By Taofik Salako
The capital market has lost nearly 45 per cent of its market capitalisation or more than N5.4 trillion in the last 48 months as it struggles with low investors’ confidence, liquidity crunch, global economic and financial crises and banking reforms.
The market with the aid of massive foreign and domestic investments attained landmark growths between 2005 and March 2008. Aggregate new issues by corporate organisations rose from N412.7 billion in 2005 to N1.34 trillion in 2007. Aggregate market capitalisation of all quoted companies on the Nigerian Stock Exchange (NSE) rose from N2.5 trillion in 2005 to N12.1 trillion in March 2008.
But the boom was largely fuelled by malpractices. Investigations by financial services authorities showed that issuers and operators manipulated share prices to sell overvalued stocks to unsuspecting investors. Many banks were found to have used their deposits to pump up their subscriptions and hoodwink investors into taking loans to buy pumped up shares.
With prices of several stocks on artificial pricing, what started as a portfolio rebalancing by foreign investors to cover their exposures in the wake of the global economic recession snowballed into a free fall in Nigeria. Market capitalisation plummeted to N4.99 trillion in 2009.
The market has since then remained largely on the negative despite appreciable recovery by many fundamentally-flawed markets including the United States of America (USA). Initial optimism that greeted the change in the leadership of the capital market regulatory institutions nudged the market in 2010 with the benchmark All Share Index (ASI) returning 18.9 per cent in 2010.
But following the inability of the leaderships of the Securities and Exchange Commission (SEC) and NSE to achieve harmonious monetary and fiscal framework and overt endorsement of the nationalisation of three quoted banks, the market suffered a reversal last year. Investors lost N1.4 trillion last year as aggregate market capitalisation of all quoted companies dwindled from N7.914 trillion to N6.533 trillion. Nearly all indices at the NSE were in the red. Total trading value dropped by 20 per cent to N634.92 billion. Average daily transactions also declined by 19 per cent to N2.68 billion.
Last year, the market fluctuated largely downward. However, recent gains have impacted positively on the overall market position with a year-to-date positive return of 1.33 per cent.
However, following a comprehensive diagnostic review that involved several reputable institutions including Accenture and United States of America's Securities and Exchange Commission (US SEC), the SEC has taken some initiatives that would form the vital building blocks for sustained recovery and a stable market.
One of the main areas of focus is the strengthening of the institutional capacity of SEC including human capital, technology and process. The SEC has begun implementing key recommendations. On technology, significant investments have been made to enhance technology platform. Since it began retooling, the commission has increased its cost efficiency, minimised its turn-around-time, automated a number of its process, and enhanced its communication channels.
Given the importance of demutualisation to the global competitiveness of the NSE, SEC has also taken steps to prepare the framework and guidelines. The commission set up a committee to examine issues surrounding the demutualisation of the Exchange; The committee submitted its report last month.
It is expected that demutualisation will reposition the NSE to provide a fairer, more efficient and more transparent system of operation that will enhance liquidity, improve price discovery and institute good corporate governance which are essential features of an effective Self Regulatory Organisation (SRO). It will bolster investors confidence and enhance international competitiveness of the Exchange and invariably the market. The increased operational efficiency, enhanced profile and heightened competitiveness which will accrue to the Exchange from this exercise will significantly augment capital market reforms and foster growth.
reforms and development agenda in particular and the economy in general.
via The Nation
New York Times
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