Operators prescribe leeway to sustainable market recovery
CAPITAL market operators under the aegis of the Chartered Institute of Stockbrokers (CIS), Association of Stockbroking Houses of Nigeria (ASHON) and Association of Issuing Houses of Nigeria (AIHN) have urged local institutions with strong capacity to invest in the capital market to reduce the dependence on foreign investors and prevent unnecessary shocks.
Speaking during an interactive section with leaders of capital market operators on how to move the market forward, in Lagos yesterday, the three bodies attributed the major reason for the depressed state of the market to sell down by foreign investors which accounted for about 57per cent of market transactions in 2014.
Specifically, the President of ASHON, Emeka Madubuike explained that while the large presence of foreign investors in the market signifies strong attraction to the country, their sudden reversal also portends great danger with the bearish mode witnessed presently in the market.
“At present, virtually all stocks on the Nigerian Stock Exchange are undervalued despite strong fundamentals. The primary reason for the depressed state of the market was believed to due to sell down by foreign investors who account for about 57% of market transactions in 2014. While the large presence of foreign investors in our market signifies strong attraction to the country and our market, since these are hot monies, their sudden reversal also portends great danger for the market as seen in the second half of 2014 up till now when the market began the bearish mode.
“We particularly implore the Pension Fund Administrators (PFAs) to lead the vanguard of this investment opportunity by increasing their stakes in the equity market. Strong institutions like the Asset Management Company of Nigeria (AMCON), Nigerian Deposit Insurance Commission (NDIC), the Sovereign Wealth Fund (SWF) and other local investors should equally see the trend as potential opportunity to take position in the Nigerian Capital Market.
The President, CIS, Albert Okumagba stressed the need Federal Government to promote the culture of national savings through appropriate incentives.
“For instance, we suggest a policy where the interest on the first one million Naira of savings is tax free. Through that, investors are incentivized to put their funds in savings account. Another approach to national savings is the review of the privatization programme of the Federal Government and the divestment of its holdings in the privatized companies in order to mobilize funds and encourage the private sector operators to develop the economy while the government provides an enabling environment.
He explained that government should consider the divestment of at least 20% holdings in the power companies to the Nigerian investing public as preparatory for listing the shares on a stock exchange.
“In addition, in order to solve the perennial housing problem, more Real Estate Investment Trusts (REITs) should be created as a matter of urgency to boost investment in the real estate sector.”
Speaking on the effect of the interest rate on the market, the President of AIHN, Victor Ogiemwonyi said: “We believe that devaluation of the Naira has potential to prevent round-tripping and protect local industries among others. However, it appears that the CBN is currently over-protecting the naira value and thus making it artificial while also depleting the nation’s foreign reserve in defending the naira exchange rate.
“Since the value of the foreign reserve essentially determines the country’s capacity to borrow internationally and to support our international trade, the continuous hemorrhaging of the reserves is not in the best interest of the country.
“While keeping the managed float, we believe that the currency should be allowed a wider band, say up to N200/US$. The CBN may need to intervene if the new band is breached. We believe that at N200, it would become unattractive for speculators to engage in any profitable business that requires hard currency.
“While imports could become more expensive, we believe that it portends significant opportunity for consumers to consider local substitutes. A wider exchange rate band may also help exports as local producers earn more from their exports.
“While the key policies introduced by the CBN to check exchange rate volatility might be effective, they are also affecting the liquidity of the currency. The recent threat by JPMorgan to remove Nigeria from the Emerging Market Government Bond Index is a clear indication of the current pressure on the Naira. ‘ he added.