NaijaPositive.com

admin · Site Admin Joined: 25 May 2007 Posts: 5404

Stakeholders Suggest Ways Out of Bearish Market Trends in Nigeria

7th Oct.'08

Financial and investment experts have said market operators' intervention, rather than government intervention, seems to be the best way to end the current downturns at the Nigerian Stock Exchange (NSE). "I think the intervention that would work is that done by the market owners, that is the investors and the operators, because investors/operators alliance would boost the market. I don't see how government can tell us how we run the market. We should determine how we run it," a stock broker, Okechukwu Unegbu, said.

He was speaking against the background of the recent government intervention aimed at stabilising the capital market, which seems not to be achieving the intended goals. Worried by the downturn in the capital market, the Federal Government and the stakeholders of the NSE in August came up with nine measures aimed at stabilising the market.

The measures include a 1% maximum downward limit allowed on daily price movement, while the current 5% limit on upward movement was retained. They also include de-listing of moribund companies, strict enforcement of NSE's listing requirement with zero tolerance for infractions, the introduction of market makers, setting up of capital market stabilisation fund and a Presidential Advisory Team on the Nigerian Capital Market, among others.

In spite of the measures, however, market capitalisation, the All Share-Index and shares prices have continued to go down. For instance, a turnover of 735.05 million shares valued at 3. 6 billion naira was recorded this past week in 12,380 deals at the floor of the NSE, in contrast to a total of 2 billion shares worth 13.63 billion naira exchanged during the preceding week in 37,416 deals. According to the NSE monthly report, transactions on the stock market also dropped significantly in September 2008, to the lowest level in 20 months.

A turnover of 10.65 billion shares worth 134.4 billion naira in 197,213 deals was recorded last month, in contrast to a total of 17.4 billion shares valued at 169.64 billion naira exchanged during August 2008 in 249,937 deals. Since the intervention, many of the market operators have expressed reservations about some of the measures, especially the stabilisation fund believe to have been introduced to pump up shares prices. Many said the introduction of 'market maker' is prone to abuse by the operators, and suggested that the market should be allow to take its own course and correct itself.

The experts also argued that pumping of the share price will not work. However, speaking at a recent economic forum in the capital city of Abuja, the Governor of the Central Bank of Nigeria (CBN), Charles Soludo, said the stabilisation fund was not meant to pump up shares prices. Despite fears about the new market trends, experts advise investors not to panic as the capital market is only responding to the current global financial crisis.

Prior to March 2008, the Nigerian capital market recorded bullish trends, with many of the investors making good returns on their stocks. But thereafter, the market went down. "This is the best time for investors to buy shares as a way of taking advantage of the situation, because the fundamentals of the companies are okay. People should not see the market as a place for short term gains .It is a long term market and those who have heart are those that can operate in the market," a financial analyst, Victor Ude, said.

Renowned international financial expert Steve Forbes also said at the Abuja forum, organised by the private Thisday newspaper, that the country must work towards a stable currency and reduce the tax burden on companies as a way of mitigating the effect of bearish trends in the capital market. On his part, former US Treasury Secretary Lawrence Sawmers stressed the need for Nigeria to put in place a sound effective tax structure, saying that the market should be allowed to correct itself.

While agreeing with the suggestions, Unegbu went further to suggest that stock brokers should be relieved of their burdens in terms of the money borrowed from the CBN. "This is the best time for the CBN to use (its) discount window to help the market to come up, because in some other climes, when the financial institutions are down, the central bank intervenes to stabilise it,'' Unegbu said.

_________________
May we be strengthened with the ability, willingness and capabilities to be good ambassadors of Nigeria contributing to its uplifting, rather than its detriment. - Cxsm