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Nigeria: Finance Minister Blames NSE, SEC for Capital Market Flowdown
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This Day (Lagos)
2 July 2008
Posted to the web 2 July 2008
Stanley Nkwazema
Abuja
Minister of Finance Shamsuddeen Usman yesterday told the House of Representatives Committee on Capital Market that the Securities and Exchange Commission (SEC) and Nigeria Stock Exchange (NSE) did not manage the drop in the share prices of stocks witnessed recently at the nation's capital market.
The market experienced a bear run that lasted over three months, leading to an unprecedented depression.
The market capitalisation of the NSE, for instance, had dipped from a record level of over N13 trillion last March to N10.4 trillion last Wednesday before it began to recover.
Usman, who addressed the Committee on the downward trend in the market, blamed SEC and NSE for their inability to manage the development.
He said: "There was also inconsistency in the way the NSE handled the situation. The Exchange denied the existence of margin facility when in reality it existed. The impression this might have given to the banks was that the NSE does not recognise margin financing and this in turn contributed to the banks calling in their margin facility and thereby promoting brokers to sell."
The minister also claimed that the misrepresentation by the Nigeria media on the statement made by the Governor of the Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, at the House Public Hearing on the unsatisfactory practice in the capital market in the post-consolidation banking period to the effect that banks were not permitted to grant facilities for purchase of shares was also part of the problem.
He therefore urged journalists to be more careful in the way they manage information, stressing that it was time journalists were given the opportunity to have adequate information on such issues.
"Newspaper reports that the CBN had prohibited the granting of margin facilities sent wrong signals to banks as many reacted by calling facilities they had granted investors for shares purchase. Most of these facilities were granted to stock broking firms some of which are big players in the market. As they started off-loading, prices dropped," he said.
Usman explained that the action of stock brokers in turn, prompted some investors to give directives to their brokers to sell their shares and this further increased the panic in the market, culminating in further depression of stock prices.
The market, he said, had attracted significant number of participants in recent years and many of the new investors (business men, public servants, teachers, traders, among others) did not have the minimum working knowledge of the market.
Usman added that there were also short term investors whose objectives were to benefit through capital gains within the shortest possible period
"Any unfavourable news about the market particularly downward movement in prices usually prompts such investors to sell in order to minimise their losses. As prices fell some of such investors sold, thereby increasing the bear run," Usman said.
The minister said the unprecedented growth of the capital market in the last three years coupled with its increasing profile internationally, had attracted foreign inve-stors to the country. Some of them are also basically short-term investors, he added.
He said the improvements in the capital market and strong investors' sentiment in the last few years also encouraged an upsurge in private placements by private companies.
Usman explained that some investors adjusted their holdings by selling listed securities to buy private placement offers with the hope that the companies would subsequently list and they would benefit by way of capital gains.
He said the combination of all the factors contributed to the bearish run in the market.
He however, added that in spite of the bearish nature of the market, which is a normal trend, the fundamentals of the market are very strong.
Usman appeared before the Committee alongside the Director-General of SEC, Mr. Musa Al-Faki.
The Chairman of the Committee, Honourable Aliyu Ahmed Wadada, had earlier explained that the minister and the officials of other regulators in the market were invited so as to find a solution to the problem of the downward trend in the capital market.
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He said the Nigerian capital market in the last few weeks had been experiencing downward trend and there must be reason for this development. This he said, prompted the meeting with the stakeholders.
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