The capital market has indeed gone through a number of transformations that continues to surprise many. It is a very challenging sector, yet it has a lot of opportunities in stock. To get the best of the sector, it is better to understand how to maximise the potentials within. Bosan Omafaye, a stakeholder and investor in the capital market, examines some of the critical issues and how to move the bond market forward. He talks about tapping into new shares in the market as well as how to raise new money through getting new investors.
First he stressed that one of the problems is that many are over stitching the secondary market. “I’ll give a typical example, if Total Nigeria Plc has 51% or thereabout of its entire shares, maybe 700 million shares issue in the hands of foreign investors and 49% in the hands of Nigerian, and everybody left. Out of that 49% you have a block of investors also in Nigeria who are institutional investors. Maybe another 20 or 30%, so the three float out of the 700 million shares of Total Plc in issue that is available is just about 10%. Now if we keep frosting the price of that stock from #1 to #1000, you are over trading just 10% of 700 million that is the danger.”
Aptly, he compares the experience this way: “In other words you are over using the oil that is in the engine of the car. It is dirty, it’s dry, you are not refilling it, you are not changing the oil and you are not toping it up.”
This, Omafaye informs, is the reason why the banking sector is collecting cash from the depositor and giving it out as loans to other customers. “Have you seen any bank that does not collect deposit and just keep giving loans out? How long does it take that bank to get burnt up like hydro-carbon? At any point in time, for every commercial bank, your deposit must be more than your credit, if not you are in trouble. If you give us more loans than you collect as deposit, you are in serious trouble. And that is what we have, so you are over trading the secondary market which is the total number of shares no company in this market that is worth its salt. The big boys have issued them the shares of Guinness, Nigerian Breweries, the top 50, Nestle, Cabin, nobody has come to the market to do one new primary issue, but you are trading their shares continuously on a daily basis and the prices are moving. “
The first fact that Omofaye opines should be taken seriously: “Is that you have to understand the essence of investments. Investing means buying and selling, therefore what I’m doing is that I keep buying and keep selling what I have but there is no new fresh issue to buy. It’s just like the rice and yam market, there is nothing different there. When you have to wait for new yam or new rice to come to the market, it is because you want to compare prices with the market. Like the tomatoes market, they will tell you these tomatoes just arrived today, and this is the price and the one they had before would have a price that varies. Therefore, if you want to go and reserve you have to choose either from here to there to balance your port folio. But right now there is no port folio balancing. All you have right now is the entire secondary trading and that is where the concerns are. You provide market makers only for secondary trading; there is no market that has a primary market to balance with secondary market.”
He continued: “If not, why do we keep talking about the bond market because the management force through the Ministry of Finance is issuing almost 200 billion every month as primary bond? How does a bond trader say the existing government is yielding 10.7% or that government is going to issue the new one at a lower rate? Should it be at the rate of 9.5, so it is still about 2% or 1.5% difference between the new bond and the existing bond already in the market? So he buys the new bonds quickly, sell a little bit of the old bonds. Then he buys the new bond at 9.5, goes to the secondary bond market and start selling it at 10.5 and he has made the gain of about 1.5 or 1.7% between the new bond and the old bond. That is what we call trading, but if you have only 24 or 35 federal government bonds and there is no new issue bond by the Debt Management Office (DMO).”
Next we need to ask questions like, ‘how long do you think it will take for the bond market to dry up and get burnt in the fire like a piece of paper that you put into a gas funnel?’ “I will use another illustration. It’s like the water cycle, if rain does not fall, you are all in trouble; that is why it is called a water cycle. The primary worker is in the sky and it is the secondary worker that is on ground. This one gets heated up and it goes through the process of osmosis and evaporates and cools up over there. Then it falls again as rain. That is what you call a water cycle, isn’t that what makes life possible on earth? So how long are we going to drink, use the water on earth in the toilet? Without new water or fresh water coming from the sky, how long do you think the human ways can survive it? Therefore, you need the primary market, the stock market and the secondary stock market.”
Moving into the late secondary market and alternating marketing, Omofaye says, are essential for engineering and reengineering the sector. “If you keep engineering that single oil in the engine of the car and you are not forming any new oil into the car. It won’t take you long before you knock that engine and you keep driving it and you are driving that car at speed. Now if you ask one retail investor to come into the market, one of the things that would make any retail investor come into any market is the fact that there is a new primary market. It is that stock market in which they can say, ‘okay let me sell a bit of Nigerian goods so that I can buy this new brewery product shares that want to come out of the alternative market but there is no alternative like now.’ Every day you trade only about 50 or 70 stocks 365 days a year and the price keeps moving up. That’s a hot balloon and you must come in like a nuclear reactor.”
