16 December 2012

Nigeria: Market Recovery Is Sustainable If...

Lagos — Ariyo Olusekun is the President of Chartered Institute of Stockbrokers (CIS) and Managing Director of Capital Assets Limited. In this interview, Olusekun warns that although the nation's capital market has begun a sustainable recovery, the regulators need to properly monitor happenings in the market and be proactive. Excerpts:

Experts say the market is recovering and has seen a steady rise this year?

Yes, that is true. The market has started recovering and I make bold to state that the recovery is a sustainable one. We need to cast our minds back to the genesis of the crisis. You would recollect that decline started over four years ago. Up to the end of last year, what we had been seeing was a sustained decline across all the indicators of the market. From the beginning of this year to date, market has gained 15 per cent. And that 15 per cent, we believe, is sustainable because the prices of key stocks actually bottomed out before they started rising and the prices of those stocks are actually under-valued. So you have a situation where you have stocks with such good fundamentals trading at below their values, their true values. So that creates opportunities and it is those opportunities that the foreign investors, foreign portfolios investors have identified, and are capitalizing on, by investing in the market. However, some institutional investors within the country, some high net worth individuals and even investors who are sophisticated enough to see those opportunities are also cashing in on this, and the prices show the market has been improving.

Don't forget that when I say that market has made a 15 per cent return, it does not reflect what individual operators and houses are doing. Some have made 25 per cent, some 30 per cent and some even more and some have made less. It all depends on the ability of the individuals and firms involved to be able to spot values and catch in on such. So it depends on what sector of the market or what class of shares, or what basket of shares you are working with. There are chances that there are people who have made far more than what the market itself has gained.

So, how sustainable is the upswing that we are seeing in the market?

I am convinced that it is sustainable because for the first time, also in the last four years, we now have concerted efforts involving the Federal Government especially and all the stakeholders in the market looking at issues together to figure out what to do. You also probably know that the market operators are in constant dialogue with the relevant agencies of government with the aim of thinking together on the situation in the market and the way forward. We are all looking at what ideas, what activities we need to put in place to ensure that market grows further? Some weeks back, the Federal Government set up market resuscitation committee. That committee is expected to come up with ideas, decisions and recommendations, which if properly implemented will sustain the gains that we have and also push the market up further in a sustainable way. Let me throw a caveat here quickly. The growth that we are likely to see would not be like the growth of the past. That did not have a sound base, solid base. We are likely to have a new growth that may not be at a fast rate but it is going to be sustainable and it is going to snowball ultimately but gradually.

But most investors are still sceptical about the markets?

Well, I will advice investors to come back to the market or come back in an organized manner or come back using proper knowledge in choosing where they will invest, when they will invest, at what price, when will they exit, and at what price. This is very important. What caused the heartache for most of the investors during the boom was many of them jumped into the market without a clue of how the market worked. You even had situations where taxi drivers became analysts and they were recommending the stocks that people should invest in! That cannot work this time around.

There is the need for sound education on the workings of the market and how to play it. For investors that are not knowledgeable, they do not have to invest in the market directly. They can invest in the market through mutual funds or other collective investment services. This is the norm abroad. Mutual funds are much more appealing to ordinary investors who neither have the time nor the skills to do meaningful investment analysis. So that windows should be explored by the Nigerian investors as well.

What will likely change in this investment climate; or will it be business as usual?

No, it won't be business as usual. Many things will change, not just with the investors, (but) with all participants. The regulators need to properly monitor happenings in the market and be proactive and take actions when they see, or when they suspect that something is about to happen, or when they see somebody veering off course, working against the market. They should take actions immediately. The regulators should not be passive. By regulators, we mean the Security and Exchange Commission (SEC), the Chartered Institute of Stockbrokers (CIS), the Nigerian Stocks Exchange (NSE) and other Self Regulatory Organisations (SROs).

We need to understand, and I believe everybody understands now, that allowing people to get away with actions that are not in the interest of the market will jeopardize the interest of everybody. So, before some people work against all of us, once we can identify them and what they are doing, we should deal with them quickly. That is something that must change.

With issuers, those who issue stocks, the companies, they also need to play by the rules. They need to ensure that they utilize funds that they raise from the market for the purposes that they promised the market that they are going to use the funds for. They should also keep to their words. Some companies promised to get listed when they did private placements; up until now they have not listed their companies. They should get listed. Their words should be their bond. What we sell in the market is confidence. Somebody buys into a stock and he goes back home with the paper and keeps it.

When that company declares dividends, he expects to get the dividends; he expects to get whatever benefits entitled to him; he expects to get an annual report. That is confidence. He does not have to go and re-confirm from the company, he does not have to go and re-confirm maybe from the registrar. He believes what he gets, what he's told. That is because he expects those who are regulating the market and every other participant would respect their words.

Whatever they have told him should be exactly what has happened. Then for the investors, it is important that they learn from their mistakes.

As I said, a number of things went wrong during the boom period. People were not making investments on any sound basis, on the right basis; they were not basing their investments on the right premise. Some would just invest; some would buy some stocks because others were buying.

Some would buy some stocks because the price had been raised for whatever reason. Some would buy stocks because somebody had told them that stock that was selling for N1 would now go to N10, so they would just buy. Of course, there was no basis for their optimism. They need to now gain knowledge; it is very, very important. We have seen the costs of not having knowledge. We can see it in what we have lost. We know how much we have lost in our respective portfolios. You can pitch that against the cost of obtaining knowledge on how to analyze stocks, on what to look out for, what are the fundamentals? What technical analysis do you need to do? What are the non-quantitative analysis, non-quantitative factors that you need to put into consideration? These are some of the things that need to change.

The association will be engaging the Federal Government and other agencies on a way forward for the capital market. What are your expectations?

The capital market, apart from being the barometer for measuring the growth of the market, also has a role to play in assisting in guiding the direction of the economy. We are not just a barometer for measuring the growth of the economy, we have a duty to sit down and look at the factors, I mean, what factors would need to be considered, by all of us in the country in determining our economic growth. And that is the reason we are starting this series of national workshops. It is going to be an annual thing; it is going to initiate national discourses on economic issues; it is going to also advance discourses on existing issues; it is going to monitor economic policies; as well as budget implementation. This year, we are looking at agriculture, telecoms and power. We are looking at those three sectors. Two of the sectors exist in our market in a very minor way. Power is nonexistent at all, and I think there are critical issues that we need to discus to see how these can impact positively on the economy as well as the market.

What are your plans during your tenure as CIS president?

Well, my team, my presidency is an inclusive one. The vice president plays a major role, the council plays a major role, and the top management especially also plays a major role. What we like to see at the end of the tenure, in less than two years, is a capital market that has recovered through collective efforts and contributions of the institute.

We want to see changes, and be able to leave behind a much more knowledgeable set up for members. As you know, we are constantly operating to improve the number of our members. We want to see more disciplined members; we want to see a situation where we are a much more respected institute; respected on the basis of what the institute has been able to do in instilling market discipline, in advancing the cause of its members.

We want to see more prosperous focus. We want to see also a much bigger institute in terms of members. We want to improve on the size of our membership, more of our students. We want to see an institute that has shown responsiveness to the needs of its students - like monitoring areas where they are having problems and helping to solve those problems and a much more credible institute.

We also want to see a situation where the institute can actually train people in several aspects of the market. What we've always had is a situation where people needed to go through all the full exams. We are looking at a situation where, if you want to participate only in an aspect, maybe just financial planning, we set up certification examination and you can write the examination and become qualified. You want to practice only in the area of funds management; you can write our certification exams in that area and become qualified. We are going to have different certification exams. We are already working on it. It is going to be an established thing that will run forever.

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