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Can Capital Market rebound be sustained?

It was seen by observers as a vote of confidence on the nation’s stock market. A day after the listing of Pinnacle shares, a team…

It was seen by observers as a vote of confidence on the nation’s stock market. A day after the listing of Pinnacle shares, a team of seven investors led by Aleksander Andjelopoly from Merrill Lynch visited the Nigerian stock Exchange on an exploratory mission. The seven man team comprised equity analysts, asset managers and investment bankers. Andjelopoly said there were a lot of opportunities begging to be tapped; noting that the group believe in the stock and promised that the visit will bring more money. From then on, things began to take shape for the stock market.

  At the close of business by mid last month on April 17, 2009, the All-Share Index (ASI) which measures the movement of share prices, rose by 0.35 per cent to close at 19,983.09 points, while market capitalisation closed slightly higher at N4.52tn, and the NSE- 30 index rose by 1.2 per cent to close at 655.39 points.

The improvement in the stock prices continued up to the week ended April 24, 2009 when the ASI rose by 7.4 per cent to close at 2,455.92 points, with market capitalisation closing at 21,455.92 points while market capitalisation of the 200 First – tier equities closed higher at N4.87tn and the NSE- 30 index rose by 8.9 per cent to close at 713.49 points.

By the week ended April 30, the index rose by 0.16 per cent to close at 21.491.11 points, while market capitalisation closed higher at N4.88tn.The week ended May 8, 2009 brought more succour to investors as the index rose by 9.42 per cent to close at 23,516.26 points, while market capitalisation rose further to close at N5.34tn, and the NSE-30 index rose to1.

De-listing as a Measure to Revive the Market.

It would be recalled that one of the outcomes of the meeting between government and stakeholders in the capital market  chaired by Vice-President Goodluck Jonathan, in August last year, was the delisting of companies with moribund investments for several years in order to clean the Augean stable. Other measures included a 50 percent reduction in cost transactions, strict enforcement of listing and post listing requirements and zero tolerance for stock market infractions.

Between October 6, 2008 and May12, 2009, the exchange successfully de-listed 29 companies from its daily official list. This was up by one from the 28 initially placed on suspension which was meant for their promoters to resuscitate their companies. Last week, an additional 10 companies were de-listed for the third time since the exchange started de-listing companies last year for failing to comply with its pre-listing requirements; especially in the area of timely rendition of quarterly and full year results in addition to other corporate information that would help investors price the stock properly.

The affected companies included-Footwear and Accessories Plc, Ferdinad Oil Mills, Christilieb Plc,Liz-Olofin and company Plc, Epic Dynamics Plc, Oluwa Glass Company Plc, Aba Textile Mills, Asaba Textile Mills, Acen Insurance, Amicable Insurance,BAICO (British American Insurance Company), Atlas Nigeria, Ceramics Manufacturing Company, Beverages West Africa, Maureen Laboratories, Enpee Textiles, Tate Industries, Rietzcot Nigeria, ADC airlines, Gromac industries, Nigrian Lamps, Niyamco, Onwuka Hi-Tek, Security Assurance, Sun Insurance and the Nigerian Textile Mills.

Caution Still the Watchword at the Market

 Mr. Femi Awoyemi, CEO of Proshare Nigeria, would rather vote on the side of caution, observing that a number of facts and standard market sequences are not adding up in alignment with research outcome published in the company’s annual Nigerian Capital Market Report under the title: Making Money in the Nigeria Capital Market. “There exists an inextricable link between asset prices and the actions of regulators (and economic prospects in general),” Awoyemi argued.  He explained that indicators to establish the prevalence of the stimulus to driv e the market are not available and therefore, provide enough grounds to treat the market with a bit more caution.

Analysts at Meristem Securities put the market situation more succinctly in their daily report for the day: “Profit takers stormed the trading floors of the Nigerian Stock Market today (Thursday, 14 May) mounting unabated selling pressure on equities. The NSE ASI nosedived 177 basis points (bps) to 25,294.00pts with the market capitalization of 208 listed equities sliding 1.77 per cent to N5.75trn (US$39.33bn). With most market players on their heels to book quick gains from the bullish run, confidence is threatened and the direction of the market remains unknown. “More still, volume of shares executed crossed the 900m mark to hit 974.31m in a total of 11,056 deals which was valued at N6.15bn (US$42.1m). The leap in volume was unprecedented and represents the highest single day jump in the last four trading week.

Way Forward for the Capital Market

Ike Ikwobi, a stock market analyst argues that in order to  prevent future occurrence of market crash of the magnitude that happened in 2008, GAAP (Generally Accepted Accounting Principle), should be adopted.

“ GAAP is an accounting principle that allow publicly traded companies’ record accounting events in specific ways for the benefits of standardization; full disclosure; and accurate financial reporting.

Though Nigeria has Accounting Standards for Banks and Non-Bank Financial institutions issued by the Nigerian Accounting Standards Board as well as guidelines issued by the Central Bank, it needs to incorporate a Nigerian GAAP (closely aligned with U.S GAAP as Canada has done).” This, according to him, will form the basis for increased International Investor confidence which directly affects the Capitalization of the Stock Market, the overall Stock Exchange, Nigeria’s Foreign Direct Investment (FDI), Foreign Exchange Rate (FOREX) and Foreign Reserves.

In Nigeria, he argued that at what amount would a bank which issued loans backed by Share Certificates before the Stock Market crash of March 2008 record these assets on its books: at the amount of the issued loan or the market price?

Speaking along the same line,Alhaji Muhammad Sul eiman Gachi.another stock analyst told Weekly Trust that the Central Bank of Nigeria(CBN)  and the regulators must rise to the occasion of regulating the activities of banks who own 60 percent of the shares in the stock  market while the regulators must stop being players in the stock market at the same time.” The bulk of the shares in the market belongs to banks.

CBN must not shy away from there responsibility of making sure that profits declared are genuine. Banks that are supposed to write-off bad debt especially monies for merging deposit most do so if it has not been paid. Because must of the time, the bank declare high profits just to pop up their prices. The CBN must make sure that banks declare genuine profits and not mere paper profit to deceive the investing public. When you allow regulators to be major players in the capital market, then the issue of shares manipulation will continue. Therefore, regulators must cease to be players in the market”.

Alh. Suleiman also cautioned investors to know the market fundamental before investing their hard-earned money.”By fundamentals, I mean looking at the figures and accounts of the company and calculating how much you are going to earn if you buy the stock,” he emphasised.

Whether the market is going to continue with the current momentum is one question too difficult to answer, however, whichever way it goes, the regulators and the operators of the market have important role to play.