26 December 2012

Nigeria: Stock Market - Speculative Trading Traced to Foreign Investors

An analyst conversant with the workings of the capital market has blamed foreign investors for speculative trading that has continued in the Nigerian stock market.

The Managing Director/Chief Executive Officer of Lambeth Trust & Investment Company Limited, Mr. David Imafidon Adonnri, in a chat with LEADERSHIP said the move of the foreign investors when compared with investment in the bond market, shows a very low average yield on equities.

According to reports, 70 per cent of investments in the market is presently being controlled by foreign institutional investors even as this has been the cause of the unsteady nature of values of market equities.

"Foreign institutional investors seeking speculative opportunities now dominate our equities market. Although when compared to domestic fixed income market, average yield on equities is very low. However, it surpasses what is obtainable in several advanced markets. The relatively stable exchange rate environment is an additional attraction for foreign portfolio investment in Nigeria 's financial assets.

"Other than few domestic investors, several retail investors who are yet to recover from the recent crash of equities continue to shun the market. Several market operators and institutional investors who participated actively have also suffered deadly damages to their balance sheets due to the near crash of the equities market," Adonri said.

On why local investors have continue to shun the stock market, he explained, "Domestic investors who were frightened by past events in the equities market now seek safety by migrating their financial assets to fixed income securities."

He noted that domestic investment in the equities market, especially the primary market can be remarkably improved if addressed from the perspective of the macro economy through policies that will force down inflation and interest rates to single digit. "This will enable yields on equities to become competitive against debt securities", he added.

The Managing Director Crane Securities Mr. Mike Eze also said that the present state of the market showed that "foreigners are not exiting per say ,rather, what is happening is that they are taking away the profits which they have made both in the equities market as well as in the bonds market.

He said that it is noticeable this time around because they have devised a systematic approach to their attitude towards it.

"They now do short term profit taking instead of what used to obtain in the past whereby they leave their funds in the system for a longer period of time because of probably the fact that the longer, the more money, but now that the market has crashed if they stay long they may end up losing their money," he said.

Eze noted that the issue of foreigners coming into the market and exiting at will has always been a big issue since the Nigerian capital market crash of 2008.

"Now under a normal market situation, there has to be a level playing field provided by proper and distinct regulation where participants are at liberty to enter and exit at will.

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