allAfrica.com: Nigeria: Stock Market Loses N1.17 Trillion in Two Months (Page 1 of 3)

The Nigerian Stock Exchange (NSE), widely acclaimed as investors' favourite, appears to be undergoing what analysts call "self-correction".

The capitalisation has dipped by N1.17 trillion or 9.3 per cent in less than two months when the bears took over the control of the nation's capital market.

The capitalisation, which measures the value of all listed equities, fell from a historic value of over N12.6 trillion in the first week of March 2008 to close at N11.43 trillion last Friday, May 2.

Prior to the coming of the bears in the first week of March, the NSE capitalisation had appreciated by N2.42 trillion or 23.7 per cent from N10.18 trillion in January to N12.6 trillion.

After a successful 2007 with a growth of 74.5 per cent, the market continued on the positive trend and peaked with a growth of 23.7 per cent on March 5, 2008.

However, about 52 per cent of the gains recorded by the NSE capitalisation have been wiped away by the rampaging bears.

This development has been giving many investors sleepless nights as they fear that a crash may be in the offing.

But capital market operators and regulators have assured investors that the market will not crash.

They explained that the bear run was caused by profit taking, delay in the passage of the 2008 budget, portfolio review and liquidity squeeze in the system among others.

The Head of Media, Securities and Exchange Commission, Mr. Lanre Oloyi, said in an interview with THISDAY that investors should not panic.

Oloyi, who said SEC does get involved in the pricing of stocks, explained that the market was going through a normal correction and would stabilise.

"We at SEC are not disturbed by what is going on in the market. That is the nature of the stock market all over the world. Price making is a function of demand and supply based on companies' performances, speculations and others. The fall in price could be due to low demand by investors. Once demand for shares improves, everything will normalise. We are confident that the market will not crash," Oloyi said.

The Director-General of the NSE, Prof. Ndi Okereke-Onyiuke, had earlier said that "our capital market cannot crash because the fundamentals in terms of price, capacity for growth, listed companies' potential and the economic horizons are all in favour of the market."

Experts have, however, offered divergent views.

Managing Director, Financial Derivatives, Mr. Bismarck Rewane, believes that the market is just undergoing correction since it has been grossly overvalued.

"What is happening is like a mini-correction. This should be expected because the market has been grossly overvalued and this is a big problem for people that have borrowed money to buy shares.

"The bears will continue till June. This is when we can expect to see recovery. The market will continue to look for the fair price and will then begin to climb naturally and slowly. But this does not in anyway depict that the market will crash," he assured investors.

Managing Director, Economic Associates, Dr. Ayo Teriba, however, explained that investors may have switched from the capital market to the money market because of rise in interest rate of the government securities.

An example of government securities are Treasury Bills (TBs), which are investment windows through which the Central Bank of Nigeria (CBN) controls the amount of liquidity in the system by selling bills to banks, discount houses and the investing public.

It is through this investment that the Federal Government borrows indirectly from banks, thereby mopping their excess funds.

With the income on TBs stable at about 10 per cent since last February and inflation at six per cent, Teriba said it makes more sense to invest in TBs and earn a risk-free return of four per cent than to invest in capital market, which is uncertain.

"There might be some other reasons for the bearish trend in the Exchange. But my own reasoning is that since TBs rate has been steady at 10 per cent since February, inflation is six per cent and the naira has been appreciating, it makes more economic sense to invest in TBs, which are safer than to invest in stocks, which are uncertain," he explained.

The Managing Director/Chief Executive of Goldman Assets Management Limited, Mr. Olu Abayomi Sanya, attributed the bearish trend partly to the delay in the passage of the 2008 budget.

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