FCMB Boss Attributes Growth in Capital Market to Economic Re

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FCMB Boss Attributes Growth in Capital Market to Economic Reform

Vanguard

Peter Egwuatu26 June 2007

It is fair to note that while capital market has been active for many years, its activity levels have grown in leaps and bounds since the transition to civil rule in 1999, says Managing Director/CEO, FCMB Plc, Mr. Ladi Balogun.

In his paper delivered at the 2007 Red Star Express customers' forum held in Lagos, the FCMB boss stated that the improvement in the Nigerian capital market can be traced to the positive economic reforms of the immediate past president, Olusegun Obsanjo, a situation expected to continue with the current administration.

According to him, "A detailed diagnosis of the capital market shows an increase in activity since 1999. The all share index recently crossed the 50,000 points barrier and closed at 50,773.8 points on June 1, 2007. This strong performance is even more commendable when you consider the all share index of the NSE in 1999, was just 5266.43 points, a growth in excess of 890 per cent in just 8 years. The market capitalization also increased from N333.19 billion in 1999, to N7.51 trillion within the same period.

"While various reasons will be adduced to these impressive numbers, the economic and financial reforms remain the major reasons for the improvement in the market. The outlook for the Nigerian stock market is also very bright with various government and private initiatives expected to deepen the financial market."

He cited an example of these initiatives to include: the Pensions Reform Act. In his words "With the implementation of the Act, we expect pension funds will ensure a deep financial market. The investment guidelines released by 'The Pension Commission' state that pension funds can only be invested in companies with sound financial records for at least five years, real estate trusts and securities.

Currently the pension fund is estimated at N600 billion and is projected to reach N1 trillion within five years. With these enormous funds, the pension reforms will not only deepen the capital market, it will encourage quoted companies to develop better corporate governance structures."

Balogun, however, noted that the federal government inaugurated the Bond Market Steering Committee and issued Federal Government bonds through the Debt Management Office ("DMO"). "This signalled the introduction of an active primary market in government bonds. The DMO has appointed market markers in the bond market and will continue its consistent issuance of bonds. This should stimulate the growth of a dynamic secondary market," he added.

According to him, "The challenge these positive developments has raised is the need to build proper structures within our capital market framework to ensure optimal utilization of the funds entering the market. Also, the obvious improvement in public perception will increase the volume of individual transaction in the market. With the government's attempts to attract foreign investment showing favourable results, foreign investment in the form of direct and portfolio investment should be expected in the capital market. This means the operational structure and depth of our market must improve to globally accepted standards."

While speaking on global trends and emerging opportunities in the stock market, Balogun said Cross border consolidation is already occurring and will change the global stock market landscape significantly. He explained that this will allow investors diversify risk by adding global securities to their portfolios. "An example of this is the merger between the New York Stock Exchange (NYSE) and Euronext (a result of a previous merger between Amsterdam Stock Exchange, Paris Bourse and Brussels Stock Exchange)," he added.

He disclosed that the battle to provide listing, clearing, trading and data services will increase because of the competition between stock exchanges searching for growth beyond national borders, as well as competition from non-exchanges.

In the case of the benefit of technology to capital market operations, he said that technology will enable new business models and drive further change, including more tailored products and services. According to him, "In the changing and challenging regulatory, competitive and technological environment, exchanges must develop strategies to remain competitive and ensure survival.

"As exchanges convert to for-profit enterprises and their regulatory, competitive and technological environment changes, they will need to enhance trading revenues, attract listings from local and foreign companies and leverage their access to company, quote and trade data while driving down operational and IT costs."

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