THE NATION MONDAY, OCTOBER 29, 2012
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THE CEO •Continued from page 28
come back to the market. SEC has been having meetings with stakeholders on how to make sure that the market moves forward. This, among others, is one of the measures put in place to re-invigorate the market. If this continues, we believe within a short period of time, the market will bounce back in a sustainable manner and the investors would be better for it. What is the motivating factor for investors now? Every investor has his own objective of participating in the market. I can say that investors have made a fortune from the market in the past and even this year. This year alone; the market has gained about 32. 60 per cent compared to about the 18.5 per cent it lost last year. This has made the market worth looking at by those people that have left the market. We are happy that investors are gradually coming back to the market. In recent times, the volume traded has improved. Before, we were trading between N150billion and N200billion worth of shares, but now, we are trading on the average N2.8trillion naira worth of shares. Also, if you look at market indicators, you will observe that the All-Share Index has actually moved up. It is over 27,200 points now. The market capitalisation is over N8.328 trillion compared to about N6.5trillion in the beginning of this year. By how much has the market grown in the past one year? To be precise, the NSE All-Share Index yearto-date (YTD) is about 31.63 per cent, which is remarkable enough, compared to the 18.3 per cent recorded last year. On Sectoral Indices year-to-date movement, NSE 30 Index recorded growth of 40.14 per cent YTD, NSE Banking Index also recorded increase of 61.91 per cent, NSE Consumer Index grew by 301.27 per cent, while NSE Insurance Index fell by 1.8 per cent. NSE Oil/Gas Index also moved southward by 26.02 per cent. These indicators on the average, showed remarkable growth of the market. A lot of infractions were made and attributed to the stockbrokers. What measures have been put in place to prevent a recurrence? Before the meltdown, people alleged stockbrokers of many infractions, saying, they are the ones causing distortions in the market. In my opinion, these allegations are not right. For Instance, when you mandated a stockbroker to buy some stocks for you, he would do so in line with the instructions given to him. He would also sell in line with the mandate given to him. We have seen instances where people would give stockbrokers mandate to sell their stocks. When they realise that prices of those stocks are going up, they deny ever giving such a mandate, claiming that their mandates were forged. That is not to say that we do don’t have few bad persons among stockbrokers. But it cannot be generalised that stockbrokers are the ones causing distortions in the market, I do not agree. There are principles guiding the market and the market is a structured one that has rules and principles driving it. These are followed by Authorised Dealing Clerks and the Dealing members. Erring operators are properly sanctioned on fair and equity basis. Are you saying brokers and investors connive to cause infractions in the market? Far from it. There are various infractions in the market. My own understanding of infraction is when you violate the rules and regulations guiding the operations of the market. In the past, we have where people committed series of professional misconduct. They were duly punished and sanctioned appropriately. Regulators neither condone market indiscipline nor professional misconduct. That is why our market is still one of the best in the world. Some of the erring operators were suspended, while others have their licences revoked. These are some of the disciplinary actions the regulators have taken to protect the integrity of the market. Do you see the surge being sustained or just a flash in the pan? It is an undeniable fact that stock market is a the barometer of the economy. Events in the economy have reflections on the stock market. Once the economy improves, the market witnesses a lot of activities. If the economy is improving, companies performance will improve and precipitate the release of good results to the market. Once companies’ performances are improving, it will impact positively on shareholders’ value which have direct influence on their prices and lead to market indicators moving upward. Besides, it is our prayer that the economy will continue to do well as other macroeconomic factors become more favourable to the
‘Bad eggs cause distortions in stock market‘
•Adebola
‘For any country to have a vibrant capital market, you must have a good payment system, viable REPO market, as well as opening up your market to foreign investors’ market. First, it has been observed that there is direct correlation between the price of crude oil and out stock market returns. If the price of our crude oil continue to go up, we are going to see many foreign investors showing interest in the Nigerian market. Secondly, availability of funding within the economy has also been impacting on the growth of the market. Once there is liquidity squeeze, market becomes sluggish. Thirdly, the decision of the monetary authorities to bring down the interest rate would help improve activities in the market. Nigeria’s oil price has been on the increase in recent times. To what extent has it attracted foreign investors to the country? According to a data released by the NSE, over 60 per cent of the activities on the buyside in the nation’s stock market are being controlled by foreign investors. The reason is because the returns in our market are relatively higher than what it is obtained in other
emerging markets. This has attracted so many foreign investors into the country. Once the oil prices are going up, foreign investors consider the Nigerian market of the positive correlation between crude oil prices and stock market returns. The more we have the oil prices going up, the more our economy becomes buoyant and our market becomes attractive to foreign investors. Who are those controlling activities in the stock market-Institutional investors or foreign portfolio investors? When we are talking about foreign investments, they are of two types. We have foreign portfolio investment and direct foreign investment. The former refers to a situation whereby foreign investors come to invest in financial instruments in our domestic market, while the latter explains foreign investors coming to invest in physical assets in manufacturing, power and fast moving consumer goods,
among other areas. Here, we are talking about foreign portfolio investors. We have seen some of them coming to buy shares in our market. Can you put a figure to year-to-date value of foreign portfolio investments in the market? In foreign portfolio investment, the market has recorded some growth. If the market capitalisation has moved from N6.5 trillion to over N8.6trilion this year. We can safely say that over 60 per cent of this comes from the foreign portfolio investors. It has been estimated that fresh funds of about N419.93billion has been invested this year alone. I want to assume that 66 per cent of this is done by the foreign portfolio investors which translates to N277.15billion. To what extent can we say the infighting between the leadership of SEC and its staff has affected the market? This is an internal issue in SEC, and it cannot affect the market in any way. I believe the issue cannot have any meaningful effect on the market and the issue would soon be resolved soon. What is your assessment of the performance of the leadership of the Exchange? We can give him a pass mark, considering the good initiatives he has brought into the market. He has brought dynamism that has transformed the landscape of the market. He has initiated certain reforms, and they are yielding fruits. Before now, for the price of a stock to move, we need to trade some stocks up to 50,000 units. This principle has not favoured some high priced stocks thus making their prices to be creeping for sometimes. But now, with 10,000 units in a single trade, price of such stocks can move. The introduction of market makers is another noble achievement in the market. Others are the introduction of Exchange Traded Fund and the Investors Clinic to educate investors. However, the management of Stock Exchange can do better by intensifying efforts in collaborating with other stakeholders to bring more companies to the market. I am talking about giant telecommunications companies, power firms, Energy and oil. This will go a long way to build capacity and deepen the market. Interestingly, the market currently has 235 dealing members but less than 200 quoted companies. There is the need for more companies to come to the market for listings, as well as introducing more securities so as to increase the market depth and width. What are the prospects for fixed-income securities like bonds? Some years ago, the Federal Government bonds, called Federal Government Development stocks, were being traded on the Stock Exchange. At a point, the trading on these bonds stopped and became inactive. Then, the Federal Government used to appoint stockbroker brokers to buy and sell on behalf of other stockbrokers. With the establishment of Debt Management Office (DMO), government revisited the bond market by appointing primary market dealers Market makers (PDs/MMs) to trade in bonds. However, there is an on-going process to deepen the bond market. NSE, SEC and DMO are working together to ensure that the retail aspect of bond is returned to the platform of the NSE. Permit me to say that any market that does not have solid retail platform cannot stand the test of time. This initiative of bringing the retail aspect of bond trading to the exchange is a laudable one. The development would make more Nigerians to participate in bond market. It is only banks and discount houses that are trading in the Federal Government bond market because of their appointment as market dealers makers. They are dealing on wholesale basis. This excludes participation of retail investors in the secondary market. By returning bond trading to the NSE platform, retail investors would be able to participate in the bond market. In what other ways can the government make the bond market stronger? For our any country to have a vibrant capital market, you must have a good payment system, viable REPO market, as well as opening up your market to foreign investors. The inclusion of Nigeria’s bond in JP Morgan Bond Index is one way of opening the financial services market to foreign investors. Through this, foreign investors would have access to relevant data on the instruments and our capital market would be better for it. Besides, interest rate management by monetary authorities should also be done to ensure that the interest of the market is considered. Furthermore, enlightenment programme by various regulators and market operators should be intensified so as to increase the number of participants in the bond market.