Investment in shares in the Nigerian stock market has continued to get better after the general elections in the country which returned President Goodluck Jonathan to the seat of power.
The attitude of both local and foreign investors to the equities market after the elections can be described as positive following the increase in turnover and capital appreciation that has become the order of the day in the stock market.
The stock market, prior to the April general elections, especially after the global financial contraption, was variously described as an anathema with which majority of investors did not want to have anything to do, let alone investing in the stocks.
But with the successful completion of the elections, despite pockets of violence in some regions of the country that led to the destruction of lives and property, investors have begun, once again, to embrace investment in shares.
Shares investment, it would be recalled, is a window of investment that is open to both the high and the low in the society, and it has served as a veritable exit route for most people who either want to have another source of income and/or save for retirement purposes.
An x-ray of the transaction in the equities market last week showed that investors’ confidence has greatly risen as against the palpable fear and patent uncertainty shown by the investors when the elections were at hand. Most capitalised stocks and the penny stocks are beginning to enjoy much attention as investors have continued to inject fund in the area.
Stockbrokers, who were technically out of job in the market owing to investors’ apathy to investment in the stock market, are now busy with investors mandate either to sell or buy as the case may be.
Most dealing houses that laid off their staff in the wake of the financial crises that hit the emerging market, and by extension, the stock market, have started to recall them, as there are now more transactions to do, unlike that bleak period when brokerage firms could not afford to pay their staff let alone paying their rents as and when due.
A cross section of investors who spoke to the Nigerian Tribune Investors Guide, said that another good time to inject money into stocks was now, when especially all the permutations on the likelihood that the elections would turn violent did not come to past.
They were of the belief that, considering the reform drive of the regulators which has, in no small measure, helped to stabilise the stock market and which, in any way, would not be truncated, there is high probability that the market will begin to return to its old glories of being the greatest market in terms of ratio on investment return.
Investors’ earlier apathy to stocks investment
As a market computed by value of a unit of share either on the selling or buying side and the cumulative turnover on a daily basis, investors’ equities market, due to apathy prior to the election, went through great ordeal which, it was believed in several quarters, would have swallowed the securities market if the general elections had failed.
The trend in the market then, saw the foreign portfolio managers offloading their shares and exiting the economy for fear of the outcome of the election while the local investors exercised cautions when investing in the stock market.
The fear by the local investors stood on a tripod of violence that was likely to engulf the country due to the violent tendencies of the contestants for the elections, the possible reversal of reforms already embarked on by the securities and Exchange Commission and the legal issues still hanging on the position of the Director General and the President of the Council.
It was also a period during which the banks which largely are the major financiers of share purchase by majority of huge portfolio owners in the market were sceptical about further lending for investments in shares.
The banks, it will be recalled, at the close of 2009 financial year, have over N2.1 trillion toxic debt hanging on their necks as result of investments in shares to which they traced 80 per cent of the money.
SEC’s reforms aiding confidence The Central Bank of Nigeria (CBN) recently assured investors in the capital market that the reform policies being put in place by the Securities and Exchange Commission (SEC) was the needed tonic that would help revamp the equities market.
Rise in shares investment
Rise in share supply
Investor's interest in investing in the Nigerian equities market is expected to rise again as transaction in stocks on the floor of the Exchange last week witnessed an interchange of appreciation and depreciation in share value. The move by both local and international investors to reduce their portfolio holding in the market, however, does not call for alarm, as they are only responding to recent gains recorded in the stock market, arising from return of liquidity which was reduced to its barest minimum during the election period.
Experts in securities had at the beginning of the year said that the second quarter of 2011, in the life of the market, would experience some appreciation especially given the derivative from the buy back of some toxic asset of banks by Asset Management Company of Nigeria (AMCON). The buy back of about N2 trillion non-performing loan from the banks by AMCON provided the necessary leverage other stocks were expecting to thrive on, even as most of the banks have returned to their old businesses of lending, which usually drive economic activity in the country and by extension, the capital market.
As expected, the rush to have shares disposed off will continue to take its negative tolls on transaction value at the NSE.The pressure to place shares on the sale mandate of most brokerage firms will definitely reverse the gains which the market capitalisation and All-Share Index of listed companies had chalked at the close of previous week's transaction.
The rise in the sell turnover mandate in the equities market will further result in majority of the blue chip companies stocks depreciating in value, thus forcing the twin market indicators to wear a new status which, in no distant time, will begin to cause anxiety among investors.
Share glut may even become the order of the day in the market as it is always the case when the pressure for sales of shares is high in the market, a situation that usually see supply weighing demand for them. This will also affect prices of virtually all the listed stocks in the market. The insurance sector will no doubt become the worst hit.
The present state of health of the market has further resulted in most brokerage firms becoming busy on the floor of the Exchange, and whether on the sale or buyer side, their commission on every transaction is always guaranteed.
A further x-ray of the market last week showed that some investors in dire need of fund sold their holdings far bellow the quoted price on the exchange, believing it was the only way they could have their holding exchange for money.
Other investors who could not wait until their shares were disposed off and wanted to get their cheques were immediately charged one per cent on any amount of money paid out to them.
The decision of the ordinary and institutional investors who last week chose to invest in the market not based on personal conviction but on pedestrian information may continue to haunt the growth of the market in terms of value appreciation. But as it is now, genuine investors, except for a handful, are the ones approaching the stock market for investment and the performance indicators will soon begin to experience a positive value rise.
Banks' results drive equities market to recovery
It is indeed a time for investors on the Nigerian Stock Exchange (NSE) to heave a sigh of relief with the northward movement in the prices of equities in the last couple of weeks, even as transaction in the second quarter of the year is expected to close in the positive territory.
Although equities value has witnessed a decline for a day or two, the cumulative figures of trading activities in the stock market since the release of some banks financial at the close of the first quarter may have led credence to the permutation by market watchers that the equities market is on its way to recovery.
It will be recalled that trading in the shares of banks before and after consolidation has always contributed to about 50 to55 per cent of transaction volume in the market just as this has continued to dictate the direction of the market in value terms.
The positive financial base being declared by banks in their 31st December 2010 result is no doubt beginning to rub on the blue chip companies and stocks considered in investment parlance as one investors need to take a second look at, as there is a daily recording of price appreciation which continues to beat imagination on what is exactly the driving force behind them.
The removal of obstacles to the progress in the movement of share prices in the market can easily be traced to the commencement in operation of the Asset Management Company of Nigeria (AMCON) whose operations have ensured banks have a negative non performing loan over hang.
The Scheme seems to have brought succour to the market through its buying of the over N2 trillion toxic assets of banks listed in the market and this is taking tolls on other stocks who, in no way, are related to the financial institutions.
The lifting of the burden of debts on the banks whose capitalisation currently accounts for almost 34.2 per cent or N2.9 trillion as at December last year coupled with the negative debt balance sheet all of them are expected to reel out in the year, is making investors to swoop on the shares of banks.
A peep into the review of the market last year showed that 14 banks along side other eight companies made the 20 most traded stock list in the market and this accounted for 62 per cent of total trade in volume terms in the market for 2010.
Information in the market has it that why it is good to invest in companies whose stocks has intrinsic value, it is also germane to note that all over the world where investment in stocks existed, it is wise to understand when to enter the market and when best to exit.
Except for those who are investing for the long time period, other investors, both short and mid-term, must know when exactly to take their leave if the income they so desire from the stock market will end up as mere wishful thinking.
