deregulation of the telecommunications sector; banking sector reforms; enactment of the Freedom of Information Act; power sector privatisation; GDP rebasing; increase in foreign direct investment; agricultural reforms and macroeconomic stability.
They also agreed that policy failures in the management of external reserves, electricity distribution, budget structure, oil and gas sector, infrastructure, cost of governance, security and employment, among others were experienced in Nigeria, from 1999 - 2015.
Economic reforms in Nigeria, they submitted, should be geared towards the diversification of sources of national income; efficiency and improvement in economic productivity; equitable distribution of resources and high economic growth.
“Nigerian economic imperatives should focus on inclusive, sustainable, optimal and de- risked growth. Investment opportunities available to domestic, as well as foreign investors include assets traded on the NSE as well as the Over the Counter (OTC) market on the NASD platform. Assets currently being traded on the exchange include equities, fixed income securities (i.e. bonds), Exchange Traded Products (ETPs) and mutual funds. Other tradable assets to be introduced next year include Derivative based securities, “the stakeholders said in a communiqué issued at the end of the forum.
The NSE, they noted, has adopted a zero tolerance approach to market infractions by the broker/dealer community, with tighter compliance and enforcement practices.
“Certain key initiatives have been introduced by the NSE since 2011, to align the stock market with global best practices, including: growth-enabling market structures; stronger regulatory oversight; targeted business development efforts (new products & listings); launch of X-Gen, dubbed the fastest trading engine in Africa; investor protection and whistleblowing programs; enhanced market surveillance capabilities, among others,”the forum agreed.
Boosting investor confidence
To further bolster investor confidence, stakeholders agreed that an expeditious complaints management framework has been introduced by the apex regulator, the Securities & Exchange Commission (SEC), which involves the speedy resolution of investors’ complaints by Self - Regulatory Organisations ( the NSE), the Administrative Proceeding Committee of the SEC and finally the Investment & Securities Tribunal (IST).
“Although the state of the stock market is currently bearish, which can be attributed to the economic situation, fall in oil prices and devaluation of the naira, The NSE intends to intensify efforts towards developing a more sustainable market and implementing a more competitive price structure with the apex regulator and other market participants. Given the inherent risk profile of investing in equities, the returns have adequately compensated investors when compared to other asset classes.
“When compared with other rates and asset classes (the All Share Index, Treasury Bills, 12 months Deposit, FGN Bond, MPR and Inflation), the NSE 30 Index (i.e. top 30 companies in terms of market capitalisation and liquidity) showed a cumulative growth of 171.68 per cent from January 28, 2009 till December 31, 2014 and was outperformed by the All Share Index in two out of the six years reviewed. Since 2009, there has been a steady decline in the market activities of domestic investors, while there has been an increase in participation by foreign investors,”they said.
They added, “Factors which led to the loss of confidence in the Nigerian capital market include: loss in value of investment; total loss of investment; ‘sharp’ practices by market operators; lack of transparency in financial information rendition; ineffective regulation; perception that the market is not fair; cumbersome practices in issuance of dividends, bonuses, rights issue etc.; alternative investment outlets; perceived lack of liquidity and misconception about the stock market.
“Recent developments targeted at restoring the confidence of investors in the Nigerian capital market include: continuous financial literacy and investor clinics; technology driven management of IPOs, dividends and bonuses; biometric capture as part of Know Your Customer (KYC) process to forestall identity theft; online monitoring of individual Central Securities & Clearing System (CSCS) accounts; access to portfolio reports as provided by broker /dealer; improved market structure and technological advancement.”
Heightened supervision by regulators
Capital market operators, they said, are also subjected to heightened supervision by regulators through the introduction of new Rules and Regulations; compliance with Minimum Capital Requirements and Minimum Operating Standards; tougher registration requirements and mandatory appointment/designation of compliance and risk officers.
The NASD, a SEC licensed OTC market, they stated has expanded trading prospects for investors in the Nigerian capital market with its focus on unlisted securities and is set to launch platforms for trading in investments on power distribution companies, telecommunications industry linked notes, as well as small and medium scale enterprises (SMEs) and crowd-funding investment opportunities.
“There is general optimism that the current administration will tackle corruption, which will eventually lead to economic gains. Hence, the need for active participation of domestic investors in the Nigerian capital market to ensure that they are better positioned to take full advantage of market offerings and create sustainable wealth.
“Domestic investors in Nigeria, particularly ultra- high net worth individuals could explore opportunities in off- shore investments, as a supplementary investment avenue through UBS (Nigeria), a company which provides tailored wealth management services to investors, while leveraging on the global expertise of UBS AG, a Swiss financial services company.
“The culture of unsustainable and nontransferrable wealth in Nigeria makes a case for wealth management by UBS (Nigeria) with service offerings which include: succession planning for entrepreneurs, trusts and foundations; off shore wealth enhancement; off- shore investment diversification; family advisory services for wealthy entrepreneurs, among others, “they stated. Development and Prosperity.” As part of the recommendations at the end of the forum, stakeholders noted that in spite of the current challenges plaguing the nation, aspirations for growth, development and prosperity can be realised if correct policies based on a robust economic agenda are adopted.
Participants also pointed out that the economic reforms and policy should be anchored on diversification, efficiency, equity and strong economic growth.
Financial markets, they stated, have a significant role to play in ensuring that the nation finally achieves its potential.
They added that the current administration should deepen and expand domestic production with a focus on agriculture, power, solid minerals, as well as downstream and upstream oil and gas.
According to them, “A favourable investment climate, competitiveness reforms and policy incentives should be introduced by Government to promote export competitiveness. Government should introduce sustainable programmes to address unemployment/ under-employment, inequality and poverty. Full deregulation of the oil industry would produce a huge domestic, private refining and petrochemical sector
“Although Nigeria has enormous investment opportunities that could attract both indigenous and foreign investors, appropriate structures should be put in place by Government as well as Regulators, to reinforce investor confidence. Issuers of securities (quoted companies) should be encouraged to initiate and maintain vibrant investor relations and shareholder/prospective investor engagement with a view to giving adequate information to enable investors take informed decisions.”
Indigenous companies, they said, should be encouraged to imbibe global corporate governance standards and best practice, to enhance their marketability to off- shore investors seeking bankable investment opportunities in emerging economies.
A favourable investment climate, competitiveness reforms and policy incentives should be introduced by Government to promote export competitiveness