A key feature of our economic recovery which included improved external reserves and payment of external debt has been the growth of capital markets, with many players reaping unprecedented profits from their investments on the stock exchange.

From businessmen to civil servants, traders and market women, stock trading has now become the rage across the country.

Until very recently, the Nigerian capital market was adjudged the most attractive in the world by sheer virtue of the magnitude of returns on investment The All-Share Index was making quantum leaps, rising steadily from 23,844.45 at the end of December 2004 to 54,678.83 in December 2007. Market capitalisation similarly expanded from N1.93 trillion at the end of December 2004 to an astonishing 9.60 trillion at the end of December 2007. The factors accounting for this spectacular performance include consolidation of banks, the reform of the pensions and insurance sectors as well as large inflow of foreign capital and portfolio investments. Added to this, are increased listing of companies on the stock exchange as well as confidence in the economy. The reform in the pension system coupled with the availability of large idle funds with Pension Fund Administrators provided a further impetus for capital market investment activities. With many entities awash with idle funds there was pressure on price deriving from the inevitable laws of demand and supply.

Since March 2008, however, there emerged a meltdown whose impact is still being felt. The All-Share Index and Market Capitalisation were becoming frighteningly bearish. The All-Share Index declined from 64,848.70 in the first week of March to 59,124.87 in the first week of May 2008. Similarly, the market capitalisation declined from N12.34 trillion in the first week of March 2008 to N11.43 trillion in the first week of May, 2008. By July ending, investors had lost an estimated N 4 trillion, amounting to some 37 percent erosion in market capitalisation.

A number of factors have been blamed for this trend including the delay in the passage of the 2008 Budget; the dynamics of market correction after some years of exuberance; uncertainties over the President's health and ongoing crisis in the Niger Delta. Other reasons are the dwindling confidence in the regulatory authorities as exemplified by the investigations of the Central Bank's investment in the African Finance Corporation and the apparent indictment of certain officers; in addition to the impolitic behaviour of Ms. Okereke-Onyiuke at the Stock Exchange. There is evidence of poor regulatory capacity, with evidence of widespread insider abuses. Banks and other corporate entities have been known to embellish their accounting books in addition to other hair-brained gimmicks to make their finances look attractive, when the underlying fundamentals of some of them remain doubtful. Foreign investors, taking the cue, have downgraded their stakes, with the consequence of bad investments chasing increasingly scarce funds. The ultimate outcome is a market meltdown. Globally, we cannot also ignore the fact that there appears to be a creeping recession in the United States and the OECD countries, a fact which would mean lower capital flows to emerging markets such as Nigeria.

It was therefore just as well that the government's Economic Team intervened in stopping the ugly bear on its destructive tracks. Although, market purists would reject such state interventions, we believe that it was the right thing to do, although it can only be regarded as temporary solution. From the end of August, evidence abound that the bear is retreating, and it should not be long before the market comes back fully to a steady path of growth and expansion.

Several lessons are to be learned from the recent meltdown. In the first place, investors must learn that markets go up and down and that even the headiest exuberance must sooner or later obey the Newtonian laws of gravity. Indeed, all equities are replete with risk. For a small operator, one would be well advised not to play the market unless one is prepared to lose all her money. Secondly, there is a big difference between investment and speculation. Much of what stock market punters have been involved in is speculation rather than investment. Speculation is playing the market for quick gains mainly on the basis of market sentiments, whereas investment involves understanding of key fundamentals and how they drive long-term real value. Investment requires sticking it out for the long haul, despite any temporary setbacks.

Yet to bring back public confidence in the market, there is need to overhaul the management of the Nigerian Stock Exchange, an entity that is widely known to be full of insider abuses and other corrupt practices. The Securities and Exchange Commission (SEC) would also have to step up to its responsibilities, given its current relationship with the NSE which may be characterised as a case of the tail wagging the dog. In addition, government needs to urgently bring out the white paper on the AFC Committee Report which indicted the Governor of the Central Bank for 'gross abuse of office'. The ongoing crisis at Wema Bank Plc has further exposed the murkiness and venality of the whole system. A situation where the CBN Deputy Governor responsible for banking supervision has to handle a case of alleged corruption during a period in which he himself was the chief executive of the same bank is a patent case of conflict of interest. It calls into question the integrity of the regulatory process. Many would take the view that it is this crisis of confidence in the regulatory system which caused the investment community to downgrade their ratings for Nigeria, casting an ominous pall over our capital markets and indeed the financial sector as a whole. There is therefore a necessity for complete overhaul of the regulatory regime in order to restore the much needed confidence in the system.