The Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Mr Patrick Ezeagu, a Fellow of the Chartered Institute of Stockbrokers (CIS) explains a range of issues that can move the Nigerian Capital Market to the next level.
1 Recently, the Security and Exchange Commission (SEC) organized a one-day workshop on how the 2017 budget can impact the Capital Market. What would you regard as the central message?
The 2017 budget of recovery can positively impact the Capital Market if the Federal Government remain committed to the financing of infrastructured deficit through the Capital Market. One of the major challenges businesses are facing is poor infrastructure which consume a large chunk of their revenues. The Federal Government should ensure that the capital expenditure of the 2017 budget is dedicated to improving infrastructure in order to enhance the ease of doing business in the Country for businesses to become productive and move towards economic recovery. In addition, a time has come when the federal Government should involve the Capital market regulators and operators in the build -up to budgetary processes and procedures in view of the pivotal role of the market to the growth and development of the economy.
The market is a reservoir of cheap and long term funds which is required for long term development of any nation. The capital market serves as a buffer zone for the government to finance budget deficit and there is a correlation between the development of the economy and its capital market.
What are the effects of high Exchange rate and inflation rate on investment in the stock market?
High exchange rate and inflation are the twin evil that afflict the Capital Market and indeed every economic endeavours. For a start, these two variables introduce a high level of uncertainty to the price structures of the market.
Secondly, they stifle savings which is the fulcrum of investment. Any phenomenon that negatively impacts on savings reduces the quantum of available investible fund for Capital Market investment.
Thirdly, it hits the Foreign Portfolio Investors as as they face Exchange rate risk with their investment, especially, with respect to repatriation of dividend or capital or both.
As a result, one of the main reasons why our Capital market has been witnessing low patronage is attributable to the impact of both inflation and the uncomfortable high exchange rate regime. However, I am glad that the CBN is coming to terms with the need to free the strangulating hold it has on the rate to enable the Naira find its market determined exchange rate with the other currencies. In this way, both investors in the Capital Market and other users of FX can be relatively assured of a band within which they can benchmark their exchange rate. The flip side is that inflation shall also be contained in the process as the economy and particularly the Capital Market inches towards a full free market determined price structures.
How can the governments at all tiers utilize the Capital Market to finance the economy?
Government at all levels utilizes the Capital Market to finance the economy because it provides an alternative source of funding that can complement Internally Generated Revenue (IGR). Capital Market fund is relatively cheaper than any other means of funding and has a longer maturity period. There are various investments/windows available to both Federal and States governments in accessing funding from the market, these include asset sale, bond issuances such as Sovereign, Sub-national, green bonds, etc. These debt instruments are available and governments at various tiers are at liberty to fund infrastructural development using either or a combination of these types of instruments. Through this platform, the Capital Market contributes meaningfully to the development of the economy.
What efforts are the Stockbrokers making to convince the Federal Government to create enabling environment for listing of the Oil Companies in the upstream sector and frontline communication companies in order to deepen the Capital Market?
ASHON, in collaboration with SEC and NSE, is constantly in dialogue with the federal government agencies, MDAs and the National Assembly in a continuous engagement to fashion out ways and means of ensuring that these Companies list on the Exchange by moral suasion, incentives and legislation or a combination of them.
a. What is the significance of over-subscription of Nigeria’s Eurobond as announced by the Finance Minister, Mrs. Kemi Adeosun recently?
The Minister of Finance posited that the notes were approximately eight times oversubscribed with orders in excess of $7.8billion compared to a pre-issuance target of $1.0billion.
According to her, it is a demonstration of strong market appetite for Nigeria. This is despite continued volatility in emerging and frontier markets and a show of confidence by the International Community in Nigeria’s economic reform agenda. On the flip side, it could mean that the pricing was over board as similar bonds from other markets go for a much lower yield.
Nigeria needs to be cautiously optimistic on this Eurobond success as we need to put our house in order to borrow at much more cheaper rate.
b. How can the Nigeria’s Capital Market attract foreign investors and what measures should be put in place to encourage the indigenous ones?
The Nigerian Capital Market can attract foreign investors through the following means:
Ensuring that there are proper incentives for foreign investors such as good and operational corporate governance practices, favourable policy on capital importation and repatriation, good, effective and favourable social economic environment in the country, appropriate and fair tax system in place, favourable and stable monetary and fiscal policies, etc. I must be quick to say that most of these factors apply to indigenous investors either at the level of institutions or retail. In the final analysis, investment is all about risk and return trade off. Our market should not only attract foreign investors, it must be highly sought after by indigenous ones.
c. Up till now, bear run has consistently overshadowed bull run on the Nigerian Stock Exchange. At what pint can we expect market recovery?
It is a truism that the bear has run consistently to overshadow the bull in recent months. The CEO of the NSE, Mr. Oscar Onyema on his market outlook for 2017, posited that investors should expect a positive performance this year. This is based on market analysis and the World Bank projection that the Nigerian economy will recover from its recession in 2017 with a modest growth of 0.6%. This positive forecast is also based on the various initiatives being put in place by the Nigerian Stock Exchange. In addition, the
Capital Market does not exist in isolation of the economy. Therefore, as the initiatives being put in place by government start to impact positively on the economy, the bull will gradually return. No condition is permanent and in all my years in this profession, no market that went down ever remained down, it always bounces back, so shall it be for the
Nigerian Capital Market. Patience is all we need and investors shall begin to smile back to their banks on the back of dividends and capital appreciation. I see a positive future for the Nigerian Capital Market. We should not also lose the fact that our market fundamentals are strong as most stocks are currently trading below their intrinsic value. Investors that have strong appetite for value stocks are making kills on daily basis.
What led to the formation of Association of Owners of Stockbroking Houses of Nigeria (ASHON)?
ANS: The Association of Stockbroking Houses of Nigeria (ASHON) was formed as the umbrella body of all Dealing Member Firms of the Nigerian Stock Exchange and a
Trade Group recognized by the Securities and Exchange Commission (SEC) to promote and protect the interest of its members.
Q 7. What are the objectives of the Association?
ANS: The main objective of the Association is to advance the transparent practice of Stockbroking business in Nigeria, and to protect the integrity of our segment of the Capital Market, which is an important sub-sector of the Nigerian economy. Part of the objective is to serve as an advocacy body to promote, advance and protect the interest of its members within the Nigerian economy, working in collaboration and co-operation with other similar bodies and or agencies.
Q 8. To what extent can you say that ASHON is living up to the objectives of its founding fathers?
ANS: The Association has lived up to the objectives of the founding fathers in the area of market development, investor education and making financial commitment to the structures such as Investor Protection Fund (IPF) and Trade Guaranteed Fund (TGF). Without being immodest, I can say that our members have always collaborated with the Capital Market regulators by making inputs into policy issues that enhance market growth and development. For instance, the recently introduced Complaint Management Framework, Direct Cash Settlement, etc to protect the investors and other stakeholders in the Capital Market.
Q 9. What would you consider as the major challenges affecting your Association and what is the way forward?
ANS: One of the major challenges is on how to restore investors’ confidence in the market since the market meltdown of the last ten years. Also, the government in its monetary and fiscal policies have tended to completely neglect or ignored the Capital Market as the wheel of economic development. The way forward is for government to use the Capital Market to source long term funds necessary to finance infrastructures in the economy. Government’s monetary and fiscal policies should also be geared towards encouraging savings and investments.
Q 10. As a trade group, what are the contributions of ASHON towards the growth and development of the Nigeria’s capital market since its inception?
Some of the major contributions of ASHON towards the growth and development of the Capital Market include encouraging the introduction of new products that excites investors, engendering investors’ confidence as well as making the market the first destination of choice to both local and international investors, ensuring that there is transparency and integrity in the market and engaging various stakeholders in the capital market, notably our Members, other trade groups, regulators, relevant Government agencies including members of the National Assembly to promote Capital Market development structures like Complaints Management Framework to resolve issues between Stakeholders in the Capital Market
Q 11. What are the roles of ASHON towards investor education in Nigeria?
ANS: ASHON and the regulators have jointly organized road shows locally and internationally to boost investor education severally. ASHON always enlightened its clients on the various measures that have been embarked upon to assure the safety of their investments in the Capital Market. New products are well advertised before they are bought into the market to ensure investors’ participation.
Q 12. Some stockbrokers have been involved in unethical practices in recent time, prompting some people to label all stockbrokers as fraudulent. What is your take?
ANS: In any Association, there are bound to be few bad eggs and the actions or activities of these few do not criminalize the entire members. As earlier stated, we have, in conjunction with the regulators, put in place, a robust compliant management framework to ensure the quick resolution of complaints in the market.
Q8. What policy measures are put in place to ensure investor protection in the capital market?
ANS: Some of the policy measures to protect investors are zero tolerance to infractions, Direct Cash Settlement, Investor Protection Fund and robust Complaints Management Framework
Q 13. What factors would you consider in encouraging indigenous and foreign investors to patronize the Nigeria’s capital market?
ANS: Zero tolerance to market infractions and the use of technology to drive the revolution taking place in the market is key. Again, investor education and the policy consistency of the government will help to ensure that investors patronize the market.
Q14. How would you advise your members in this era of investor apathy?
ANS: My advice to members is to avoid sharp practices and operate with the highest level of professionalism, accountability, transparency and integrity. This would engender greater confidence and attract more investors to patronise the market.
Q15. What about investors?
ANS: I strongly advise investors to embrace the Direct Cash Settlement which will enable sales proceed to settle into their bank accounts directly. They should not patronise quacks and always follow up on their mandates to their brokers to ensure quick and timely delivery on transactions.
Q16. If you are to advise the Federal Government to support the development of the Nigeria’s capital market at a period like this, identity and explain three key issues that can accelerate market growth.
ANS: Downward review of the Monetary Policy Rate (MPR) to stimulate investment, policy stability, clear and stable Foreign Exchange Policy and implementation of appropriate legislation that will compel the Federal Government to fund its infrastructural development through the Capital Market. Others are strengthening of the SEC with a view to positioning it to perform its market surveillance, market development and other regulatory functions more effectively, compelling the Bureau of Public Enterprises (BPE) to sell at least 40% of privatised national assets through the instrumentality of the Capital Market to engender fair valuation, transparency, accountability, integrity and greater participation of the average Nigerian investor, utilising the Capital Market to raise funds for infrastructural development projects, ensuring security of lives and property as a panacea for peace and development and pursuing diversification of the economy away from oil as a major foreign exchange earner
Q17. Any other comments of your choice?
ANS: The Nigerian Capital Market is a safe haven for both local and foreign investors. Its potentials are largely untapped and the Nigerian economy may ignore these potentials to its own peril.
ASHON is in the process of bringing on board a new Commodities Exchange which when finally birthed shall encourage the electronic trading of various commodities, for example, solid minerals, agricultural products, as well as oil and gas products. This in effect will give vent to the agricultural revolution which the federal and state governments are currently pursuing and give our members new window of income generation and investors another option for investments.