8 August 2012

Nigeria: 'How to Attract Investors Back to Stock Market'


For instance, the various private placements that people put money into, which turned out be a kind of scam or a rip-off, are giving the market credibility problem. Issue of confidence in the market is thus brought into perspective. This is why everyone remotely connected with any deliberate act to defraud the unsuspecting investors should be dealt with accordingly. In short, activities are still low but while all hope are not lost. There are practically very few new entrants into the market, while the existing firms are thinning out operationally and in numbers.

But do you see any hope at the moment?

Yes of course. There is hope in every challenging situation. And the capital market is not an exception, otherwise no operator would be left in the market. The reality is that the era of questionable rally and abnormal bubbling market may have gone with the wind. The market is still on the course of a restoration journey. However, in the midst of it all, those who have the resources and are discerning may still take advantage of measured opportunities in the market with medium and long-term horizon in view.

Don't you think that recent happenings in SEC, especially the suspension and recall of the Director-General, Ms Arunma Oteh, will affect the regulation of the market negatively?

There is no doubt about it. It sent wrong signals to the market place that we have not got our acts together. The dust is barely settling down over the unceremonious exit of the erstwhile Director General of the Nigerian Stock Exchange before the SEC probe arose. While we read report of acting SEC DG, we also read in the papers about the madam DG attending economic council meeting. Anyway, with this development, I put it to the stakeholders: To what extent have the market operators positioned themselves to ensure that as many tested and trusted professionals as possible are part of the recruitment process? Information about any recruitment to senior management positions within the regulatory bodies should be made public for qualified capital market operators to apply for the openings appropriately.

Well-meaning operators should encourage tested professional capital market practitioners to show interest in the senior management positions in SEC and similar institutions with related responsibility to the market. I have always been of the opinion that until our market is consistently managed by us (I mean operators who rose through the ranks in the market operations over the years); the fortune of the market may not improve as desired. When people who don't know where we are coming from take charge and manage our affairs, we may not make much progress. If the market operators truly believe in this market, they just have to be involved. The time to seize the moment is now.

The report of the House Committee on capital market recommended the sacking of Oteh, while the Federal Government recalled her from compulsory leave. But the staff protested her recall. How will you react to these developments?

If I could recall, what was stated then (during her suspension) was that she should go on a compulsory leave to give way for investigation. Technically, for her to be recalled by the federal government, it means that investigation has been concluded without any criminal implication in the allegations levied against her. Though the forensic auditors were quoted to have noted some administrative lapses, yet it is not adequate sustain indefinite suspension or her. The government expects that going forward, such lapses should not arise again. Albeit, the fundamental reality here is who has the powers to hire and fire? Her employer has spoken.

The market was bullish weeks back, pushing the year-to-date growth to over 12 per cent on July 18, 2012. What do you think was responsible for this growth and how can it be sustained?

Let us leave this market to take its course. It is not every bullish run within a short space of time that matters but the stability of the market consistently as a going concern.

There has been low patronage of the market by domestic investors in recent times. How can domestic investors be encouraged to participate more in the market?

Hearing good news about stability in the market would help. Also instruments quoted in the market, once they are doing well and deliver considerable returns to the shareholders it may encourage investors to show more interest in the market.

It appears stocks of multinational companies are recovering faster and more stable at the stock market. Why is this so?

There are many factors but the number catchword is here is corporate governance. You may ask: Why is it that the share prices of Nestle, Mobil and their likes did not crash abnormally or at least below N100 during the crisis in the stock market? Apparently, the companies were focused and did not compromise corporate governance issues in the management of their affairs, books and shareholders' register. When there is no room to issue shares that couldn't be substantiated or backed up with corresponding resource and verifiable balance sheet, it is only natural they will be able to withstand any storm. Anyway, before you can manipulate share price, you need stocks to do it. Thus, where shareholders hold on to their stock holdings because there is value in holding on to it, as a result of considerable returns on investment; then an abnormal crash will be a mirage. As a matter of fact, this scenario could actually prompt genuine capital gain because of people who are actually desirable of getting a bit of the action and willing to pay premium for such security. In essence, the companies under reference are well managed and have been consistent over the years in giving back to their shareholders. It must also be noted that it is not all the multinational firms that are exceptionally good.

Recently, market makers were appointed to absorb the shock in the capital market. Do you think this is really working?

Well, you cannot build something on nothing. Market makers play strategic role of having the capacity to take out excesses capable of causing or resulting to glut or upset in the market. Their role can be related to what is called staging in the capital market whereby institutional investors would have access to initial public offerings (IPO) at a relatively negotiated offer price. This would be sold to willing investors at a margin through the secondary market window when the market can accommodate it. The challenge of this is the volume of toxic assets out there. This puts the capacity required of the market makers to be quite tasking. Whoever is going to play a market maker role in managing the mess on ground must have a deep pocket. It would have been a different thing if the market were starting on a clean slate. Nonetheless, whatever legitimate approach and any tested model that suits the reality of the structure of our market is a welcome development. However, past mistakes must be avoided in the implementation process. Solution should be driven by what will benefit the market and not about helping out those responsible for the distress in the first place without disciplining those who have erred criminally.

Considering reluctance on the part of some investors to return to the market, what is your advice to them?

Investors should face the reality of the challenging season and don't give up on the market completely. They should look beyond the past portfolio that went bad. Discerning investors should still follow developments in the market and take advantage of arising opportunities. It takes investors who have not given up to identify opportunities and seize them appropriately.

What is your take on demutualisation of the Nigerian Stock Exchange?

My take is simple. If this will help curb the excesses we witnessed in the immediate past dispensation, let the market go for it. However, Nigerian Stock Exchange belongs to the dealing members, they must be carried along in the design, structuring and implementation such that in the end, they as an entity will have equity in the newly demutualised NSE.

Generally speaking, what should be the way forward for the capital market?

To me I believe it is high time the market moved away from inconsistencies and send out consistent signal to the investing public that we are on top of our situation. This will be evident in the professional and proficient manner our market is managed. When those who are supposed to work in concert together in educating investors play "cat and dog", then little hope left in market is burgled. Discerning investors will seek other windows of investment opportunities. Government should avoid making the same past mistake on the appointment of the substantive head of SEC. We have a lot of competent hands in Nigeria who can do the job. They should carry along as many well-meaning operators as possible.

Operators know themselves those who are honourable and the elements that are not. Do background check before placement of anyone. Nevertheless, the development at SEC and NSE creates an opportunity to reconstitute the board/council and bring on board of the top management team, new tested operators of integrity with fresh perspective. Take cue from the CBN whereby career bankers who have worked in the commercial banking sector and have even managed banks were brought into

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