Lucky Fiakpa, Michael Eboh and Providence Obuh
1 December 2008
The downwards movement of stock prices all of last week suggested that the bears were in control of the market prompting the Securities and Exchange Commission to approve the appointment of market makers to help stabilise the stock prices and build investors confidence.
Amidst the capital market rebound a fortnight ago was the skepticism that trend may not last long.That notwithstanding, there was excitement among most market operators and regulators when the market showed sign of recovery after seven months of persistent poor performance.
The rebound in the stock market after seven months of persistent meltdown attracted the attention of regulators, operators and shareholders who have been jubilating and expressing their happiness, and readiness to make sure the positive trend is sustained and thus takes the market to its hitherto impressive level.
The slight set back recorded the following week in the market was not enough to dampen the excitement of market operators. According to most of them, the set back was the usual up and down swing of the market and they believed the rebound was sustainable with very few not sharing in that optimism.
However, the turn of event last week, suggested the bears may have seized the market once again even as the Securities and Exchange Commission, SEC, confirmed last Thursday that it has approved the applications of Greenwich Trust Limited, Chapel Hill Advisory Limited and Diamond Capital & Financial Market Limited as market makers to help stem the downwards slide.
For the whole of last week, the bears had a free reign as market value dropped by N3.72 billion. As at Thursday, Oando Plc and CAP Plc recorded the highest share price loss on the Nigerian Stock Exchange (NSE).
This was following the persistence of the bears, which deflated the market capitalisation and the All-share index by 0.05 per cent each. The capitalisation which opened at N7.399 trillion dropped by N3.72 billion to close at N7.396 trillion while the index shed 16.86 basis points to close at 33,513.72 points from 33,530.58 points.
Oando Plc dropped N4.37 to close at N83.14 per share from N87.51 per share at which it opened while CAP Plc followed with a loss of N2.34 to close at N44.60 per share from N46.94 per share. Nigerian Bottling Company Plc recorded a loss of N1.84 to close at N35.12 per share among several others that lose prices that day.
The bearish trend on the Nigerian Stock Exchange (NSE) actually started on Monday, as heavy losses on the share prices of majority of the listed equities dragged down the indices used for measuring performance of quoted companies.
Total Nigeria Plc, Nigerian Bottling Company Plc and Nigerian Breweries Plc recorded the highest share price loss, as the All-share index and market capitalisation both dropped by 2.38 per cent each. Particularly, the index which opened at 34,660.65 points dipped by 824.53 basis points to close at 33,836.12 points, while the capitalisation shed N181.97 billion to close at N7.47 trillion from N7.65 trillion at which it opened.
With this development, the appreciation recorded in the market since the rally which began from November 6, has been eroded. In particular, the market capitalisation and the All-share index as at November 6, was N7.43 trillion and 33,872.69 points respectively. During the period of the rally, the capitalisation rose to N8.31 trillion while the index rose to 38,018.44 points as at November 17, 2008, before the bearish trend returned on November 18.
That particular day, Total Nigeria dropped N12.07 to close at N229.49 per share from N241.56 per share at which it opened, followed by Nigerian Bottling Company Plc with a loss of N1.95 to close at N37.05 per share and Nigerian Breweries Plc dipped by N1.84 to close at N35.32 per share.
However, market analysts advised investors not to panic, as the bearish trend was seen as only for a moment. They disclosed that the trend was as a result of profit-taking activities by investors and that it was a normal trend in all capital markets across the world. According to them, the market is cyclical in nature, moving both upwards and downwards.
But the turn of events on Tuesday and Wednesday did not quite support that view point. Although trading in the banking and insurance sectors was heavy, it was not enough to stem the downward glide of the market. The All-share index and market capitalization both dropped by 0.003 percent each. Though minimal, it was nonetheless instructive.
The index which opened at 33,836.12 points shed 1.18 basic points to close at 33,834.94 points while the market capitalisation dipped by N259.45 million to close at N7.466 trillion from N7.467 trillion at which it opened.
Oando Plc recorded the highest share price loss, dropping by N4.84 to close at N92.11 per share from N96.95 per share at which it opened, followed by Flour Mills Nigeria Plc with a loss of N2.34 to close at N44.61 per share and Seven-up Bottling Company Plc dipped by N2.15 to close at N40.85 per share.
The bearish trend continued on Wednesday, causing the value of shares on the market to drop by N67.17 billion. Particularly, the value of the quoted companies, represented by the market capitalisation, dropped by 0.89 per cent to close at N7.39 trillion from N7.47 trillion at which it opened the day proceeding. The All-share index, also dipped by the same margin to close at 33,530.58 points from 33,834.94 points.
Problem with the Market
Experts in the capital market have attributed the decline in the market to the forthcoming Muslim and Christian holidays. According to experts, this is the season whereby the capital market usually records decline, as a number of investors are sourcing for funds with which to celebrate the forthcoming holidays. This has led to the disposal of some of their shares leading to an increase in the supply of shares in the market.
Mr. Anthony Idigbe (SAN), was not among those that were very optimistic of the market rebound a fortnight ago and he had his reasons. According to him, "If you look at what is happening in the world, I do not think the rebound can happen in one day. But I believe the entire world is working to move the world out of recession. And I think Nigeria is quite pretty immune from it. We need to watch out and continue to be proactive so that we will continue to be protected as we have been so far".
Prof. Afolabi E. Adefiraye GM, CCO Professional Stockbrokers was however optimistic that festivities or not, the market rebound was sustainable. "It will be sustained, the festive period cannot affect it, and nothing will cause panic again because everybody is now cautious.
The major problem that kick-started the meltdown was heavy borrowing by investors to play the secondary and primary market, even private placement. So, I believe this going to be sustained, nothing will happen," he said.
Ironically, Muslim and Christian festivities due this month have been fingered as some of the culprits currently pushing down prices in the market at the moment. As a matter of fact, this goes to establish the trend that had ruled the market over the years. Between September and February the market usually registers share price losses as investors sell to pay for school fees and prepare for the December festivities. It will then pick up again as from February as investors play the market again in anticipation of companies' year end in March and the possibility of dividend payment. This only goes to show the rebound witnessed recently was not likely to stay long.
Securities and Exchange Commission
The Securities and Exchange Commission, SEC, is however not amused with the downwards trend of the market. The Commission had shown great excitement at the rebound of the stock market saying it expected it because the market fundamentals were sound and okay.
Even at that, the Commission was not prepared to experience another round of meltdown in the market so soon and decided to put some measures in place to not only restore investors' confidence but to sustain the rebound in the market.
As part of such measures, the Commission gave considerations to some firms to operate as market makers in the nation's capital market.
The firms' applications were approved by the Commission from a list of 15 firms that had so far submitted their application to act as market makers.
Market makers are wholesale operators who ensure that there is stability of transactions in the stock market by either buying shares when there is a glut or selling shares when there is scarcity.
The spokesperson of the Commission, Mr. Lanre Oloyi however, assured the investing public that the Nigerian stock market was still safe and healthy, saying, "the global financial market crisis only affected our market minimally".
Market Makers
After a week of hide and seek affair, the Securities and Exchange Commission confirmed last Thursday that it has approved the applications of Greenwich Trust Limited, Chapel Hill Advisory Limited and Diamond Capital & Financial Market Limited as market makers.
The decision to introduce them into the Nigerian capital market was reached last August as part of the recovery measures to stem the persistent fall in the share prices at the stock market.
Mr. Oloyi, who two weeks ago disclosed that the Commission had begun the registration of market makers, said other applications are still under consideration.
The news of the appointment was welcome by some operators who said it would help to boost the stability that is gradually returning to the market. "Although the market is not as bad as it was a few weeks ago, the activities of the market makers would go a long way to stabilise the market the more," some stockbrokers said.
According to SEC guidelines, a market maker shall be a company duly registered with Corporate Affairs Commission (CAC) and shall have a minimum paid-up capital of N2 billion. They are required to at all times maintain sufficient liquid assets to cover its current indebtedness.
Obligations of the market maker include: stabilisation of the market by ensuring continuous liquidity by synchronising buy and sell transactions of a security; operate within the established transaction spread (that is bid/offer spread), which shall be a maximum limit of three per cent and subject to review from time to time.
Also, the market maker will have the capacity for continuous two-way quotes in the relevant stocks through the trading session in a minimum quote size of 100,000 units of shares and must have the capacity to deliver and settle transactions within the prescribed settlement cycle of T+3.
They must equally have the capacity to lend and borrow the designated securities at any time, with a view to ensuring stability in the market.
Be the first to Write a Comment!
Copyright © 2008 Vanguard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
