Daily Independent (Lagos)
Kingsley Ighomwenghian
15 October 2008
opinion
In what may be a last ditch effort to rescue the global stock market from a financial crisis that has caused unimaginable heartache to several families, leading to the loss of top blue chip jobs, chief executives of stock exchanges across the globe began meeting on Sunday, October 12.
There is indeed need for worry, especially after the Dow Jones Industrial Average, founded in the late 19th century and which, has seen six consecutive daily declines of one per cent or more. This is amidst reports that the economic whirlwind has cost American pensioners about $2 trillion, or almost 10 per cent in retirement savings, in the year ended June 30, in the past 15 months. As if that was not enough, the Standard & Poor's 500, the broad U.S. stock index, fell 22 per cent in six trading sessions between October 2 and 9.
Participants at the four-day meeting, which opened in Milan, Italy, under the aegis of the World Federation of Exchanges (WFE), an umbrella organisation of the global securities exchanges, which account for nearly all of global stock market capitalisation, and most of its exchange-traded futures, options, listed investment funds, and bonds. The meeting, expectedly, will not be just another tea party, considering the sleepless nights most of the delegates would have passed through since the beginning of the turmoil. Most of the time will be expended in a review of the global market crisis that began in the US, sweeping across Europe and Asia, with a cacophony of suggestions that would lead to lasting solutions.
For those who do not yet know the extent of the headache plaguing these executives just yet, consider that a substantial portion of the $61 trillion market capitalisation at the end of last year may have been washed away in the flood. The cumulative value had earlier fallen from a height of $100 trillion earlier in the year.
News of the meetings came amidst those that took over deliberations at the annual meetings of the World Bank, especially at this time when analysts say it could take between 10 and 30 years for the market to recover, going by the history of previous meltdowns.
As would be expected, the WFE meeting is being attended by Oba Otudeko and Prof. Ndi Okereke-Onyiuke, Chairman of Council and director-general of the Nigerian Stock Exchange respectively. Why not? The health gauges of the NSE- the All-Share-Index fell last week by 2.91 per cent to close at 44,380.96 basis points, while cumulative value of the 211 equities listed on the NSE stood at N9.45 trillion (US$79.41 billion) after booking a decline of 2.87 per cent. Last week's loses brought year-to-date decline in index and capitalisation to 23.47 and 2.17 per cent respectively.
Analysts however believe that the current state of the market offers a life time opportunity for investors to take strategic positions, based "on the fact that most traded equities have fallen very low and ridiculously cheap."
Unlike the situation in the US and other economies where there are statistics as to how the crisis has affected various aspects of every day life, there is yet no information from stakeholders in Nigeria as to the actual effect of the liquidity crunch and market meltdown on the housing market or the pension funds. The effect of the tsunami on the pension system in Nigeria is even more worrisome, although not in the magnitude of other developed climes, especially given the various regulatory speed breakers put in place by the regulators. For example, stock price volatility is controlled to the extent that it can only move five per cent up or down in normal times, and one per cent down over the past several months since the decline started, thereby stemming a free fall by reducing the loss per day.
According to Yinka Sanni, chief executive, Stanbic IBTC Pension Managers, even though pension fund administrators are required in the investment guideline, to invest only 25 per cent of their pool in the stock market, "whatever happens (to the market) affects investment by PFAs."
This means that about N225 billion or 25 per cent of the about N900 billion funds so far pooled by the administrators may have been impaired by the market lull over the past seven months since March 5, 2008.
This, he said, should not cause any panic yet, Sanni said, given that "pensions are long term funds, and as such, short term movements should not deter PFAs, because it is not anything that PFAs should panic about."
Although the Federal Government through Dr. Shamsuddeen Usman, Finance Minister and chairman, Presidential Committee on the Capital Market has said in an air of finality some months ago that the government would not commit any of its funds to bail out the market in the name of a stabilization fund, there are those who think otherwise.
Chris Odezie, a former professor of Economics at Babcock University, Ilisan, Ogun State, told journalists last weekend in Lagos that there is need for a massive intervention by government to sanitize the market. The suspension of the earlier promised bailout through the intervention fund was a misnomer as such, which is in line with what is happening in the developed economies, would have restored confidence in the market, helping to restore life to the exchange.
"Ordinarily the exchange needs to revive itself, but when this is not forthcoming the government ought to have come in by way of fund stabilization," he explained.
In the absence of the fund, there have been were media reports about a bailout package worth about N600 billion being put together by the NSE and six banks, each of which would put down about N100 billion on the table. The report that has since been denied, not only by the FG, but the Securities and Exchange Commission (SEC), explained that the banks will be allowed to buy up to 15 per cent of their own shares. Some have also punctured holes in the report, as they did not take cognizance of the fact that while only shareholders at an annual general meeting can approve a 15 per cent share buy back of any public company, according to the latest rules by the SEC, companies interested in playing the role of market makers require only N2 billion capital, in addition to registering with the Corporate Affairs Commission (CAC).
Reacting to the report, NSE spokesman, Sola Oni, admitted there was a meeting between the exchange and chief executives of some banks last week, he said the discussion is one of the several efforts aimed at "moving the market forward."
Oni said noted that no market makers have been appointed yet, arguing that the number of banks to be involved has not been decided, noting that "they may be more than six," just as details of the package are still in the works. He also stressed that the amount of money to be involved in the package that would stem the market meltdown and move it forward is not fixed yet since the process is still being worked out.
There are those who believe that further action on helping to stem the tide is expected when the Nigerian team returns from the brainstorming session, this is in addition to whatever help the World Bank and International Monetary Fund would render to developing nation as promised last weekend. The World Bank promised to help protect the poor against the financial turmoil in the international market, which has largely been "a manmade catastrophe," said Robert Zoellick, the bank's president.
Speaking at a joint news conference with Zoellick, Dominique Strauss-Kahn, the head of the International Monetary Fund, endorsed the European move and said he expected markets to react favorably, "although you never can be sure what will happen."
Strauss-Kahn also called for quick implementation of the $700 billion U.S. rescue plan, which includes the government becoming part-owner in an array of banks.
He said any prolonged tightening of credit or a sustained global slowdown could cause serious setbacks to developing countries' efforts to improve the lives of their populations. Such countries are already struggling with high prices for energy and food.
"We need concerted global action now not just to deal with this crisis, but to put in place new architecture, new norms, and new oversight to ensure that this crisis never happens again," he said.
"The poorest and must vulnerable groups risk the most serious and in some cases, permanent damage," Zoellick said. "One hundred million people have already been driven into poverty this year and that number will grow."
The assurance is coming just as the Bank of England, the European Central Bank and the Swiss National Bank jointly announced a collaboration to provide unlimited short-term funds to make money available to ease the credit freeze. The Bank of Japan is also considering a similar move.
Three of the largest British banks said they planned to seek up to $63 billion from the government to bolster their balance sheets.
Treasury Secretary Henry Paulson said during weekend meetings with global financial powers that his department was working around the clock to carry out the plan. His comments were meant to convince investors that the world's largest economy is moving quickly to get lending restarted and avert what could be a deep and painful global recession.
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