Though it has been a dull year for equity markets across the globe, since 2011, as uncertainty underlay key economies while the lack of definite direction on solutions to the problem triggered further flight by investors to safety, financial experts in Nigeria, however, have expressed optimism that the nation’s capital market would experience increased activities with the recent successful polls. OLUGBENGA SALAMI writes.
In both developed and developing countries, the role of the capital market to any economy cannot be overemphasised. It has been discovered that there is a direct linkage between the capital market of a nation and its economic growth. Since the capital market reform indicates stability in the economy and instability of capital market indicates instability in the economy of any nation, Nigeria capital market reform and its impact on the Nigerian economy cannot be left out.
The Nigeria capital market which is supposed to be an avenue for sourcing long-term funds to finance long-term projects is not as developed as her foreign counterpart. It has therefore not been able to judiciously perform its primary obligation of meeting long-term capital needs of the deficit sectors, through efficient mobilization of funds from the surplus unit of the economy, and effectively channeling the mobilized funds for more economic use which leads to capital market reform.
But following the peaceful conduct of the 2015 general elections without post-election violence in the country, financial experts have expressed optimism that the nation’s capital market would experience increased activities. They said the development would increase investors’ confidence in the market.
According to the Managing Director, Union Standard Securities Ltd., Mr Sehinde Adenagbe, the market would witness influx of both local and foreign investors because of the peaceful conduct of the elections.
Adenagbe said that tension, anxiety, agitation and violence surrounding the general elections had been settled with the outcome of March 28 and April 11 polls. He said that the market had started reacting positively to the outcome of the elections, noting that more investors would embrace the market.
“People will settle down now that the polls are over to strategise on how best to invest in the market for maximum return,” Adenagbe said, adding that Nigerians were shocked by the peaceful conduct of the elections, contrary to predictions that the country would spilt in 2015 after the polls.
Adenagbe said that profit taking would be ruled out as investors would desire to take profit once in a while.
He, however, tasked the incoming government on the need to patronise the capital market for developmental projects instead of depending on money market instruments.
Adenagbe added that the president-elect should ensure listing of government owned agencies and privatised ones on the nation’s bourse to increase the market depth.
The managing director said that the incoming administration should diversify the country’s economy to increase sources of revenue, adding that the country should not be import dependent. He advised that the Buhari-led administration should tackle corruption to curtail excesses of fraudulent politicians.
Also, the Managing Director, GlobalView Consult & Investment Ltd., Mr Olaleye Williams said that the market would experience confidence boost when the economic management agenda of the new government would be released.
“More confidence boost will come to drive the markets forward even in the barefaced challenges when the economic management agenda of the new regime becomes clear”, Williams said.
He said that the market in the second quarter would ride on the optimism and positivity produced by the peaceful conclusion of the general elections, adding that the earnings seasons would strengthen confidence in the market and enable it to sustain a measure of stability.
Last week, a turnover of 3.51 billion shares worth N25.19 billion were traded by investors in 26,836 deals last week. This was against the 2.63 billion shares valued N36.58 billion exchanged in 21,393 deals in the previous week.
The Financial Services Industry led the activity chart with three billion shares worth N18.26 billion traded in 16,356 deals. The Conglomerates sector followed with a turnover of 259.08 million shares valued N1.12 billion achieved in 1,650 deals.
The third place was occupied by the Consumer Goods Industry with 89.84 million shares worth N3.103 billion in 3,768 deals.
The All-Share Index lost 798.1 points or 2.23 per cent to close at 34,930.02 points compared with 35,728.12 points posted in the preceding week due to profit taking.
Also, the market capitalisation which opened at N12.135 trillion lost N232 billion or 1.92 per cent to close at N11.903 trillion due to price loses.
Wema Bank topped the losers’ chart, dropping by 14.14 per cent or 16k to close at 95k per share.
International Breweries dropped by 14.08 per cent or N3.22 to close at N19.65, while Seplat declined by 12.50 per cent or N55.49 to close at N388.50 per share.
On the other hand, Costain led the gainers’ table for the week in percentage terms, apprecaiting by 34.29 per cent or 24k to close at 94k.
Neimeth International Pharmaceuticals trailed with 19.18 per cent or 14k to close at 87k, while Learn Africa gained 18.90 per cent or 24k to close at N1.51 per share.
However, some capital market stakeholders have decried the payment of dividends in foreign currencies by cross-border listed companies. They said the listed on the Nigerian Stock Exchange, NSE and other exchanges are insisting on the payment of dividends in foreign currencies.
The shareholders said that payment of dividends in foreign currencies and the companies’ insistence that Nigerian shareholders must open domiciliary accounts would increase the profile of unclaimed dividends in the market.
A founding member, Nigeria Shareholders Solidarity Association, Alhaji Gbadebo Olatokunbo, said that companies were under obligation to pay dividends in Naira, whether foreign or cross-border. He said that shareholders should not be compelled to open domiciliary accounts because of dividends, noting that, many of them would forfeit such dividends, thereby increasing unclaimed dividends.
“The Nigerian currency is the Naira and not the dollar and shareholders should not be forced to open foreign accounts for dividend payments,” he said.
Olatokunbo alleged that Seplat’s insistence on domiciliary accounts would not work, noting that the company should convert the dividends declared and pay to shareholders in naira.
Also, President, Progressive Shareholders Association of Nigeria, PSAN, Mr Boniface Okezie, said that companies listed on the NSE must ensure payment of dividends in the country’s currency. He said that shareholders must not be compelled to open domiciliary accounts for payment of dividends for companies operating in Nigeria.
National Secretary, Independent Shareholders Association of Nigeria, ISAN, Mr Bayo Adeleke, said that companies such as Seplat and ETI, with cross-border listings pay dividends in hard currency.
Adeleke said that shareholders were aware of the development, before investing in the companies, adding that local arrangements should be made to assist shareholders having issues with domiciliary accounts.
Similarly, Managing Director, GlobalView Investment Ltd, Mr Olaleye Williams said that the development, no doubt, would enable Nigerian investors to earn their dividends in foreign exchange. He also said that shareholders should be given an option of local or foreign currencies by the registrars.
“I wonder what would have been lost if investors are given options on how they want their dividends without necessarily increasing the cost of administration”, he added.
According to experts, capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market instruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time.
Globally, stock exchanges were established for the purpose of facilitating, regulating and controlling the business of buying and selling securities. Also it provides facility for buying and selling securities that have been listed for trading on that exchange market. Financial market, which comprises the capital and money markets as well as other sub markets, plays crucial roles in the functioning of any modern economy.
The money market provides the mechanism through which short-term funds and other financial instruments, with maturity of less than one year, are sold and purchased, while funds with maturity of more than one year are transacted in the capital market. The money market is distinguished from the capital market on the basis of the degree of tenure of instruments bought and sold in each of these markets.
Based on the research findings, however, capital market reform is vital for economic growth in Nigeria. In the era of an ever changing global economic environment, especially now that the current economic approach of most countries is gearing towards transforming their system for rapid and sustained economic growth, Nigeria cannot be left out.
To improve the use and level of reliance of impact of capital market reform on the growth of Nigerian economy, government should improve in the dealing of market capitalization by encouraging more foreign investors to participate in the market.
There should be public awareness campaign by capital market operators especially now that the country is coming out of the global economic crisis. Also, to boost All Share Index in the Nigerian capital market, there is need for availability of more investment instruments such as derivatives, convertibles, futures, swaps, and options in the market.